David Brickman:

I think now's a great time to pursue real estate or credit. I'll maybe focus more just on the real estate side of that and only say that I think real estate's always been a fascinating place to work, such arena to be in, and particularly for those, as we've talked about, who are just fascinated by the built environment. I'd say cities. I'm not trying to exclude suburban or rural areas, but the built environment, the landscape and streetscape and just... I used to talk to young people and say, "If you walk around sometimes and say, 'I wonder what's going in over there. Gee, this would seem like this would be a great place for some redevelopment.'" We've got real estate. We encourage anybody who's thinking about it to do so. I think there's a lot of big questions, big opportunities in going into it, and I just broadly encourage it.

Nancy Lashine:

Hello, and thanks for tuning into Real Estate Capital. I'm your host, Nancy Lashine of Park Medicine Partners. Park Medicine is a capital solutions and advisory firm serving the global institutional real estate business. Our job is to build relationships between real estate managers and their capital partners. Capital is the lifeblood of the real estate industry with the decisions on where and how it's allocated are driven by people and personalities. Who are they? What motivates them? What have been their biggest successes and lessons learned throughout their careers?

On this show, we introduce you to some of the real estate industry's most influential thought leaders and decision makers, and we talk about what's important to them, how they make critical decisions, who has influenced them, and a lot more. Our guest on this episode is David Brickman, CEO of NewPoint Real Estate Capital, a commercial real estate lending company focused on multifamily, affordable housing, senior housing, healthcare, and manufactured housing properties across the U.S. David joined NewPoint in 2021 after 21 years at Freddie Mac where his last job was CEO. David spent most of his career at Freddie Mac leading and transforming the multifamily business presiding over a remarkable period of growth, including the establishment of the Freddie Mac K series program.

David has tremendous insights on commercial real estate debt markets, so we're very happy to have him with us for this episode. Our conversation begins with a discussion of David's upbringing in New York City. David, really thrilled to have you on the podcast. You know, when I think about professionals who've made major contributions to our industry over the last decade or two, particularly in the debt arena, you immediately come to mind. So we're taping this on May 15th, 2023, and while this is definitely the year of rising interest rates and the lack of availability of debt with respect to the real estate world, so it's a super timely conversation and I'm really looking forward to your insights. Let's start with you. I understand we're both born and bred New Yorkers, which is a rare breed, people often say, so can you share with our listeners a little bit about your early years, where you grew up and a little bit about your background?

David Brickman:

Sure. Please do, Nancy, and thank you for having me. It's a pleasure to be here with you. Also tickled to hear we're both native New Yorkers. I grew up in Lower Manhattan, went to school here in New York City. When I think back on my career, I actually think a very significant influence in terms of what I ultimately did is growing up, for dating myself, is through the seventies and eighties and watching the significant changes underway in New York City, much of which kind of the decline and rise of New York during that period of time and really the significant change in the landscape and the attitude toward New York. That really had a significant impact on me and my perspective, and then ultimately in terms of thinking about real estate. So again, proud of my New York heritage even if I'm not here all the time these days.

Nancy Lashine:

So I have to give a huge shout out to your alma mater, which is Bronx Science, I believe, and I went to a sister school, Hunter High School, and so I think we were really lucky to have such amazing public educations.

David Brickman:

Could not agree more, and thank you for that. It's good we're not too close. We might get into a little bit of a heated argument about the different high schools, and it was always kind of a healthy rivalry back then. I feel petty but obligated to mention I turned down Stuyvesant so I could go to Bronx Science. Did not explore Hunter, but.

Nancy Lashine:

You couldn't have David because, I must be a few years older than you, but there was one school available for girls and two schools available for boys. Hunter was the only girls school, and Stuyvesant and Bronx Science were both all boys, so at least you had a choice, but we had a great option.

David Brickman:

A fantastic school. Know many Hunter alum will only point out. I mean, I think that's one of the just truly remarkable and exceptional things about New York is having those great high schools. My experience at Bronx Science certainly also very significant in terms of the tremendous amount of diversity that was there and the range of students and what they were interested in just and the capabilities. It was really a fantastic environment to have gone to high school.

Nancy Lashine:

I couldn't agree with you more. You also said something about New York City in the seventies, which just brought to mind. I think a lot of people are thinking about the decline in urban areas, particularly places like New York and San Francisco and some of the other West Coast cities right now, and I think about 1975 when New York City almost went bankrupt and Felix Rohatyn, who basically saved us, and having lived through New York just in the depths when it was so bad and you were literally nervous walking on the side streets to where, of course, just a few years ago, how incredible it has become. And COVID wasn't kind, but people say, is New York going to bounce back? And it's really very easy if you've lived through that to be a believer.

David Brickman:

Completely agree. I mean, I was a kid in the seventies.

Nancy Lashine:

I was too, just for the record, but.

David Brickman:

I remember vividly the headline Ford to New York, Drop Dead, I think it was. My own line, last one out, turn out the lights. And I grew up in Lower Manhattan, actually a street that seems to have been picked up in popular media, Bleecker Street, and where we lived, just east of us, and there were abandoned buildings, kind of old warehouses. My mother would explicitly tell us, "You can't go over there. It's," to your point, "It's too dangerous." Of course you can do it anyway. And where these kind of rubble-strewn lots were back then are now billion dollar properties and incredibly hot real estate. And even if it is now under some pressure in the COVID, post-COVID world, I too share that view that this too will pass and the cities have a role maybe broadly. Just that there is still tremendous value for the energy for having people together for in-person work. Things may change a little bit, but I don't worry about the future of New York or the other cities you're referring to.

Nancy Lashine:

People often talk about the bias that one has from your experience, and they'll say to me, "Well, if you're looking for generational wealth, where would you invest in real estate?" And I think about people talk about the sins of commission, but when you think about the sins of omission, think about all those buildings you walked by that were available for sale for a song that somebody else bought.

David Brickman:

Now I will say though, part of it is going by thinking, "I bet this will be worth a lot someday," so I can't make that claim. I'm sure you as well growing up, particularly some of the beautiful brownstones in and around where I was, Greenwich Village, knew this is, and then even actually [inaudible 00:07:39] later in Park Slope Brooklyn where I lived in the late eighties, early nineties, knew that this was going to be very valuable real estate in the future again.

Nancy Lashine:

So let's talk about how you ended up in real estate. Was it serendipitous or was there a grand plan?

David Brickman:

It was not a grand plan. Somewhat of a circuitous route. Always kind of moving back and forth a little bit. But I knew that I did have a love for cities almost to this exact point, and so when I graduated college and moved back to New York, my first job was working for the City of New York in what was in the Economic Development Corporation trying to promote neighborhood revitalization in particularly the outer boroughs and many areas that had continued to see some blight from as far back as really the sixties, let alone the seventies. And through that experience, why I actually was focused on economic development, also came into contact with the housing development folks, I actually worked very closely with, and started getting very interested in real estate from that point view, initially kind of thinking a little bit more from almost a public policy lens.

Proceeded then to graduate school, actually not once, but twice, whereby continued my interest in orientation towards real estate, but looking at the role of public policy, the role of capital markets, the role of financial markets in real estate, and then ultimately landed at a consulting firm where I began to put that into use in a little bit more of a quantitative set of roles and working for my clients, then ultimately leading me to Freddie Mac, which I can go on at greater length a little later in the conversation.

Nancy Lashine:

No, that's great, and you also touched on, well, EDC by the way, which was an amazing training ground for so many people in the business, but affordable housing, which I want to touch on as well. But let's focus on, you went to Freddie. I guess you were there for over 21 years, as I understood?

David Brickman:

Yeah. I round it up to 22, give or take.

Nancy Lashine:

Okay. And you left in 2021 as CEO. So clearly after two graduate degrees, you probably didn't start in the mail room, but tell us a little bit about your career path there.

David Brickman:

Pleased to, and no, I didn't start in the mail room, but I did, I mean, I started, my title initially was senior economist, was a low mid-level position and did get to walk out the door as CEO, and it was an amazing run, and I have such fond memories of the institution, of the people there, of the work that Freddie Mac does, and certainly would offer my similar thoughts to my quasi-colleagues over at Fannie Mae. I mean, just tremendous institutions.

Nancy Lashine:

David, let me interrupt for one sec because some of our listeners may not really know what Freddie Mac does and how it's different than Fannie Mae, so can you give us the elevator discussion of that?

David Brickman:

Yeah. The answer is they don't do a lot different these days. They have different histories. They have different charters. They came into being in different ways. Fannie Mae has a history that was actually originally tied with Ginnie Mae and the federal government, Freddie Mac more actually the home-owned bank system. But today they're more or less the same in terms of structure. They've chosen to pursue business differently, and actually in the multifamily world, they are the most different. They've chosen different business models. I have a lot to do with the Freddie Mac business model. I think there are virtues to both, but that seeps through a little bit how they do. Fannie Mae is a delegated model. Freddie Mac's prior approval model.

There's other aspects to the differences, but they, as kind of almost cliche goes, they buy mortgages in the secondary market that have been originated by other lenders, aggregate them, pool them and securitize them in the capital markets, basically issuing mortgage-backed securities, and that's really what they do in the multifamily business. That's what they do in the single-family business. It sounds simple enough in a short description, but given how complex the mortgage business is, both single-family and multifamily and how massive the market is, they're actually very complex organizations, and so the ability for them to actually approach the businesses differently is significant.

Nancy Lashine:

And you could argue that they're both essential organizations to our housing market broadly. So why do you need a Freddie at all? Why do you need an agency to buy these mortgages and syndicate them?

David Brickman:

It's a great question and we only have an hour together, so I'll try. The answer is, well, in simple terms, you don't. You could eliminate them. That would have significant ramifications for the mortgage market. It would increase the cost of financing. It would reduce the availability of credit. It would create much more volatility in credit markets. So here we are right now when we're looking at banks and some of the tightening credit that's going on and some of the stress the banks are under. The agencies are not missing a beat and continue to provide a steady flow of capital to the mortgage market. That wouldn't be possible if they weren't there. It's a public policy choice. It's a decision we as a country need to make. I think one of the factually inaccurate statements some people will make is that the market would be fine without, and that's not true. Again, mortgage rates would be higher, would be less available. There would be less. I believe there would be more of an affordable housing issue on multifamily if they weren't there. They do have the effect of creating a more stable investment environment for people who invest in multifamily and preserving and creating additional affordable housing, all of which, again, wouldn't go to zero but would be affected if you got rid of them.

Nancy Lashine:

And in 2008, I think for those who are students of recent history, both Freddie and Fannie were taken over by the U.S. government. What were you doing at the point and what was going through your mind at that time?

David Brickman:

So I mean, that was a fascinating period of time and I do kind of think I had a front row seat to a fairly significant event in economic history. I was at that point running the multifamily capital markets and portfolio management area. I wasn't running the whole business at that point in time. And I'm going to maybe rewind even a little bit before that, that starting, I'm going to date it to 2005, do think we within the multifamily business, and I'll take a modicum of credit for it, began to see some of the challenges in credit markets, and we began kind of asking the questions as to are the levels of leverage, the type of lending that we're seeing, is it entirely prudent? And we actually shifted strategies a little bit in terms of tightening our credit, in terms of our loan purchases, actually shifting a little bit more into purchasing commercial mortgage backed securities, CNBS, though only the highest graded tranches and really kind of pulling back a little bit.

And as a result through the crisis, the multifamily business at Freddie Mac actually never had a quarter where it had an operating loss. So our credit remained extremely strong. The single family business had more significant losses. But that created sort of an interesting dynamic when in 2008 we were taken over, put in conservatorship, certainly in the multifamily business I think felt we had done most everything right, but we were part of one large corporation and went into conservatorship, but most of the issues that needed to be addressed were truly on the single-family side. I mean, it was all a little surreal back then is really the true answer to your question. I mean, initially watching some of the volatility start creeping up in 2007 and '08 and thinking, "All right, that was kind of a little jarring, but it wasn't that much."

And then you get an even bigger kind of shock. I've kind of analogized it to like a seismic reading when an earthquake is going on. You have a graph that's sort of going up a little bit and then it goes up 10 times more and then it goes up 20 times more. As we kind of were seeing that as we successively got to, through 2008 as the markets were collapsing, and truly a complex explanation, what happened, what went wrong. I will refrain from going deep into how much of it was entirely economic as opposed to political, but it was a one weekend in early September I got the phone call that, "By the way, you're going to see the headlines on Sunday that we're going to conservatorship." Talked to my wife and said, "I think maybe something's going to be different at work starting on Monday." Show up on Monday and the regulator, at that time I think it was still a [inaudible 00:16:08], Federal Housing Finance Agency. It was really the same agency, they just changed names. The personnel, who I knew most of them, were all in our building, which they weren't normally, kind of greeting everyone and just trying to keep everybody calm. It's business as usual.

And honestly, after about an hour or two, maybe three of coffee talk, everybody sort of, "What's going on?" It really was business as usual and we didn't miss a beat. We just got back to what we were doing and certainly there's kind of getting a little bit more understanding of what it all meant and certainly there were changes at the top that went through, but actually very proud of how Freddie Mac, and again, I give the same credit to folks at Fannie Mae, just kept on doing our jobs, kept buying loans, securitizing loans, serving the market, even through this period of time where it was a little bit unclear what all of this meant for us. Don't necessarily want to live through it again. It was kind of a remarkable and just a little traumatic period of time, but fascinating nonetheless.

Nancy Lashine:

Yeah. Did the Freddie's multifamily business change after the GFC?

David Brickman:

It did, though the funny thing is we started moving to change pre-GFC. So again with a little bit of maybe a pat on my own back, started seeing what was going on in markets and some of the challenges back in 2005 and '06, and we actually did our first K deal securitization, which is the kind of model of securitization that Freddie Mac later adopted. We had our first one in 2006 as a pilot. So before the crisis, before we were put in conservatorship, and was designed as a mechanism for distributing risk, for ensuring that we weren't so exposed to market cycles and volatility, and it worked well, but we realized we needed to overhaul all of our operations, our plumbing, our financial reporting mechanisms. Not so much the business front end, although that did have to modify a little bit. It took us about two to three years to actually make all those changes, which just makes it a little funny is we saw that in 2006, then we went into conservatorship, or then the crisis, then we went into conservatorship and then we came out of the crisis fully committed to this new business model of buying with the intent of securitizing using a CMBS-like technology.

And I always emphasize the CMBS technology because one of the lessons we learned in the pre-crisis period, I mentioned that we started buying CMBS and we weren't oblivious to the low quality of loans, the poor underwriting in a lot of the loans that we were purchasing. We got our protection through buying very senior in the capital structure and thought, "Okay, we can create that same mechanism of structuring bonds and creating the securities, but instead of buying somebody else's loans that they've underwritten, why don't we underwrite them themselves?" Because that was one thing that Freddie Mac had always been excellent at. Prior to my arrival, it had really been built by a very solid fundamental credit view in terms of being able to make good loans, underwrite well. And so coming out of the crisis, we're going to start underwriting for our own securitizations. The K deal was kind of born in a more production fashion, and since then that's still been the predominant way in which Freddie Mac securitizes its loans and raises capital for its lending activities, for its purchase activities of mortgages where other lenders are making loans.

Nancy Lashine:

So again, for our listeners who may not be familiar with the K series, can you give us the elevator description of what is the K series?

David Brickman:

Sure, and I think I gave most of it. It is really Freddie Mac's version of a CMBS-like securitization, and it's got the virtues of being able to create different classes of investments. So one class is almost AAA security with a Freddie Mac guarantee around it. We used to say it's belt and suspenders, that the underlying credit risk is arguably better than the U.S. government's risk because you actually have real estate and you have kind of an implied U.S. government guarantee. But then the bottom, as we say of the capital structure, some of the bonds that are issued are risky. So if a loan goes into default and you lose money, the investor will lose money. Obviously you're looking for investors who understand that, who know that, who are attuned to it to be the investors, and that's a big part of it's ensuring the right people are investing.

And we were able to build that program and really that bifurcation of create ultra safe securities for the institutional investors of the world who are looking for very safe liquid assets and then putting in a risky asset where you have experts who can make intelligent investment decisions. So the K deal program kind of enabled the creation of those securities, which gave us the confidence to be able to purchase more loans to be competent in our credit standards and ultimately know that we could withstand cycles, and that ultimately led to much of the growth that Freddie Mac experienced after the crisis. But the answer, again, it's sort of a CMBS technology, but married with very solid high grade Freddie Mac or agency underwriting standards.

Nancy Lashine:

Right. And unlike what happened on Wall Street pre-GFC where the highest risk, lowest security portions of the securitizations were often sold to unsuspecting groups, as I understand it, you have a specified list of approved buyers for that K series.

David Brickman:

That's right. And I should make the disclaimer here now, I'm no longer at Freddie Mac and my good friends who are still there will run the business however they see fit. But certainly back then, and I believe still to this day, a strong part of the philosophy in the program is not to sell simply to fixed income investors, but to sell to real estate investors, to people who actually understand the assets, that you can actually think, understand those assets as well or better than Freddie Mac would. And so a number of multifamily operators came in and became the core buyers, and I'm really thrilled with how that program has continued to work very well with that model of operation.

Nancy Lashine:

Yeah, super popular program, and I know that the folks who've been appointed to be able to buy, at least historically, were thrilled and would often tout that as a huge differentiating advantage for them as managers. So there's so many topics I want to get to, we better move on, but I do have to ask you this one question. I believe you hold a U.S. patent to form a unique form of a mortgage-backed security. Can you tell us about that?

David Brickman:

I can and I will, but I'll keep it very short because unfortunately it really wasn't used much in the end. It was mortgage-backed security whereby the payments to investors were ultimately indexed to the performance of the underlying loans. It was really designed to be a vehicle by which you could securitize loans that you had a high degree of uncertainty. So one of the things any regulated institution, Freddie or Fannie as well, will talk about the untested products, and arguably you could say a lot of the mortgages that didn't do well through the crisis were untested products. In some ways the easy thing is you just don't do them. I mean, obviously if they're tremendously risky, you shouldn't be doing them. But I'm saying there's plenty of things you could say, "This feels like a good product for a certain kind of investment strategy. Even if we're going to single-family, a certain kind of demographic cohort. I think this could be a good structure. I don't know."

And the investor, I can tell them it's going to perform well, but I can't be certain, so let me actually kind of tell them, "You will get paid effectively more if it does worse. You'll get paid what you were if it stays with what our projections are." And so the actual invention was the performance-based PC. PC was Freddie Mac's version of mortgage-backed security, participation certificate, so it was a performance-based mortgage-backed security.

Nancy Lashine:

Something tells me that story's not completely over, but for now, let's move on. So you joined NewPoint last year as CEO. NewPoint Real Estate Capital is backed by some really impressive institutions. Meridian Capital Group, Barings and Stone Point Capital are to name three. Tell us a little bit more about what is NewPoint and what are you doing there?

David Brickman:

Sure. NewPoint Real Estate Capital, as you mentioned, we are only coming up on our second anniversary. We are the successor firm. There was a company called Barings Multifamily Capital, so we are the relaunched, rebranded, rejuvenated version of that business, but with a very definite strategy of broadly serving the multifamily residential and healthcare world and in particular providing agency Fannie, Freddie and HUD financing, but also looking at the ways we can serve niches within that sector, within the broadly, I'll call it, housing sector, healthcare, primarily thinking of skilled nursing, where we know there's a shortage. We know there's going to continue to be kind of solid economics and tailwinds behind sort of anything housing related, and yet there will be opportunities to complement and provide additional debt capital to support strategies where the agencies and even the banks, I might say, will find it more challenging.

We see opportunities in terms of just where the current economic environment is, where multifamily is, and our ability to identify those strategies is something that we really think is going to be our calling card and as well as kind of our focus on serving our clients, making sure we're providing the best execution for them in the whole breadth of financing opportunities they might have available.

Nancy Lashine:

And are you originating as well as securitizing, or what is your... And obviously there sounds like there's a range of different products that you would offer.

David Brickman:

That's right. We are primarily an originator. We hope to be securitizing very soon. Stay tuned. But what we're doing now is we are originating for Fannie Mae, Freddie Mac, HUD, our own proprietary bridge loan program, our proprietary affordable, capital A affordable program. We hope shortly to be in the build for rent and single family rental finance space. We hope to be in the healthcare bridge space. And as far as referencing different strategies, we look to be able to serve the capital needs of our clients kind of wherever they are in terms of their investment in multifamily healthcare and residential assets.

Nancy Lashine:

So what was appealing about this job? Why did you decide to jump ship and to lead this new young organization?

David Brickman:

Really there are two questions there. I'll take the second, which is why did I jump ship and then why did I come here? And the jumping ship part is a more straightforward answer, which is just, I had actually originally intended to leave Freddie Mac in end of 2017, early 2018 and approached my boss then, gentleman, great leader, Don Layton who was CEO at the time, mentioning I thought I had done everything I could for multifamily, thought it was time to do something new, something a little more entrepreneurial. He surprised me by turning around and telling me, "Well, how would you like to be the CEO?" And so that started that journey. That was a great ride. I would not have chosen differently for anything, but it kind of ran its course and in particular the strategic direction for Freddie Mac at that point in time was not likely to be what I really wanted to do, which was I had hoped to be part of a recapitalization effort for Freddie Mac, hoped to be able to do a number of innovative new products and executions, and it looked like that was going to be less likely, that the winds of change were kind of blowing more in the direction of kind more constraints and regulation at the agencies and less likelihood there was ever going to be a exit from conservatorship or release.

So I decided time to move on and do something new, almost go back to plan A, if you will, back from that 2017, '18 conversation. And so in 2021, I walked out the doors. I had no prior commitments, and really a fantastic kind of experience in my life as far as had no obligations, had no commitments, had not even thought all that hard about what I wanted to do next, and sort of just opened the mail, if you will, and started calling people and exploring what I might do, and I feel very humbled by the fact that was presented with a number of different opportunities, and I kind of broadly characterized what I saw in front of me was came down to really two paths. One was I could go back to a large institution, an organization that was established, something that had significant market presence and have a senior leadership role in an organization like that, or I could try to build something.

And I made the decision then that I think I'd really like to build something that had this phenomenal experience at Freddie Mac. I think we built a tremendous amount at Freddie Mac, but it had all been done admittedly with sort of in the construct of a large highly regulated institution with obviously significant forms of support and with some constraints on it. And so the idea of being able to build something in a more unconstrained environment where there is, I mean, even if you go back to, I mean Freddie Mac, like Fannie Mae, very much limited in the types of mortgages it can do. It is limited to mortgages even in the first place, and the types it's permitted that we are now able to pursue any opportunity that we see so long as we can figure out a way to do it in an economically rational way is really exciting. When Stone Point and Meridian called and mentioned this opportunity, they're in the process of acquiring this company, Barings Multifamily Capital, I thought, "This is what I want to do."

And in particular, it had all the benefits of being like a startup, kind of a new company, except it had real infrastructure already there because it was a prior company, so didn't have to kind of go get the electricity turned on and get the office space and get all the new business cards. Well, we did have to get new business cards, but you know what I mean.

Nancy Lashine:

Yeah. Yeah.

David Brickman:

So we were able to kind of take the benefits of having operating platform but really bolt on some new kind of engines onto the machine.

Nancy Lashine:

And what's the right side of the balance sheet look like? Where's the source of capital for the loans that you're making?

David Brickman:

So again, the primary source of capital in our Fannie Mae, Freddy Mac or HUD business is kind of all the above and the securities markets. So in the Fannie and HUD or Ginnie Mae business, we're selling a security that is guaranteed by Fannie or Ginnie Mae, and Freddy Mac we're selling it to Freddy Mac. In our proprietary businesses, we are working with different capital partners, and that's the model we've gone to is to partner with different investors and certainly that freedom to be able to partner with different people based on the strategy I think really is going to provide significant success to us in that. Certainly go to healthcare for a moment. There are people who specialize in healthcare and skilled nursing and there's plenty of people who don't, and so the notion that we can partner with somebody who is expert in and deeply committed to that healthcare space is great, and they may not be a partner of ours on some of the other strategies.

We're thrilled to have, for example, Morgan Properties, our partner on our affordable initiative, and known the Morgans a long time and a fantastic real estate investor and also credit investor and they're a great partner for us on our affordable strategy. We have another partner on our bridge lending program, [inaudible 00:31:16] that ability to partner with different other capital providers is going to enable us to really achieve this vision I've got of kind of being in every space in multifamily residential and healthcare credit.

Nancy Lashine:

Have you evolved your business model or revamped sort of your thinking about products given that in almost two years since the firm's been around, rates have doubled or tripled depending upon the product?

David Brickman:

Absolutely. And I'll add another piece to that and I may have been going to get to this a little later, but we also have the stress in the banking sector.

Nancy Lashine:

Oh, yeah.

David Brickman:

Right?

Nancy Lashine:

Yeah. I'd love to talk to you about that. Yes.

David Brickman:

And gladly share some thoughts on it. In terms of, I mean, just products in terms of rising rates, obviously a shift away from floating rate into fixed rate, but then even in fixed rate I think you've got a little bit of hesitancy in terms of longer term, meaning 10 year fixed rate. Just there's a prevailing view. Obviously the capital markets believe this as well, which is why we have an inverted yield curve that rates will come back down again. And so the belief that times right now are more constrained, have higher rates than what we're likely to see in the future, I think does change people's decisions, and I think I'm probably in that same camp. I don't have a perfect crystal ball and so we don't know what exactly will happen, but the notion that the future may be a little bit better than the current is I think a reasonable mindset to have when approaching the debt markets.

So kind of medium term financing, having more optionality, having the ability to relever is I think that much more important in this environment rather than if we were two years ago with ultra low rates, putting something away for a long term was kind of a pretty sensible strategy and probably the predominant strategy for a lot of folks. So now it's a little bit more dynamic, and certainly why I think every time we see the Fed get together and rates move a little bit, we kind of get a little bit of a pivot even in terms of how people are looking at markets.

Nancy Lashine:

Well, so if we have time later, I want to come back to capital A affordable housing, but we're sort of moving into the topic that I know is of great interest to lots of people, which is what's going on in the regional banking sector, what's going on generally in the debt markets. Can you share your views on the regional banking situation? Is the three bankruptcies that we've seen, is it the inevitable rise of just rapidly rising rates, or are you sort of a view that in a world where people can move their deposits on their phone in a matter of minutes, that the entire concept of banks where you basically have short assets and long liabilities that there may be some mismatch, and as in the world of mobile banking, the regional banks which represent, what, two thirds of commercial real estate loans may not be as good a source of capital going forward? How are you thinking about all that?

David Brickman:

I mean, you hit a number of the issues, right, and I wouldn't necessarily say it's just one or the other. I think the advent of online banking certainly contributes, but it actually probably put more weight just on the underlying economics of rising short-term rates. I mean, we did have an S&L crisis, kind of back to starting my career, remember that was that much more influential. It had significant effects on real estate and on the banking sector, and I think we have similarities to that period of time and more so the great financial crisis of any other kind of financial stresses that we've had over the last 30 years.

And while we don't have the additional issue of tax-induced volatility that we had in the eighties, certainly the notion that the banks have been confronted with rapidly rising rates, not as high as we had again back in the eighties, certainly is I think the primary underlying source of stress and pressure, and that most banks were not actively engaged in asset liability management, were not actively hedging their books, and candidly probably were a little too complacent in investing in illiquid assets, illiquid fixed-rate assets, and perhaps not even illiquid, right? In the case of Silicon Valley Bank, they were perfectly liquid. They were just long-term fixed-grade assets.

Certainly I don't need to add anything. There's a lot of regulatory discussion going on and how that's going to play out remains to be seen, but it certainly feels like the pressure is not going away anytime soon and that this issue of where deposits will go will continue to play out. Certainly I think everybody listening to this call, and Nancy, you and I probably both, take a look at how much you're getting paid on that, whether it's a checking account or a savings account or anything else, and you're not leaving your money where it was if it's 10 basis points anymore. And certainly the flight even out of the banking system into money markets and other types of investments continues to add to that stress, and so that will be a continuing economic pressure on the liability side for banks as they adjust.

And then on the asset side, recognizing that in the face of that and the need to be more liquid and the need to have a little bit more duration matching of their assets and liabilities is probably going to push them a little bit more into shorter-term assets and more floating rate assets and things that are that much more liquid, and that will have an effect on commercial lending activity for some period of time. I suspect that's also going to result in asset sales over the next year or so. Obviously we have the actual institutions that have failed contributing to that. And then I think it'll also result in some degree of consolidation, and the consolidation is going to be the interesting part of it. We have the number may not be exactly right, but about 5,000 banks in this country, give or take, and it's certainly interesting to observe first at about 10 years ago or maybe more, we had maybe 10,000 banks, so we're down to 10,000 to 5,000.

Could we go from 5,000 to 2,500 at this point? It seems like a possibility. You look internationally and there's no other country that really has anything near the number of banks that we've got, and what's going to be the expectations of regulators as alluded to before in terms of what banks need to do. I mean, they do also have a mission in terms of how they provide liquidity and what is this going to mean for the banking sector in general. I'm going to be interested to see, although I kind of leave you with just, I think it'll be tough going for most banks for some time to come, and I think that's going to very much have some implications for the availability of credit for commercial real estate.

Nancy Lashine:

Sobering words. Does the fact that Fannie and Freddie exist make debt for residential for multifamily more affordable than it does for other real estate property types, the commercial real estate business?

David Brickman:

It certainly does. It has an effect both in terms of, all else being equal, we have more supply of multifamily and more supply of affordable multifamily than we would have if they didn't exist. Now I say that, at the same time I want to emphasize, and we have a huge shortage of affordable housing. Some people say, "Well, if you have such a huge shortage, then maybe they're not doing their job." And I just say, "Well, it would actually be that much worse if we didn't have them," and think in fact they can contribute that much more to helping address some of the shortage, and I think there's opportunities for them to play even a bigger role. But their financing activities, both in terms of providing stable lower cost financing as well as their mission that focuses them on the low and moderate income, if you will, affordable and workforce housing segments of the market further contributes to that outcome. But Nancy, if I can go back to your last question, do just a sort of an add-on?

Nancy Lashine:

Sure.

David Brickman:

Talking about the banking sector, and while I was describing that the commercial banks will have some tough times ahead, I do think it's going to create significant opportunities for others to enter the space. I might analogize it even a little bit to what we saw post-crisis in terms of a lot of the investment banks where they were engaged in various risk-taking activities, proprietary trading and the like, and a lot of that the regulators kind of pushed out of the banks and helped give I think significant additional momentum to the private equity industry, and I think you can see something similar, and certainly we at NewPoint are looking at that opportunity. I think it's going to be a very significant opportunity. I think of the opportunities to revisit even ways of financing multifamily and commercial real estate using the capital markets that might have evolved sooner, even again if the banks and kind of taking as large a share as they have, and I think we're not going to... Nature pours a vacuum, markets pour them as well. We're going to see others move into this space and think it could be very interesting and it actually could be a source of significant innovation, which again is what we're looking at and think we'll create opportunities to create value.

Nancy Lashine:

So if you were a private equity institutional investor and you had a dollar today, would you invest it in the private debt space or in the private equity space if it was a multifamily asset?

David Brickman:

So I feel like I'm talking my own book, but I would say-

Nancy Lashine:

Well, I just served it to you.

David Brickman:

I would say the private debt space. And it's not that I don't think equity has, and multifamily properties, if you will, in general have plenty of continued tailwinds in the medium to long run. I just don't know in the very short run what will happen, and so it just becomes more of a timing issue to the various statements. I don't think it's a falling knife, but I don't know that this is fully settled out, and so waiting till the period we're in right now fully runs its course would just seem prudent. Whether we're going to have a recession, whether the Fed is truly done raising rates, whether the bank stress is going to create a full on credit crisis. I think these are all open questions that would affect an equity investment that are unlikely to have a significant effect on debt investments and actually could be net positive for credit investors.

Nancy Lashine:

I'd love to know the answers to all those questions, so call me when you figure it out, please. Affordable housing is such a huge topic and clearly a major need in the U.S. and many countries around the world, but it seems to have been a problem for a very long time that we've not figured out how to solve. We've had lots of programs, but the need seems to keep growing as opposed to becoming that the program satisfy the need. By the way, capital A affordable means that there's some kind of government program assistance, tax abatement aid that is helping to make the project more affordable for the ultimate tenants rather than just straight market rate housing. Are you feeling optimistic that there are solutions on the horizon, whether it's through technology and modular building or lower cost construction or given that we now have higher rates and subinflation, is this problem becoming even more intractable?

David Brickman:

So I'm an optimist, so of course I'm going to say I do think there are solutions on the horizon and I'm confident we will get to them. The problem, to your point, does seem to be getting worse and not better. Interestingly, is not uniquely an American problem. It's a problem all around the industrialized world, and it was one of those fascinating things at Freddie Mac I tried to connect with other comparable institutions in other countries and every other country had a similar set of issues, particularly in their major cities. And it's primarily a supply problem, hard to create enough supply, but under that it's a cost problem as well. And look, I think there's three underlying causes. You identified a couple of them. I mean, one, there are regulatory barriers to build. NIMBYism, zoning, building codes, even, that restrict how much we can do. That is related to a cost issue in terms of both the cost of capital and the cost of building, just in terms of how much of actually building a multifamily apartment unit is consumed by sort of regulatory processes, bureaucratic processes.

And then third, technology, to your point, would really seem to create an opportunity and we've been I think slow to embrace it and I think we will get there on all three fronts. I think the GSEs, as I said before, can play a part as can government and state housing, finance agencies and others in terms of the cost of capital. I think cities and states leading the way in terms of embracing both some of the technology modular factory-built, other technologies built housing. In fact, I'm affiliated with this great organization called Vessel that's building factory-built housing, particularly in smaller cities that have experienced some degree of deindustrialization, then I think a great concept.

And then lastly, I think a willingness to revisit regulatory constraints. I think that's a tougher one. That's obviously a political one, but having just awareness of the problem, having an increased number of leaders of both political parties, all political parties I should say, kind of recognizing we have to take a harder look at that and realize we have to create it, make it a little easier to build higher density in certain locations where it just makes sense. And again, I'm going to express optimism, but we really do need to have a little of everything in order to address the problem. I mean, we're millions of units short, and in order to reduce the continuing growth and really kind of saddening growth of homelessness and severe rent burdens on American families, have to do something.

Nancy Lashine:

There are a lot of organizations as you mentioned that are also focused on this issue. Urban Land Institute has it as one of their key missions and many others, so I'd like to share your optimism that a lot of smart people are focusing on this and we'll get it sorted.

David Brickman:

I think so as well, and I should have acknowledged the same thing, right? It's made the national dialogue. I mean, back in the day, folks weren't talking about it as much or it was more of a local issue. Now it's a national issue. Now major organizations are embracing it and it almost goes to the first step of acknowledging, or first step of addressing a problem is acknowledging you've got a problem, and I'd say at least we're at that stage, so now hopefully we can see the collective wisdom come to be brought to bear to figure out what the best solutions are.

Nancy Lashine:

David, I cannot believe. I just looked at the time that we're running up against the clock here and I hope you come back and talk to us again because you have such incredible depth and knowledge and you're just really interesting to have a conversation with. But I want to do a lightning round before we finish, if that's okay?

David Brickman:

Absolutely.

Nancy Lashine:

What's your favorite city?

David Brickman:

That's so tough. I love cities, and we said before I'm in New York. I'm going to not choose New York for that reason, and I'm going to go to London. I spent a lot of time in London. My father is English. I just love London. It's a wonderful city.

Nancy Lashine:

I was in London last week and I stayed for the first time over by the Shard and that whole area rather than in the Mayfair and the financial district. Loved it. It's so cool and so fun and just had incredible views of this beautiful city. What's your favorite book that you've read recently?

David Brickman:

I may be kind of a little loose on the recent, but the one that left the most impact, I mean, kind of recent memory was Guns, Germs and Steel. Doesn't at its face have anything to do with real estate. It's an analysis of why certain societies tended to succeed just across the globe and the title Guns, Germs and Steel. Anyway, fascinating kind of analysis. I do think there are implications a little bit for people professionally, for careers, for real estate even. Sometimes it's better to be lucky than good is my very simplest... It's the same of way of describing it. Better to be lucky and good, I would say, but certainly some things influenced by the environment you start off in.

Nancy Lashine:

I'm curious. I have not read that book, but I'm curious about the steel portion of it. Guns and germs sound obvious, but I was talking with someone over the weekend about ESG and sustainability and they are in the steel business and they were talking about how we are never going to get rid of steel and there are so many uses for it and there are clean ways to produce steel, and so we sort of went down that path, so I'd be interested to read this book. If you could have dinner tonight with anybody dead or alive, who might it be?

David Brickman:

I know it's going to sound like a corny, it'd be my family would be. I have to say for just don't get home enough. But I'm going to modify that and go with, well, if I want to have dinner with my family, what better family would I like to have dinner with than I'm going to say the Obamas, and the whole family I mean, just tremendous, I mean, admiration's an understatement. I'm even sure what [inaudible 00:48:25] I think for Barack Obama was able to achieve, and just they also seem like fun people, so if you're asking about dinner. I mean, if we're just talking about a conversation, that would be a different story, but you did ask me about dinner and I figure they'd be a lot of fun at a dinner.

Nancy Lashine:

Oh, well now I'm going to ask you about who would you like to have a conversation with?

David Brickman:

George Washington. I'll go with George Washington. I don't know.

Nancy Lashine:

I was thinking about Moses, so there you go.

David Brickman:

I was going to go to Moses, but I was going to keep it a little bit more contemporary. It's funny you should say that.

Nancy Lashine:

Fair enough, fair enough. Who or what has had the strongest influence on your career path?

David Brickman:

I don't know if I can limit it to one person. I have been so fortunate to have had great bosses and mentors throughout my career, I mean, a succession of folks at Freddie Mac. Really I think everyone I had the pleasure working for there left a significant mark on me and I'm grateful for their patience with me at times. And then my own father who has, is not in business at all, is a retired physician who really instilled values in me, which I think I carry and certainly try to live by.

Nancy Lashine:

What advice would you give to young people who are looking to pursue a career in real estate or in credit?

David Brickman:

I think now is a great time to pursue real estate or credit. I'll maybe focus more just on the real estate side of that and only say that I think real estate's always been a fascinating place to work, such arena to be in, and particularly for those as we've talked about who are just fascinated by the built environment. I'd say cities. I'm not trying to exclude suburban or rural areas, but the built environment, the landscape and streetscape and just, I used to talk to young people and say, "If you walk around sometimes and say, 'I wonder what's going in over there? Gee, this would seem like this would be a great place for some redevelopment.'" You've obviously got real estate in your DNA somewhere and I'd say that's true all the time as far as kind of the appeal of real estate.

But right now we have such major issues in front of us in terms of... We just talked about the banking stress and what's going to happen on that front, obviously, or on the credit side. In terms of the built environment, we have a tremendous amount of office space in this country that may or may not remain office space into the future, and I think that's a huge question. How might, again, that built environment change based on what we've seen over the last few years I think makes it just a great time to go into real estate, and so we encourage anybody who's thinking about it to do so. I think there's a lot of big questions, big opportunities, and going into it, and I would just broadly encourage it.

Nancy Lashine:

Have you given any thought to how AI and large language models will change our day-to-day?

David Brickman:

I haven't really. I mean, I don't get too concerned about the robots coming in and taking all our jobs.

Nancy Lashine:

Taking over your job?

David Brickman:

Exactly. I'd be happy some days. But I do think it certainly changes how we work. It changes what you focus on and certainly does shift a little bit. Where is the real value that you create? I think it makes you think a little bit harder about that, and certainly the nature of competition changes as a result. So I do think increased use of, I'll say technology broadly including AI, but it's who can harness the technology most successfully that I then think becomes part of the challenge and part of the competition going forward.

Nancy Lashine:

Yeah. That's a good answer. My favorite question, if you knew then what you know now, what would you have done differently?

David Brickman:

I'd probably just be a little bit more patient, maybe, though patience isn't my strong suit, so I don't know that I can say that, but it's not entirely true, right? As you get older, certainly I think you learn these things and sort of taking the longer view and not reacting necessarily to the here and now. I mean, here we are again talking about we are going through a cycle, and we've been through a couple of cycles, Nancy, and we're now accustomed to them. Don't overreact to the present. Whether that's the economic cycle, whether that's your own professional role, whether that's the organization you're in, and having a little bit more patience and broader perspective. But of course, again, I think when you're talking to a young person trying to convince them of that, I think that kind of falls on deaf ears at times, which was probably my case back when I was younger.

Nancy Lashine:

Right. Well, it's a little bit like talking to your kids. You hope it sticks somewhere, but you don't expect an immediate response. David, what an incredible privilege we've had having your time. Thank you so much for sharing it with us and really, really enjoyed our conversation. Thank you.

David Brickman:

You're very welcome. It was a great pleasure. Really enjoyed the time with you as well, and delighted to come back anytime.

Nancy Lashine:

Fantastic.

David Brickman:

Take care.

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 this 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.