Roy March:

If you look at how we've grown globally, we haven't grown for the sake of growth. In other words, we've only grown to ultimately serve our clients in those markets where they believe that we can make a difference. So we're always coming in on coattails or leading them in because of what we're seeing, and then we find the people together that are the ones that make the difference.

Nancy Lashine:

Hello, and thanks for tuning in to Real Estate Capital. I'm your host, Nancy Lashine, of Park Madison Partners. Capital is a lifeblood of the real estate industry, but the decisions on where and how it's allocated are driven by people and personalities. Who are they? What motivates them? What can we learn from their experiences? 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 is important to them, how they make critical decisions, who has influenced them, and a lot more.

Our guest on this episode is Roy March, CEO of Eastdil Secured. Founded in 1967, Eastdil was the first real estate investment banking firm in the US. Starting with just 15 employees in New York City, today the firm has 750 employees across North America, Europe, and Asia. The firm is privately held. It's the largest independent commercial real estate investment bank in the world by volume, and it has over three trillion of completed transactions since 2009. Roy is an icon within the real estate industry. He first joined Eastdil as an intern in 1978. He has over 45 years of real estate experience at the firm across M&A, property sales, equity and debt placement, and structured credit. He's deeply involved in some of the most important institutions within the real estate industry, including ULI, PREA, NAREIT, ICSC, and the Real Estate Roundtable. Roy is a fountain of knowledge. We talk about Roy's career path, the current state of real estate capital markets, investment opportunities in the years ahead, and much more.

Roy, I am so thrilled to be here with you today.

Roy March:

Yeah.

Nancy Lashine:

This has been a long time in the making, and-

Roy March:

It has.

Nancy Lashine:

... you are... I was going to say the word icon. I mean that in the most wonderful sense.

Roy March:

It sounds old, Nancy.

Nancy Lashine:

It does sound old, which is why I hesitated, but you're so many things to the real estate business and you've created obviously a business that I admire greatly-

Roy March:

Thank you.

Nancy Lashine:

... and so many of us admire greatly. So I know lots of folks will be interested in hearing what-

Roy March:

Yeah.

Nancy Lashine:

... you have to say. Both we'll talk today a little bit about you and how you got to where you are today about Eastdil and sort of a brief summary of its long history.

Roy March:

Yeah.

Nancy Lashine:

But I know also people want to talk about 2025 and what you're seeing for the year-

Roy March:

Sure.

Nancy Lashine:

... ahead.

Roy March:

Great.

Nancy Lashine:

So let's just start. Where'd you grow up?

Roy March:

Well, first of all, thank you for having me. I don't do this very often, as you know, but happy to do it and spend some time with you and talk about my little journey and ultimately where I think the world's going specifically in our industry and maybe just in general in terms of where I see the path of humanity and things that I can do to influence it.

Nancy Lashine:

So somewhat like the Eastdil mandate and mission. That is very grand.

Roy March:

Yes.

Nancy Lashine:

And if anyone can accomplish it, you can.

Roy March:

Yeah.

Nancy Lashine:

So that's great. Well, thanks for-

Roy March:

One step at a time.

Nancy Lashine:

One small step at a time.

Roy March:

Yeah.

Nancy Lashine:

So tell us, how did you end up in the real estate business?

Roy March:

Well, I was a poor student, poor test taker, and yet ambitious at the end of the day. As some people have heard me say, I didn't have a safety net. So I had to weave my own. I was the first person in my family to go to college, and I had lost my father a year before I graduated from high school. And so I was the last one at home as well. And so I went to a university, UC Davis, which had a chemical engineering department. I had no idea what chemical engineering was other than I had a counselor at my high school who... It was 1974 and it was the energy crisis. And as a result, he said, "Look, if you want a consistent job, you should be an engineer. And it looks like chemical engineering should be the place that you would get that." So-

Nancy Lashine:

Oh my gosh. My two worst subjects in the planet.

Roy March:

Well, as it turns out, they were mine as well. I was on academic probation for two quarters. People at the various places in academia, when I come to talk about this, cringe when I tell them this story, which is I was on academic probation and I ended up wanting to get off of it. And I didn't want to go home with my tail between my legs. And I went through the catalog and I saw that there were a lot of 1A courses that I could probably master and get through and get off of academic probation. And one of those was microeconomics. And the teacher, who was a fantastic human being, a bit of a hippie Princeton grad, thought he was actually the-

Nancy Lashine:

Isn't that an oxymoron?

Roy March:

Yes, you would think.

Nancy Lashine:

Yeah.

Roy March:

But he'd come from Palo Alto, gone on to Princeton and was teaching at UC Davis. And I took this course. And ultimately, when you put dollar signs in front of simultaneous equations, all of a sudden everything seemed to make sense to me.

Nancy Lashine:

It makes sense.

Roy March:

It made sense.

Nancy Lashine:

Voilà.

Roy March:

I just had no idea what to do with it. And I met my soon-to-be college sweetheart and wife in a genetics 12 course, which was that same third quarter. And her father was actually a newspaper publisher and ultimately a CEO of a newspaper chain. And so my interest in this was great. And I looked through the catalog and realized I could graduate in four years, even with the grades I had, with a degree in economics.

Nancy Lashine:

Okay.

Roy March:

And so that was great except for the fact that I had no idea what economics was at the time, given where I grew up on the South side of Sacramento. There was not a big white-collar community. It was a frayed blue-collar community, to be exact. And So I asked his advice and he said, "Well, you take economics and then you go into business." And that was another step function that I didn't understand what's business.

Nancy Lashine:

Right.

Roy March:

And he said, "Well, maybe you should go to business school first and figure out what you want to do." So as I looked at what the future might bring in a business school degree, I looked at the requirements, and obviously, it was grades, test scores, and experience. The first two, I probably was not going to get through. So I decided I was going to try and master all my other experiences. So as part of that, I was able to maneuver my way into an internship for the summer at a place called Kidder, Peabody, which happened to be the firm that took my soon-to-be father-in-law's company public. And I was getting basically coffee and sandwiches at that time during the summer. But I made an impression on-

Nancy Lashine:

They were at One Hanover Square, I think, down on Wall Street.

Roy March:

They were-

Nancy Lashine:

Yeah.

Roy March:

... but they happened to also be in San Francisco.

Nancy Lashine:

Okay.

Roy March:

And the guy who was in San Francisco also happened to be head of the Harvard Alumni Club in the Bay Area. And he took a liking to me and thought that he could help me along the way. His name is Bob Smelick, and he ran an investment banking for Kidder, Peabody, and asked me if I could adjust my schedule a bit to come down on Thursdays and Fridays, actually, and do the same things I was doing during the summer, which I did do. And during that summer period, I also decided I'd tack on a real estate license. And in the State of California, whether you're selling residences or billion-dollar office buildings, it only requires one license to be a real estate agent, obviously, something more to be a broker. But ultimately, I took that course along with blue hairs, all retired folks. I'm one of those today, not retired, but blue hair.

Nancy Lashine:

There's nothing blue showing.

Roy March:

Yeah. And I got my real estate license. And as part of that, then when I went back to school, there was an opening as the business manager of the university. And so given the fact they were doing a recreation hall, and I had now a real estate-oriented experience, and I also had investment banking sandwiches and coffee, they hired me. And-

Nancy Lashine:

We called it investment banqueting.

Roy March:

Investment banqueting.

Nancy Lashine:

Yeah.

Roy March:

And that's exactly-

Nancy Lashine:

[inaudible 00:08:36] worth £10, for sure.

Roy March:

Exactly.

Nancy Lashine:

Yeah.

Roy March:

So I became a business manager at the university, the associated students. And I had 50 different sectors, everything from the note-taking service, which came in handy because I didn't go to school the last year, I just took classical notes and found out who the best note-takers were, having hired the head of classical notes to do that, the bus system, the bike shop, the bars, the restaurants, and all that, and about 2,000 employees. It's where, actually, I thought my signature was a little boring. And so I practiced my signature at the end of the day, which is what I hold today. But I did that.

And then at the end of my term there, I was contacted by the Work-Learn office and they asked me whether or not I could go down and talk to what was known then as Blyth, Eastman Dillon, an investment bank in San Francisco that had a successful intern program with their municipal finance department. And as I then scoured through and did my research and work-learn, I went in, and this is where the branding has had a big impact on me. I was trying to pull a corporate brochure on Blyth, Eastman Dillon and out-tumbled this unique shape, unique design brochure that was Eastdil Realty. And I said, "What about these guys?" And they said, "Well, we don't really have an internship associated with them, but at the end of the day, you can try." And so we were able to set up an interview, and I was fortunate enough to go down and meet on the investment banking side.

Nancy Lashine:

So it had to do with the shape and the color and the branding of the brochure?

Roy March:

Yeah. Also, a lot of young people photographs in Central Park with big buildings around it. So it appealed to my aesthetic and it looked like something I wanted to at least pursue and get one more notch on my belt relative to my resume and having an internship in real estate investment banking. As it turned out, the first day that I was there, it was April 3rd, 1978, I was in at nine o'clock, and I'd gone to use the restroom, came out, and down the hall came Ben Lambert, who I recognized through the brochure. But as you remember, he was really an elegant-

Nancy Lashine:

Elegant man-

Roy March:

... man.

Nancy Lashine:

... beautiful. Yes.

Roy March:

But I don't even think he was walking. I think he was just drifting.

Nancy Lashine:

He was floating.

Roy March:

He was, yeah.

Nancy Lashine:

Yes.

Roy March:

Exactly. He was floating down the hall-

Nancy Lashine:

With a big smile on his face.

Roy March:

Big smile and quite gregarious. He filled the room with his personality before you even knew him and he opened his mouth. But I wiped my hand off to make sure that it wasn't nervous sweat on it. And I reached out and I said, "Mr. Lambert, my name's Roy March and I just started today. Thank you for having me." And he looked at me and he said, "Listen, kid." He goes, "Have you made more money for this company today than you have in your pocket?" And I said, "Well, Mr. Lambert," a little bit cheeky, I said, "I don't know that I made more money for the firm than I have in my pocket, but I can guarantee you I've made more money for the firm than I'm actually being paid. I'm working for free." And he looked at me and pointed down at [inaudible 00:11:43] because he was-

Nancy Lashine:

That was presence, Roy.

Roy March:

No, that was cheeky irreverence, I think.

Nancy Lashine:

Yeah.

Roy March:

Just maybe nervous irreverence. And he said, "I like you, kid." He said, "Remember two things." He said, "One, Eastdil Realty has the God-given right to every piece of business in the universe. Now, go earn it. And number two, never leave a meeting without asking for the order." And with that, I toiled away and mostly oblivion on the West Coast until we rediscovered each other. And ultimately, at the end of my intern program, they hired me, the same salary as the assistants were making, which probably was a bonus for me and not necessarily for them, given what I did know and didn't know. But-

Nancy Lashine:

Did you have any doubts that you wanted to do real estate or that you'd want to work for Eastdil or that just-

Roy March:

I just did it. I just did what I was doing because I didn't know any better. And this was something that I liked. I liked the people, I liked the culture at the time, and I feel like I'm the cultural leader of the firm along with my other partners. But it wasn't something I said, "I'm going to go do the real estate business." I just sort of did it. And the more I did, the more I was well received. And the more well received, ultimately, the more I did.

Nancy Lashine:

So to be honest, we could talk for three hours-

Roy March:

Yeah.

Nancy Lashine:

... but I know-

Roy March:

No.

Nancy Lashine:

... your schedule won't permit that. So I'm going to fast-forward, but thank you for that.

Roy March:

Yeah.

Nancy Lashine:

There were so many good nuggets in there. You've obviously been at Eastdil for your career-

Roy March:

46, yes.

Nancy Lashine:

... and you've watched all of the growth and much of it in a leadership position. What were some of the pivotal moments when you transitioned from being the deal guy or the kid to a leadership role?

Roy March:

Yeah. I think that, again, the firm's foundation culturally is collaboration, sharing of information, trust-

Nancy Lashine:

Yeah.

Roy March:

... integrity in all that you do and as Ben said from the very beginning to me, "We have the God-given right to every piece of business. Now, earn it." So it is with great respect, I think, that we have for what we're, in essence, asked or fortunate enough to do, and with great humility, to take on something where it could be the entire net worth of a family. It could be someone's job and or profession relative to whatever they're doing as developers or running institutions. And when you are empowered to do that, it's a big responsibility. And so you take it on as though you're a principal in that, right? And that was always the culture. And then using all the resources of the firm to ultimately blend that together to bring the talents and the relevant execution techniques and relationships that were available within the firm.

So culturally, the firm was built around this investment banking concept. And if I had to describe it in a few words, it would be it was the old investment banking partnerships that were really the basis upon which Ben had formed this and upon which we try to build off of today. For me, it was just doing. And I remember there was a deal in Southern California that I felt like I was a little bit tossed to. In Africa, they stake goats to catch lions. And so I think that this was one of those moments where everybody thought there was just no chance we were going to control this piece of business.

But there was a gentleman by the name of Bill Tooley who was out on the West Coast, who was a development firm called Ketchum, Peck, and Tooley, and Gordon Swanson, who was running the West Coast for Eastdil at the time. I was down on another project doing some due diligence, and he said, "Look, we're going to be asked to pitch this piece of business in Santa Monica. Why don't you find out what you can about the market?" Now, what I didn't know at the time was that Buzz McCoy was Bill Tooley's roommate at Stanford, and I think at Harvard, or they had a relationship that had been bonded between both those institutions, both of them having gone there. He had just moved to Southern California and was the head of Morgan Stanley on the West Coast. I didn't know any of this, but that's who our competition was.

Nancy Lashine:

Okay.

Roy March:

And I naively went, met with the building manager, did my market work, and tried to find out as much as I possibly could about the deal. It was interesting because while everybody thought that there was no chance for us, Bill Tooley was really looking for someone who really understood the building, understood where it might go, and had the support of an organization. And so we ultimately were hired over Buzz McCoy in that relationship by Bill as a result of the work that I had done. So, in essence, the integrity of the process and the work was what-

Nancy Lashine:

That never happens, Roy?

Roy March:

No.

Nancy Lashine:

Yeah.

Roy March:

It is all about relationships in the end, but it's about relationships and competency and expertise-

Nancy Lashine:

Yeah.

Roy March:

... at the end of the day. As it turned out, it was the first $300 a foot deal ever done in the United States, and it was Office 401. It was called First Federal Square at the time. It was their headquarters. And it was sold to Prudential. And the second one was the CIT building, which was also sold to Prudential, which was just around that same per square foot number, but that was back in 1980. And two years into my career, that was the lift of seeing somebody who had the initiative to do what I did and-

Nancy Lashine:

Right.

Roy March:

... ultimately entrust me to do that.

Nancy Lashine:

That's almost back to land value in San Francisco, but just-

Roy March:

It is. It's land value minus the demolition.

Nancy Lashine:

Yeah.

Roy March:

So those are the moments that, again, grit, determination, hard work. And I think a lot of people are like this, but don't like to admit it. I've always been very insecure about my relative IQ. And so I tried to work on my EQ. And ultimately, I've been blessed to work on my SQ as well. But-

Nancy Lashine:

That's your soul quotient?

Roy March:

Soul quotient, yeah. It's a little deeper than EQ, and a lot deeper, let's say.

Nancy Lashine:

Okay. Let's-

Roy March:

Sorry about that. But getting back to-

Nancy Lashine:

Okay. And we have to talk about soul quotient after.

Roy March:

Yeah. But getting back to the notion of ultimately understanding the why of it all, it was a natural thing. But having this insecurity around my IQ-

Nancy Lashine:

Yeah.

Roy March:

... I always wanted to have more information or at least feel like I could sit in a room with people who were much smarter than me and be able to hold my own, if not excel, because I had just done more work and gone deeper than anybody else was willing to go.

Nancy Lashine:

I'm smiling at you and I'm squinting a little bit because I can't tell you how many women I know who've taken that approach to being able to be heard in a room.

Roy March:

Yep.

Nancy Lashine:

And everybody would imagine you just walk in and you're heard because of your presence, which you have a lot of.

Roy March:

Yeah.

Nancy Lashine:

But it's really great to know that's where you started.

Roy March:

Yep.

Nancy Lashine:

And it really does speak about the firm because it really is mind-blowing to be imprecise in a term that Eastdil is able to touch so many aspects of the capital markets and so many players and to really be that trusted advisor, which is what you look to do.

Roy March:

Yeah.

Nancy Lashine:

I want to ask you, when these businesses started in the 70s and the 80s, 90s was the era when things started to go global, meaning outside the US.

Roy March:

Yep.

Nancy Lashine:

And you've built a really strong global business, obviously, having Nomura-

Roy March:

Yep.

Nancy Lashine:

... come in and purchase an interest difference. But how do you go about building a team globally where you can really know that you trust those people and keep the same culture in those shops?

Roy March:

Yeah. It is a challenge as you get to be a 25/8, 366 organization in terms of communication, time zones, local cultures, and-

Nancy Lashine:

25/8 is because everybody's on a different time zone?

Roy March:

25/8 just because it's an hour more than a day and a day more than a week and a day more than a year. So it just seems to be that that's the way a global business ends up working. And I think that, again, it goes back to Ben's perspective on things, which foundationally, it was to be a trusted advisor, and it was this investment banking approach. And even in Buzz's memoir, if you will, about the real estate finance business, he acknowledges that Ben was the first real estate investment banking leader, if you will. And he took that same philosophy. And some of it has to do with incentives. Compensation is salary plus bonus. And the bonus ultimately is an investment of the profits of the firm that go to making those investments in people who consider with the same all of us hopefully have, which is to deliver on behalf of our clients, to be agnostic as to what that outcome is. But in order to be agnostic, you have to actually understand every potential execution that comes along.

Nancy Lashine:

But when you go to Hong Kong or-

Roy March:

Singapore.

Nancy Lashine:

... Singapore or places in Europe, emerging markets, how do you find people that will embrace your culture?

Roy March:

You find them usually through your clients that you're trying to serve because our expansion, again, stepping back in terms of what Ben saw that really created this opportunity for all of us was he saw that the local markets, which is what real estate really was in terms of development, tenant-based development and funding, they were local, they were savings and loans and local banks, that the economy was growing at such a rapid rate that this was going to become regional, national, and ultimately global. And if I showed you a tombstone in the founder's room, there's the first institutional deal that was done was $150 million deal in San Francisco, which was Embarcadero One and Hyatt Regency. And that was Trammell Crow, Rockefeller, John Portman, and ultimately, Ben brought in Prudential Insurance who was a leader in this space. They were the force, if you will, and the source of capital for growing things on a regional basis. And a lot of other life insurance companies got into that business. This is obviously all prior to the great modern portfolio theory that came into play in the late 80s, early 90s with obviously mixed success.

But foundationally, it was understanding this was going to grow into a global business. And in order to serve that global business, it was started with debt and then it was going to have to be joint venture because of the size and scale. So you had to bring in equity. And then ultimately, [inaudible 00:22:19] every other capital market solution that was there. So for us, having the full array and an expertise in each one of those areas to then collaborate, bring those tools and the execution capabilities to the table for our clients.

And if you look at how we've grown globally, we haven't grown for the sake of growth. In other words, we've only grown to ultimately serve our clients in those markets where they believe that we can make a difference. So we're always coming in on coattails or leading them in because of what we're seeing. And then we find the people together that are the ones that make the difference. Sometimes we move folks. But McCaffrey ended up moving to London in 2012. We had three people, and we have 120 people. And they've done a fabulous job of, in essence, capturing the interest and imagination, let's say, of our clients and ultimately the capital markets in Europe and a market leader in that respect. Sometimes it's leadership coming from within that directs that, and sometimes it's being able to just leverage off of the relationships that the clients have. Oftentimes they'll come to us and say, "Hey, this person's really good and in the wrong spot." And we'll go on that little journey together and ultimately grow from there.

Nancy Lashine:

Let's shift to the outlook for 2025-

Roy March:

Yeah. Sure.

Nancy Lashine:

... because there's a lot to talk about there.

Roy March:

Yeah.

Nancy Lashine:

I remember actually hearing you at the beginning of this year and you quoted FOMAM, which I loved, fear of making a mistake, which absolutely characterized this business last year and earlier this year.

Roy March:

Yeah.

Nancy Lashine:

And as smartest folks in the business started to declare the bottom of the market-

Roy March:

Yeah.

Nancy Lashine:

... as debt rates started to come in, obviously now with the election behind us and-

Roy March:

Yeah.

Nancy Lashine:

... we've seen 75 basis points at least in rate contraction, it feels like maybe the bottom is behind us. Let's talk about your outlook for 2025, starting with debt-

Roy March:

Yeah.

Nancy Lashine:

... and the availability of debt and credit.

Roy March:

I would say it's rational FOMO at this point, which is that a lot of capital has been accumulated in general. And more specifically, as we were going through this transition through really the first quarter of last year, it was basically all about credit. Everybody wanted to do credit because they thought that, and it was true, they could get the same returns in a more secure position than they could in the equity themselves. So there was this big move into the credit space. And that continues and it just gets defined a little bit differently. But if you look at it from a debt perspective, the agencies have always been up and running. It's just a question of what the cost is for multifamily in particular, and that it would include build-to-rent and SFR as well as multifamily in general. That market's been open. It's just been at a price that people didn't feel comfortable necessarily acquiring with that kind of negative leverage that might be out there.

And then you go down the list. You've got the life insurance companies. They've been open, but cautious up until recently. They will not make their allocations this year, in my opinion, which means that they're probably going to have bigger allocations next year and be more aggressive to compete. The CMBS market is wide open at a cost. And all this really should be measured at a cost, but people's psychology adjusting to this new normal, let's call it. And I'll talk a little bit about where the new normal is likely to be over the next several years based on where we see inflation and basically where we see capital markets adjusting to that inflationary pressure.

So you've got the life insurance and then you've got what is a newfound opportunity in the private equity markets where they're acquiring and or growing existing insurance companies. And those insurance companies are growing at a massive rate. And if you listen to an earnings call by Brookfield or KKR or Apollo or Blackstone, you'll find that there's been over a trillion dollars have been amassed over the last several years.

Nancy Lashine:

It's not the cheapest source of capital right now.

Roy March:

It should be.

Nancy Lashine:

Yeah.

Roy March:

And it mostly is.

Nancy Lashine:

And do you think it's going to change pricing?

Roy March:

I think it's going to continue to keep a core balance in pricing, a core plus balance in pricing ultimately. And what they've done is genius by these private equity-

Nancy Lashine:

Yeah.

Roy March:

... firms to, in essence, convince annuity of beneficiaries and those companies managing that to, in essence, entrust it with them to deliver basically 150 basis points over AA-rated bonds, but through duration. And so we had these gig contracts back in the day, which were 10-year contracts-

Nancy Lashine:

Right.

Roy March:

... that are similar. And those were all run by the traditional life insurance companies who are also still participating in this story. It's not just the private equity guys doing it. But this is massive. And when you look at the numbers in terms of the rate of growth, this is going to be... Blackstone in their earnings call talks about, "We're at 300 billion today. We expect to be at a trillion in the next-"

Nancy Lashine:

Yeah.

Roy March:

"... X number of years." So this is a massive amount of capital. It goes along with this massive CMBS capital. The CMBS capital is cleaning up a lot of the bank balance sheets.

Nancy Lashine:

Significantly more expensive.

Roy March:

Significantly more expensive.

Nancy Lashine:

Right.

Roy March:

But for large scale deals across anything, it's a very efficient cost to capital as well. And so you've got then the banks themselves cleaning up their balance sheets. They're much more active here now notwithstanding this maturity wall-

Nancy Lashine:

Yeah.

Roy March:

... that's out there and potentially the risks associated with their NPLs. And they're managing through it and they're very healthy. And when you look at the banks are up 43% on average, 23% for some of the major banks, but they're healthy. They actually want to be in the business of real estate lending, which that's not where they were. They were managing through it. Now they're being encouraged from senior management to engage.

Nancy Lashine:

Is that right?

Roy March:

Yeah.

Nancy Lashine:

Okay.

Roy March:

Very much. And then you've got the regional banks, which is a lot of the challenge. And they've even opened up a bit. The big thing is we have too many regional banks. And so I think what you're going to see, particularly with the new leadership in the country, I think you're going to see a fairly substantial merger and consolidation-

Nancy Lashine:

Consolidation.

Roy March:

... that occurs with a lot of these regional banks, which will make them more healthy. I don't see the big banks necessarily playing in that they don't need to. Their capital bases are very strong. Their earnings are off the charts, and they're at all time highs relative to their equity. So there's a ton of capital that is out there on the debt side, which translates itself into the ability to be able to provide anywhere from 40 to 75% leverage. And then you've got the debt funds and the mortgage rates, which, again, we just need stable interest rates.

Nancy Lashine:

So I'm listening to you, Roy. Is there too much capital?

Roy March:

It's not.

Nancy Lashine:

Is it disciplined?

Roy March:

It feels disciplined at this moment in time. We don't see anybody doing anything silly for the sake of doing it.

Nancy Lashine:

Okay.

Roy March:

I think what you're seeing is a pretty rational approach to underwriting. Another question that comes up is, where are we now that we're at [inaudible 00:29:39] interest rates and everybody nervous about it going to five? And we went back and looked at the last 65 years of data. And 73% of the time, we've had an interest rate over 4%. 4% are over a little bit less during my short period of time here.

Nancy Lashine:

Right.

Roy March:

But still we've lived with it. We've adjusted to. We've adapted. Volatility is worse than-

Nancy Lashine:

What was inflation? What's the corollary-

Roy March:

The corollary, the real return ultimately is obviously two.

Nancy Lashine:

Yeah.

Roy March:

And that's where I think we feel like we're going to be in this base trading range of anywhere from, just to give ourselves some room, 3.75 to four and a quarter is where we think things will be with a bias in the near term at four to four and a quarter. And you've got to make some decisions about that because what we did see is we saw when the first round of interest rate cuts were being speculated and then ultimately occurred, the short rate or the tenure came down to 363 at that moment in time. And then-

Nancy Lashine:

That was a nanosecond.

Roy March:

That was a nanosecond. But what happened was as those rates actually were implemented, the tenure went up, right? And the forward went up because the belief is we're going to be living with a sustained inflation level above the target-

Nancy Lashine:

Right.

Roy March:

... and that's going to keep pressure on it. Why is that important? Because the bellwether for core pricing in real estate is the tenure bond.

Nancy Lashine:

Right.

Roy March:

And if you're looking at residual value and the spread against that in terms of risk adjusted spread against that for residual cap rate, you got to take that into consideration.

Nancy Lashine:

So post-election where, I think, there's been even more concern about inflation for all the reasons-

Roy March:

Yeah.

Nancy Lashine:

... people know about, what's your view? What are your clients, what are the investors telling you about their concern about future inflation and all the impacts of that? There's the positive impact in terms of rental growth, but there's also the concern about construction costs.

Roy March:

Yep.

Nancy Lashine:

And that would suggest buy now because it'll be more expensive to build later. There's the out-migration or the deportation issues here in this country. What are the resonant noises that you're hearing from people about inflation or hearing from people about inflation?

Roy March:

Well, again, being a caveman who sits with a big block of rock deep in the cave trying to round off the edges and get it rolling, if you will, you learn a lot from history and then you have to adjust that for the way people live, work, play, and ultimately consume the demand, if you will. And I think that from an investor's perspective, there's a bias towards more inflation, for sure, which means that the return requirements have gone up for core and core plus. Having said all that, they're also reflecting on the fact that real estate as an asset class sets up very nicely for a portfolio and that we're underfunded in that respect because you've got current cash flow and you've got a mitigant, I don't want to say a hedge, but a mitigant to inflation relative to all the things that you've just mentioned, construction costs and financing costs and everything that goes into it.

So people will continue to try and look at situations where if it's a non-core credit tenant, if you will, for some period of time, they're going to give you credit for that growth in the meantime. So people are buying at negative leverage today where they think they can get to positive leverage in 24 months, 36 months, right? Or at least break even in 20, 24 months. That's a shift from where we were, which is it had to be break even day one, which is a shift for where we were 24 months ago, which was it needs to be positive.

Nancy Lashine:

Positive.

Roy March:

But we were talking about double-digit growth rates of rents in multifamily.

Nancy Lashine:

So, Roy, your memory is better than mine. In your history in this business, has there ever been a period of buying at negative leverage that's worked out well for the equity investor?

Roy March:

It's no to the extent that they're doing that for the sake of doing it as opposed to really understanding why they're doing it. So we do see this negative leverage in multifamily where there's a clear path towards growth in the near term. Construction costs, most of this is going to be below replacement costs. So you're going to have the ability to actually increase those. And we're going to have some regulatory challenges. My guess is less now than we would've under another presidency and Congress, if you will, but it is on a measured basis that, I think, people are looking at negative leverage. I don't think it's across the board. And if we were seeing when we had... As I said, it was a little bit like ecstasy and the white lightning in terms of very generationally low interest rates and double-digit growth rates. It was a party and that party is over. And so we're not likely to see that again. Probably anybody who bet on it, who didn't bet in the right places, they're probably going to regret that.

Nancy Lashine:

When we look at data of transaction volumes because it feels like until transaction volume comes back, we're really not going to know all that much. We're guessing. But of all people in this business, he still sees a lot of the real-time data. So where is transaction volume coming back and what do you think will happen? We were at 2009, 10 lows in the last year. What's 2025 look like?

Roy March:

I think it's going to be anywhere from 40 to 60% greater than where we were today, which was probably 30% in certain places that we've seen over the last year. And if I look at where we are in 2024, we'll be up probably 30 to 40% in terms of transaction volume. Now, that's across everything from M&A to joint ventures-

Nancy Lashine:

Okay.

Roy March:

... to debt equity-

Nancy Lashine:

Yeah.

Roy March:

... and the like. And we measure everything joint ventures and sales, if you will, at a level of $25 million and above, not the smaller stuff because we tend not to traffic in that as much. They're generally large, but that's where the range has been-

Nancy Lashine:

Yeah.

Roy March:

... and that's what we're expecting going forward.

Nancy Lashine:

And any particular areas where you see more transaction volume than others?

Roy March:

Yeah. Still healthy logistics, still a very healthy multifamily demand, increasingly so in BTR and SFR in terms of where people's attentions. And so it's a housing bet as much as anything else with regard to that. And then there's this incredible comment, if you will, that this, again, generational, we'll look back at this and wonder how. And that is in the digital infrastructure space. And that's everything from power to infrastructure, to real estate, to house, the demand of all that. And if you look at the numbers, we try to measure the addressable market for it just out of the top three who are now reporting cloud revenue. Sustainably, it looks like over the next four to five years, it's going to be somewhere in the order of a trillion dollars of capital just for the real estate.

Nancy Lashine:

For the hyperscale data centers.

Roy March:

For the hyperscale data centers and the like. Yep.

Nancy Lashine:

Yeah.

Roy March:

And-

Nancy Lashine:

And is that a global number or a US number?

Roy March:

It's a global number based on what the cloud revenue looks like for these guys and what they're expected. But clearly, it's mostly dominantly in North America and in particular the US. Europe is moving pretty fast, but we're doing financings in Indonesia, in Dubai, and throughout Europe, Australia, Singapore. And so it's a global phenomenon. It's a time delay relative to that and won't be near the volume that we're going to see here. But it's massive, and it all comes back to the power, ultimately-

Nancy Lashine:

Right.

Roy March:

... but the amount of capital that's required for this is significant. And what we're trying to do is anticipate how do you distribute that capital such that there's not too much pressure put on the commercial real estate side of it all-

Nancy Lashine:

Right.

Roy March:

... because you've got these yields from AA sponsors for 15 years with some indexing and or market to market during that period of time that ultimately are in the eights, let's call it just sevens and eights. That's not what we're seeing in the broader commercial real estate.

Nancy Lashine:

Right.

Roy March:

That's going to suck a lot of air out of the room.

Nancy Lashine:

Right.

Roy March:

And so we've got to find a distribution channel, if you will, for those instruments that need to be atomized, if you will, in order to make sure that it doesn't disrupt candidly the cost of capital for the rest of the commercial real estate area.

Nancy Lashine:

Yeah. No, that feels like a real risk.

Roy March:

It's a real risk.

Nancy Lashine:

It's like a giant sucking sound from the data center universe, which could certainly have an impact on core buyers-

Roy March:

Yeah.

Nancy Lashine:

... who typically will use 30 to 50% leverage.

Roy March:

Correct. And even if you look at the users themselves, the amount of capital, and if you probably have seen the reaction to Microsoft's capital expenditures, Google's capital expenditures, people are really scrutinizing that and saying, "Are you really going to get the return? Because we haven't seen it yet." And it's a big investment. And even at a trillion, $2 trillion worth of capital market or market cap, these guys have got to fund reoccurring expenses in the GPUs and all the technology that goes along with it that are multiples of what the real estate is-

Nancy Lashine:

Right.

Roy March:

... right?

Nancy Lashine:

But from a lender's perspective, if you have Microsoft credit on the hook for a facility, probably not that focused on that.

Roy March:

Not other than the scale of it. No. I would argue that the capital markets are a little bit... How do I say it politely? Lethargic, I don't want to say lazy, I said it, it came out, that they're basically looking at what can get done. You've got AA-rated credit. That's how we're going to sell this or we're going to sell AA-rated credit. We would argue that it's much more refined and defined than that and a much better opportunity for these developers, if you will, and users of the capital to really look at and break down the cost of capital in a little bit different way than just saying, "Everything's being agented today."

Nancy Lashine:

So don't tell me any corporate secrets, needless to say, but how much of Eastdil's revenue or business will be focused on digital infrastructure?

Roy March:

It will be 20 to 25% of our business on a global basis.

Nancy Lashine:

Yeah.

Roy March:

This is our vision quest at the senior level of the firm, mine personally in particular, and seeing the opportunities. And we brought on a fabulous digital infrastructure team that is focused on identifying land that has the power and the jurisdiction and the connectivity in order to get ahead of this, spending time with power companies that are being beseeched with requests ultimately not really knowing what the value of their power may be-

Nancy Lashine:

Right.

Roy March:

... in a certain situation.

Nancy Lashine:

They're starting to understand that.

Roy March:

They're starting to understand it-

Nancy Lashine:

Yeah.

Roy March:

... but we have a half a dozen engagements right now advising power providers around this subject. And there was this big, big rush to get out there on the land side. Now, things are getting a little tougher because the deposits that are required to secure the power are significant-

Nancy Lashine:

Right.

Roy March:

... and that can't be done just by luck or hook or by crook. So from our perspective, this is critical, not just because we want to find an answer for the developers of data centers who are all our clients anyway, but to make sure that we have the right distribution so that we don't impact the cost of capital for their traditional sectors.

Nancy Lashine:

As I said, another lofty, but such an important goal. So thank you for that.

Roy March:

Yeah.

Nancy Lashine:

It's true. It is definitely a real factor.

Roy March:

Yeah.

Nancy Lashine:

We think about that.

Roy March:

I think that, again, you got to understand where the world's going, right?

Nancy Lashine:

Okay.

Roy March:

And both from a capital markets perspective and a demand perspective. And we focus on the why does somebody want to live, work, play, locate in a certain area because... And that's why when people ask me, "What would you advise me to learn?" Some of these young kids that I mentor at the various business schools and schools in general. Human anthropology, right? What motivates people.

Nancy Lashine:

So talk about... You were talking about this on the way over climate change and whether you think that's starting to impact demographic patterns in the US. Are people moving less to Florida? Are they more nervous about wildfires in California? Are insurance costs really having an impact?

Roy March:

Yeah. I believe that people are acutely aware of what's going on in Florida relative to insurance, for example. And I think the state, while it has a program, I think they're going to have to support, in essence, people who are doing business there in order to continue to attract, almost become a self insurer, reinsurance agency within-

Nancy Lashine:

Right.

Roy March:

... these various states. And you're already seeing the number of insurers that are pulling out of California and making it much more expensive, some ways prohibitively expensive for people. But I think health and safety versus taxes are the issues with a lot of these places. I think California in particular, I've seen the ruin of San Francisco and Los Angeles. We're having some shifts. The pendulum is coming back-

Nancy Lashine:

Yeah.

Roy March:

... with a district attorney race in Southern California. And clearly, as importantly as the mayor, a superintendent race that ultimately has shifted it into a more neutral, more liberal than conservative, but a left leaning trying to find the right compromise to bring these cities back.

Nancy Lashine:

And they will come back.

Roy March:

They'll, for sure.

Nancy Lashine:

I mean, land at $300 a foot is probably a good deal for a long-term-

Roy March:

Yeah.

Nancy Lashine:

... family office.

Roy March:

We're very, very, very, very bullish on San Francisco, in particular the Greater Seattle, Pacific Northwest. And so we feel very good about that, but it does have to come with change. And that's why we feel a little bit better about, candidly, the Bay Area and San Francisco in particular than downtown Los Angeles where, again, the local governance is a problem.

Nancy Lashine:

Yeah. I want to touch one more subject before-

Roy March:

Yeah.

Nancy Lashine:

... we wrap, global capital flows. You've seen from the 80s with the Japanese coming in and buying Rock Center or-

Roy March:

Yeah.

Nancy Lashine:

... downtown LA, excuse me. Is the world awash in capital today? And where do you see the most interest?

Roy March:

Yeah.

Nancy Lashine:

Is it from the Middle East? Is it from Asia?

Roy March:

Yeah.

Nancy Lashine:

And what are they most interested in?

Roy March:

So China was one of the most active investors, notwithstanding some of the geopolitical issues that occurred. They're suffering right now obviously from their own economic woes. And you overlay that with the geopolitical aspect, they're hesitant to do anything, but take care of what they need to take care of domestically. Having said that, so Korea continues to be a very active source of capital. Japan obviously the second-largest capital market in the world, largest insurance and pension fund market, low savings rates, and all that go along with that. That's very active. Singapore has clearly been the biggest in that part of the world between GIC and Temasek in particular, being the largest investors globally in real estate outside of sponsors who are in that business specifically.

And so you see that. And then when you move to Europe, we have a very active source of what I'll call core plus capital and value add capital coming out of that part of the world with the Dutch, the Norwegians, and others. And then in the Middle East, there's a lot of capital that's available for exactly the right things. But there's usually something that goes along with it that's more than capital at the end of the day. But then let's just step back into North America where the stock market is gone, where the ultimately fixed income market has gone. Real estate is under-

Nancy Lashine:

Allocated, yeah.

Roy March:

... allocated at this point in time. And so we're seeing people are adjusting their portfolios, but we're seeing much more interest. And interestingly enough, in the fundraising side of it all, you see it firsthand. I think that there's been a little bit of a surprise in terms of people coming back into the market for even the opportunistic stuff more generally. I think there's going to be a big consolidation. You can tell me if I'm wrong, but a big consolidation in what we'll call the sub-scale sponsors.

Nancy Lashine:

Call them middle market.

Roy March:

Middle market, yeah.

Nancy Lashine:

They'd rather be called middle market, yes.

Roy March:

Yeah. And particularly those that aren't specifically targeting something that's in the right direction of travel.

Nancy Lashine:

Yeah.

Roy March:

But I would say just in general, the world is awash. It's just at a price. And everybody's-

Nancy Lashine:

Right.

Roy March:

... got to adjust. And I think that stability will help create movement. When rates dropped, people were all excited and said, "Let's get ready to do this because when it drops again, that may be the bottom of the market." And then the market moved. And then the market moved significantly closer to four and a half, and it's coming back again. I think people have come to the conclusion that the risk associated with capital markets is you've got to transact in an environment that you know and understand, and that is what we have here now.

Nancy Lashine:

I sure hope you're right.

Roy March:

Yeah.

Nancy Lashine:

Here is 2025.

Roy March:

Yeah-

Nancy Lashine:

Well, you're unbelievably generous with your time. I would ask you a few quick questions.

Roy March:

Sure.

Nancy Lashine:

What's your favorite city?

Roy March:

My favorite city is New York, London. They're my two favorite cities.

Nancy Lashine:

But you don't live in either of them, right? Come back.

Roy March:

No, I live in New York.

Nancy Lashine:

Some of the time, yeah.

Roy March:

Most of the time.

Nancy Lashine:

Yeah.

Roy March:

And they're my two favorite cities just because of the melting pot of people cultures. And it seems like everything begins and ends with those two cities. Obviously, San Francisco has been my heartthrob for ages, having started there. And I was very nostalgic because I was there all week last week watching how things are coming back and having felt that North-South pull between LA and San Francisco. But I'd say that New York and London are my two favorite cities.

Nancy Lashine:

So you look younger, healthier, more fit than maybe even some years ago. What secrets have you learned?

Roy March:

It all began on a journey in 2006 when on my 50th birthday, I had decided I was going to climb Mount Kilimanjaro. And in preparing for that, I stopped all the vices that I had in my life, well, most of them. And-

Nancy Lashine:

Yeah, a very big word.

Roy March:

It's a huge word. In fact, some of it, I'd call it ice instead of vice. But in any event, it was a moment in time that changed my perspective on a lot of things, and it was a journey to climb Kilimanjaro. It's not particularly hard. It's just a grind. And that was a metronome for me, one step at a time. I relived my previous 50 years, the good, the bad, and the ugly. And decided I was going to make a change. But this was an important part of... My journey was to wander, to trek. And that became part of what I would do.

And so I've done the Camino Santiago de Compostelo across Spain, spent 33 days trekking. I've done Mount Kenya in the meantime, Mount Ololokwe. And then got involved in this Everstein thing, which I do a couple times a year with my family. Now my kids are all engaged in it. And I just got involved in some of this endurance type of thing. And the combination of the exercise and the mental release of being out in nature has been it. So trekking has been my thing. And either being conditioned to be able to go out and do those kinds of things-

Nancy Lashine:

Right.

Roy March:

... and help me-

Nancy Lashine:

It's obviously working really well for you.

Roy March:

Well, thank you. It's very kind.

Nancy Lashine:

So you've been known, Roy, as the industry whisperer, which made me think about this wonderful book I read a while back called The Elephant Whisperer. You've been doing some fabulous things in Africa.

Roy March:

Yeah.

Nancy Lashine:

Do you want to just share anything about that?

Roy March:

Yeah. And it all started, really, I'd gone in 95. I went with the people who had supported The Lion King production of the Walt Disney Company. And so I was fortunate enough to hook up with a safari company that was not only involved in doing these conservation safaris, but also in conservation, health, and education. I had been in Amboseli in 95. And so when I decide and become part of what was the Amboseli Trust for Elephants, which is where a lot of the big super tuskers are. And I had seen that they had done an event that if you did 19,000 feet, which is the top of Africa, the roof of Africa, and you raised that amount of money, you could go on a safari. And that money would go ultimately into the Amboseli Trust for Elephants.

Two weeks before I left on my journey with two of my three kids and my wife, I sent out a note and just said, "Listen, we might do this for something more than just ourselves. Why don't we try and do something for the people that we're going to be involved with out there?" And so I sent a note out. And my colleagues and partners and friends just showed up in such a huge way, and then it became a responsibility. So I spent the next three weeks after climbing Kilimanjaro to ultimately figure out health, education, and conservation, which are the foundations for march the top Africa, not very original, but ultimately. And that's been a huge focus then of my family's life and my life relative to all that. And that's a special spot. If you ask me what my two favorite places are, not cities, it's St. Barts and the bush in Africa.

Nancy Lashine:

And the bush?

Roy March:

And the bush in Africa, yeah.

Nancy Lashine:

Where in Africa? Which countries?

Roy March:

Primarily Kenya, Tanzania, the savannah lands.

Nancy Lashine:

Yeah.

Roy March:

That's where the bulk of our projects are. And so that changed my life and I wanted to do something with it. And it's been a great thing for the family to be able to be involved in it as well.

Nancy Lashine:

From the bush to St. Barts-

Roy March:

Yeah.

Nancy Lashine:

... to right here in New York.

Roy March:

I'm a Bohemian at the end of the day.

Nancy Lashine:

Maybe a little bit like the professor or the banker that you had way back at the beginning.

Roy March:

Yeah, exactly.

Nancy Lashine:

Well, you've been an inspiration to a lot of people, Roy, and obviously-

Roy March:

Oh, that's nice.

Nancy Lashine:

... built an amazing business.

Roy March:

Yeah.

Nancy Lashine:

And what a great story. And you are a great storyteller.

Roy March:

Well-

Nancy Lashine:

So thank you so much for joining us.

Roy March:

... it's interesting because our founder, Ben Lambert, as you've seen here, we have a founder's room that's set up like his office was set up, and we use it as a place for meetings so that people actually can feel the vibration in there. And-

Nancy Lashine:

I can see Ben when I walk in there. It's funny.

Roy March:

You can.

Nancy Lashine:

Yeah.

Roy March:

That's his desk. And I think that relative to what he envisioned in terms of a culture of collaboration and partnership and doing the right thing for the right reasons all the time, the integrity of it all, that's what draws people.

Nancy Lashine:

Yeah.

Roy March:

It's not easy in our business to be honest, because it's [inaudible 00:53:08] and very competitive. But I think we can be competitive in the right ways and [inaudible 00:53:13]. The people who have that same philosophy tend to be our biggest clients.

Nancy Lashine:

As I started and the way we started, which is everything that he still is is not only a great success, but aspirational.

Roy March:

Yeah. Thank you.

Nancy Lashine:

Thank you so much for sharing that with us.

Roy March:

Yep. Thank you. Thanks for having me.

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.