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 today's episode is Anthony Frammartino, CEO and chairman of the Townsend Group. Townsend has a 30-year history of being one of the most influential firms in our business. Early on, they define the role of the consultant for U.S. pension funds. Over time, Townsend expanded internationally and began managing discretionary capital in an outsourced CIO model.

Today, Townsend has a hundred of the world's largest and most active institutional investors as clients, and they advise on real estate assets exceeding $250 billion. For real estate sponsors seeking to raise institutional capital, Townsend's support can be very material and often transformative. Anthony joined Townsend in 2004 after starting his career in real estate investment banking. He led Townsend's expansion into the investment management business and was a founding member of the investment committee and was appointed chairman and CEO in May 2024. Anthony brings a tremendous perspective and wealth of knowledge to the real estate industry. After two very challenging years in real estate capital markets, I thought, who better to tell us what to expect in 2025? I think many in our audience will find Anthony's words encouraging. Our conversation begins with Anthony describing his upbringing and his path to Townsend.

Anthony, thank you so much for doing this. I know lots of people are going to be interested to hear what you have to say and you've had a long, terrific career at Townsend. Why don't we just start by sharing with us where you grew up and a little bit about your background?

Anthony Frammartino:

Sure. No, thanks, Nancy, and I appreciate the chance to be here. It's good to do this together and listen to a lot of the podcasts and always find them informing. I've been with Townsend, I'm actually entering my 21st year, so it's hard to remember what I did much prior to this that starting off with my background. I actually am originally from Akron, was born and raised, family of first generation immigrants from Midland and really been very fortunate that I've never really had to leave the area for any period of time and have found something that's meaningful locally working with our team at Townsend, but also relevant globally. So being in a place like Akron and Cleveland, there's fewer of those types of companies, and we're all fortunate to have been at one. Spent really all of my life in the area, went to Akron schools and St. Vincent, St. Mary, where LeBron would've graduated 10 years after I did.

Nancy Lashine:

Oh, is that right? Wow.

Anthony Frammartino:

Yeah, I had grown up in Akron, had really all my life, my family was in real estate, so it was illogical to continue my career but really, it was a family of teachers. Most of them who were in education and even those who were teachers that went ultimately administrative routes but stayed within education. So it was always meaningful to achieve an education. I always had an appreciation for how important that pension was on the back end of the careers of the people in my family. And then also always had an appreciation for the fact that as my parents would demonstrate, you couldn't bank on that certainty and you needed to be smart about how you thought about your money and investing your money. And for them, that oftentimes took them towards investing in real estate. So from an early stage in my life, that was always a fixture.

Nancy Lashine:

So you ended up at Townsend almost 21 years ago now. And what was it about Townsend that attracted you to the business other than the fact that they were going to give you a paycheck, which I'm sure for all of us at the beginning is a good thing?

Anthony Frammartino:

Yeah. If you go back to when I joined Townsend in 2004, but I graduated from Case Western Reserve here with my MBA in 2002. And at the time, and that was a very difficult environment post 9/11. For really any industry, it was tough in hiring, was a difficult environment. And I remember going to one of the career shares and it was the first introduction I had to Townsend. I think Townsend was, at that stage, much better known outside of Cleveland, very relevant and prestigious organization. Inside of Cleveland, we just didn't have the same profile. And my mentor, the individual who brought me into the firm was Frank Blaschka, I'm certain you had relationship with until, unfortunately he passed in 2007. But Frank and I actually had a great dialogue. Townsend had a very limited display, I'll put it that way, and the only thing that was more limited was trying to visit the website, which kind of affected the under construction up until about 2005 or '06.

Nancy Lashine:

They had some company on that front. Real estate was a little slow.

Anthony Frammartino:

So it was this mysterious organization. Being in Cleveland, you would've thought that you had some background on it coming out of case where we're pretty tied in locally to a lot of the companies, and I was looking to get into investment banking or private equity [inaudible 00:05:44] And coming out, I was fortunate in that I was able to identify an opportunity with McDonald Investments. If you remember, McDonald was a regional investment banking in the Midwest and they were ultimately acquired by KeyBanc, but the individual, Big Ferris, gave me my first opportunity. So I'm forever indebted, very thankful for that opportunity.

He gave me a chance in a very difficult environment to really get exactly where I wanted to be in the industry and really in life. So it was a meaningful opportunity. It was kind of investment banking focused on REITs and homebuilders, which was a great translation to ultimately what Townsend does. And funny enough, that very first experience, I maintained a dialogue with Frank. Really along the way, ultimately Townsend would've become a client of mine, or at least I would aspire to Townsend was a client. And oftentimes, the easiest path in for me personally was to come in and selectively interview and then also show them what else we were seeing in the markets. It was almost a running joke between Frank and my prior boss that I was coming into market/interview with Townsend that probably occurred over the course of a couple of years.

Nancy Lashine:

Oh, that's a great story. And it's such a good example of how important it is. Those people that you meet, that you connect with, that you stay in touch.

Anthony Frammartino:

Yeah, and that's exactly right. It was always kind of, I think in both of our interests, it was interesting to me to understand what was going on at Townsend, what they were looking to achieve and how we might be able to help. And I always found it informative obviously, and I felt like that was a mutual interest. I met with a lot of the partners over those times, and funny enough, it came together almost earlier than it ultimately did. We finally had arrived at an opportunity and it coincided at the time, a lot of life events. I was finding out we were having my first child, my daughter, and then I had recently gotten promoted at the bank. So I thought things were going quite well, but the long-awaited opportunity at Townsend also arose at that point in time.

And I really struggled with it and said, "I'm probably going to stick with McDonald," and things were going well, and I feel pretty good about the future. And as far as predicting the future, I'm clearly not good at it because within a week, there was an event at the bank, and nonetheless, it made sense to revisit the Townsend opportunity. I came back to Frank who was very gracious. We thought we were pretty far along and he kind of ultimately said, "The only fear we have is we worry about whether you'd be here for the long term, because you may have wanted to be somewhere else rather than joining us." And I said, "If you're taking my loyalty to my prior employers indicative of whether or not I'd be loyal to my future one, then I think you got your question answered and the degree and he gave me the job."

Nancy Lashine:

And here you are.

Anthony Frammartino:

It means a lot. Yeah, 20 years later.

Nancy Lashine:

20 years later. Wow, that's great. So for people who are listening who are not as steeped in our world of institutional real estate investment, maybe just explain the value proposition. What does Townsend as a consulting firm do?

Anthony Frammartino:

It's a great question. We ask ourselves every single day, what is it that we do and what is it what we should be doing for our clients? And is it what they need? But if you look at the business today, we are a global, private real assets solutions provider to our clients, and that's probably had four stages of evolution. If you went back to the mid 80s, 1986, the firm was founded, and we were one of the leading, at the time, providers of a more specialist offering in a way of a consulting model, really directed at U.S. public pension plans at that point in time. It kind of the business sat between advising various investment boards as well as the investment staffs of the U.S. pension plans, and Ohio Police & Fire was actually our first one, remains a client to this day. And the first 10 years of our existence, the business grew. We came to be a leading recognized provider of that type of service offering.

It was working with investors to develop investment policies that would outline all their various goals and investment guideline parameters, risk engineer parameters, identify the roles of the staffs and the process to be followed in the execution of their programs, then mutually to act as an extension of the staff efforts, work with them to find opportunities in the market. They started off as more kind of direct property opportunities as well as searching for managers to help those clients implement in the direct property landscape. And then at that point, the exercise would also entail us typically tracking those efforts, reporting against kind of the success of the plans that we would put in place with our clients or their investment partners, executing in accordance with the plan of what we have in the level of success that we expected and working as the advocate for the clients and the board.

So really that was our business for the first 10 years. Maybe in the mid '90s, it began to change just a bit on the margin. We had demonstrated a lot of success with that approach. The universe of options began to increase greatly. It was no longer just direct property acquisitions or separate accounts that translated to our clients making those investments. There was a proliferating universe of co-mingled fund options and that universe was increasingly a global one. So many of those clients that historically had called upon us to advise them directly in their efforts. In some cases, were looking for us to assume more discretion in that type of a process.

So it was an evolution of the business. By and large, the clienteles were fairly similar, U.S. public pension plans, and then it was more or less a process accommodation. Some of those clients, beginning in '96, began to expect that we would give them all the same visibility advice in terms of how they structure and think about their program, how we apprised them on the markets and then maybe gave us a level of the flexibility to implement specifically the advice that we're providing that also would've coincided one more extension. In the early 90s, we would've picked up timber and agriculture and some other real asset areas that were of interest to our clients, but the business as we knew it for the first 20 years was us becoming the leading provider of that type of service.

It began to change a bit in the mid-2000s, the mid-aughts. And I would say right around 2007, which was clearly an inflection plan both in the markets and in our business. At that point in time, I remember in that environment for the firm, we were still relatively a small firm and Frank Blaschka, as I had mentioned, had just passed. So it was a difficult time for the company in a difficult time in the markets and really looking at being a pure play real estate firm, it would've been hard not to have concern about the business model, about the business. And it turned out to be one of the greatest periods of growth in the history of our firm.

It coincided with the evolution in the business where rather than purely seeking advice, a lot of our clients were looking for the ability for us to implement that advice and not just across the fund landscape, but increasingly in that environment. As you'll recall, you had a peak in '07 and then a pretty severe correction in the ensuing years. Fund formation, capital formation was strained. There's some parallels to that today. So it wasn't just the fund landscape, but it was also fundless sponsors and opportunities to see investment transactions in different forms. The business evolved in two ways. One, we had a lot of new entrants into the asset class.

In particular, multinational corporate type plans and a lot of global investors, and they recognized an opportunity in the markets. They didn't want to miss that opportunity, and they wanted to implement with the assistance of kind of a global provider money debt perspective. And one that was different from the traditional manager landscape, that more consultative approach that we offered was really compelling, that fiduciary role that we would assume was what they were seeking. And many of those groups had different needs from our traditional clients. They had a need for back office and clients administration. So these did require us to make very different investments in our business, which we've always done alongside of growing our client relationships. So that was an exciting period to grow what's now become known as more of an CIO business in the market.

I think we were really right at the forefront of that trend at the time. The other trend was really the proliferation of investors that were looking for a more direct model, whereas historically they were accessing real estate investments through separate accounts or cumulative funds. They were seeing many more opportunities in the way of co-investments and joint ventures and secondary and recapitalization. So right around '07, we really launched our initial forays into those areas and that's become a very thriving franchise of the business today.

We've implemented multiple of those strategies through various funds and managed accounts with client programs. So those were the initial three stages, and I think it takes us to where we are today, which is again a different and a varied landscape. I would say the next evolution of the business is really offering all the things we have historically, but also in the way of proprietary execution that our clients as well as investors globally are looking to access certain themes that are maybe not characteristic of what they've seen offered from traditional landscaper, or different from what they've seen in traditional investment environments, but they want to nonetheless implement with a trusted partner. And it's a consultative approach and it sits somewhere between the property markets and the capital markets. I think that's where business like our own finds opportunity to partner with our clients today.

Nancy Lashine:

When you talk about this last new third leg of the stool, if you will, implementing themes for some of your... or fourth, yeah, sorry, is the original one, is that a property type theme? Is it an approach to the market in terms of how you invest? How would you characterize that?

Anthony Frammartino:

It's both. It's both. There's clearly property market themes and real estate has the potential to be cyclical as we're aware and themes have inflow in terms of their risk and their return and their ultimate appeal to investors. But then the entire capital market landscape around how you access those things in the inherent state of the capital markets and the groups that are looking to raise capital in the private markets, that in and of itself is another level of opportunity or risk, but it's an investible dynamic, but I think a lot of our clients are mindful of and look to us to help them address right alongside their property market investment efforts.

Nancy Lashine:

I want to dive into that a little bit more, but before we leave, sort of the who is Townsend and how would you describe the business, the question that comes to my mind is when you think about the evolution of the real estate investment management business over the last, call it 30 years, there's been so much transition of the leaders on the investment management side and the players on the investment side, but frankly, Townsend as a brand has remained a constant and has continued to be the market leader in real estate advisory services or real asset advisory services as you describe it, what's your superpower?

Anthony Frammartino:

I don't know if it's a superpower, but we've had good people that have been committed to this business for a long time. If you look at our team, I'm not an anomaly. It's a group of people that really believes in what we do, is heavily invested in our client relationships, beliefs in those client relationships, the merits of our approach and in partnership in the markets and has chosen through a lot of iterations, a lot of market cycles, a lot of corporate events has chosen to stay together, and I think that does differentiate us. It's a decidedly unselfish approach. Today, we have clients that we advise assets exceeding 260 billion just in private real assets.

It's about a hundred clients, and it's roughly 110 individual services, those clients in one way shape or form. I think the biggest thing is we're patient. We tended to grow alongside the needs of our clients. It's been a very consultative approach. We've grown as we found opportunities in the market that we thought were compelling investment opportunities for our client programs and then coincided with growth for the firm. And I think we've always been very mindful of structuring our relationships, whether they're what the clients or what the investment partners are in clients execute through. We look for the win. It's not a zero-sum game. Life's short and memories along so to speak. It's a small world in real estate in private markets.

So when we look for these opportunities, we try to be very respectful with how we structure our direct client engagements. We try to be respectful with how we structure our partnerships with our investment partners. We want to make sure that the interests are aligned and the outcomes are equitable, but we try to be mindful of what works for either party, and we are always looking to pay it forward, invest in the long-term nature of our interactions, and I do think that has set us apart.

Nancy Lashine:

Wow. Well, that's a mission statement and a corporate philosophy that would stand anybody in good stead. What are you hearing from your clients when you talk to them the beginning of 2025? What are the frequently asked questions that you're hearing?

Anthony Frammartino:

Oh, I think there's a level of optimism that's creeping out from the skepticism. The questions that I think we're finally getting around to are whether or not, obviously it's time for real estate, and that's been the topic to drawer for the last year

And I think we're seeing more flashing indicators suggesting now is a good time to begin accumulating some exposures. It's not across the board, it's a little uneven. Many of these investors have seen their public market portfolios climb. Public markets are clearly in the upper 90th percentile of their historic valuations. They're probably looking at the prospect of at this stage in the game based on pricing annualized return in the low single digits, somewhere between 2 to 4% a year for the next five plus years just looking at the S&P. So I think they're thinking, what do we do? Corporate spreads are still quite tight and that traditional portfolio that they're otherwise allocated to.

It makes sense for them to look to more private market options. And real estate is one of those options that has clearly repriced and we saw that first in the public markets started in the late '22 timeframe. And since that point in time is up, I guess, the trough would've probably been 23rd of August or September is my recollection, we're probably up 25% or so from that point in time. And that's usually a pretty reliable forward indicator for real estate pricing. And with the private markets, what we've seen total return down just shy of 20%. And then in the recent last couple of quarters, we've seen some sense that perhaps that's stabilizing. So there's some indicators that from a pricing standpoint, maybe directionally real estate's going the right direction for investors to contemplate new investment. And I think a lot of bills, one, it's a matter of understanding what that pricing dynamic looks like and understanding whether we agree. And then two, it's where are the opportunities.

Nancy Lashine:

Now you talk about flashing indicators. I love that. And how clearly pricing both the increase in price broadly in the public markets, which has gotten rid of the denominator effect if you will. So there's some opportunity for reallocation and then public market real estate pricing versus private markets still there is a discrepancy, and it feels like it might be time. I wonder you think about this conversation. One of the things that we've been hearing more recently is investors asking about the role of real estate in the portfolio. Now that we're living in a world that seems to be higher interest rates, you can't rely on cap rate compression necessarily for value add or opportunistic returns, inflation. There's some inflation here to stay. There's some concern about future inflation and historically, there was a view that some real estate was an inflation hedge. Are you hearing that question about what is the role of real estate in the portfolio, and given the way an investor sees it, how should they be investing?

Anthony Frammartino:

I think it's definitely these points in the cycle. You always get some questions about what should the role be, and if it's a purely inflation hedge, is it effective? And again, that's an uneven story. There's some things that will translate more readily to hedging inflation over shorter periods of time and some over longer periods of time. It's imperfect, but directionally, it's been effective over time. If you looked at the real estate, a lot of the components that ultimately drive inflation, by the way, inflation is measured has a pretty heavy component of real estate. It's not the sole purpose. I think in terms of core, for instance, that has been a reliable experience for investors, assuming they were appropriately diversified and maintained their access in the market, you think that part of their portfolios has generally worked quite well.

It's achieved kind of independently a good absolute and relative return. It has been over longer periods of time. Effectively, it hedged inflation. I think where the experience has been a little less even has been on the non-core side of the equation. And I think as investors think about how they access non-core investments, there's probably more conversation around what that looks like and that's probably where you see that landscape. But it's not that it's a recent trend, it's just a much more pronounced trend. The consolidation that's occurred across managers, it looked the last year or so, 65, 70% of the take in the market went to kind of 20 names. And I know that's not necessarily a new phenomenon, but it's exacerbated over the last few years. There's a number of reasons for that, but I think a lot of that is indicative of the large art getting larger. It's both core and non-core. Investors are also looking for different forms of partnership than they might have been traditionally. Not all but some.

Nancy Lashine:

Boy, there's so many places to go with everything that you just said. I wanted to talk about core and whether you think open-end funds still have a role in the portfolio, given a lot of the pressure that they've had over the last couple of years, just because people assume they would have a level of liquidity that they haven't necessarily had, and so they've been somewhat stuck in their redemption requests.

Anthony Frammartino:

We absolutely think they have a role. We've had a great experience with core funds for a long time. For the longest period of time, we managed individual funded ones on clients behalves. So that goes back to the late '90s, late '95, I guess our track record mid '90s when our track record record was started up. And as it's recognized today, and we've had products that have invested across that landscape since the late '90s. We've had a great experience. It's knowing where there's limitations. So if the markets are liquid, then vehicles that have provisions for liquidity are right. In normalized market times, the mechanisms in those vehicles are more compelling than usually the alternatives you would find in the secondary markets.

[Inaudible 00:24:56], there's been times in normal market times where we sold in the secondary markets for premiums for some of those same positions just to give investors a chance to jump the queue so to speak. But they serve a role that provide high quality sponsorship in a lot of cases, high quality portfolios, moderate leverage, strong income component that you look back at the odyssey over time, it's probably been right around the 175 or so of income that you would expect in a quarter per quarter pretty reliably for many years.

So we think those have a real role. I think it is really indicative of how investors think about from a risk and return standpoint and allocate to the asset class. So yeah, we still feel good. Obviously, everybody's their own point concern in that universe and some have been better than others, but we still think there's obvious merit in that sector, and we think this is a great time to contemplate new exposures. Again, it's uneven but it's also been historically a good time to contemplate new offers in that landscape.

Nancy Lashine:

And you've sponsored many core open-end funds over the years.

Anthony Frammartino:

Yeah, I think it's 21 in over 6 billion or so that were put to work just seeding those new opportunities over the years.

Nancy Lashine:

And do you expect that in 2025, you'll see some more new offerings?

Anthony Frammartino:

It's possible. It's possible. I mean, I think that a different landscape from the past, because I think in the past, when I think about the environment coming out of the GFC for instance, you had broadly marked down portfolios available on the asset class was broadly marked down. Rates were much lower. So just kind of the merits of the income available in real estate, particularly given the favorable leverage, it was just disproportionately compelling, and it probably masked some of the risks by region and by sector just because of that obvious appeal. It's a different environment this time. I think you've got to be much more selective about positions that you're bringing into your portfolio.

And a disproportionate amount of what we find compelling are kind of in either specialized property types that don't readily offer that kind of scale or some things that kind of need to be built to core, so to speak. And that seems to be they're very compelling. There's more growth in those areas. But when you look at a lot of what investors were accessing historically, a lot of it's fallen out, right? They're probably not looking to bring a lot of office into your program today. At one point, that would've been almost 40% of the benchmark, right? Today it's-

Nancy Lashine:

At least, yeah.

Anthony Frammartino:

Today, you're being in the mid-teens, 15 or so percent, 16%. So a lot of that has fallen out, the office and retail, the ability to write those big checks historically, industrial in various forms, residential in various forms, very high in the radar. But then also we think some of those new specialized property types, particularly those that have underlying drivers, that are characteristic of things with traditionally like residential like industry are disproportionately appealing, but they're also not just sitting there in large portfolios, waiting to be accessed in the way that post-GFC might have found those types of opportunities.

Nancy Lashine:

What are the themes, the property type themes that you're thinking about really layering into or encouraging your clients to layer into in 2025?

Anthony Frammartino:

Yeah, like traditional property themes and we like residential in various forms. Multifamily obviously has some to stress the burn through, some supply to burn through, and particularly some of the Sun Belt markets, but we see that kind of housing is under supply. We try not to overthink it across really globally, the developed economies. And in this environment, whether it's things like BTR manufactured housing, it's all appealing to that same dynamic. So residential is something particularly in the U.S. It's very high order, but it's not just in the U.S. is probably on the margin, the most favored market in terms of our expectation for performance flow power, but residential is still very high. I would say a global supply chain. Again, our appetite is unabated at expansion, modernization of the logistics. They're integral to the supply chain and critical for ecommerce. The onshoring, reshoring trend is strong, particularly likely under this new administration.

We feel pretty good about the growth prospects or not to. So those are traditionally things that we've liked for a number of years now or accessing those in different ways. That same logistics play, you could make it as we have traditionally or as you're aware, industrial outdoor storage of late has been a good calling manner to kind of access some of those same attributes, get a little bit more yield, although that's quickly changing too as that becomes more prominent and more accepted in the market. Thinking elsewhere traditional property type themes, I don't know if you'll call it traditional, but a property market theme. Again, I mentioned the alternative sectors. Things like iOS or cold storage are definitely high on investors radars today, digital infrastructure, that's its own theme by itself. It's a specialist theme but+

Nancy Lashine:

What is digital infrastructure, Anthony?

Anthony Frammartino:

Data centers that are really benefiting, not just data centers, but really the energy and infrastructure supporting data centers that are benefiting from the surge demand of the digital economy, the growth and content streaming, acceleration of convey AI modeling. That's the part of the investment proposition that I think disproportionately our clients are focused on. And so we've seen it's an interesting opportunity, because it's one where traditionally we've been pretty conservative in terms of our appetite for development and our clients probably by extension and also had maybe a more limited appetite. That's the one area that I would say that's probably not the case. I think we have ready appetite for new development venture as is necessary to get access to.

Nancy Lashine:

Well, it's hard to buy it because it's not much of it exists yet.

Anthony Frammartino:

Yeah, in fact, I'd almost go on the other side and say that investors seem more comfortable with the development nature of that risk than in a lot of cases they are buying core stabilized.

Nancy Lashine:

Let's double click on that a second. We talked about that before, but when you think about, are data centers a core asset or are they opportunistic? How do you think about them? Where do you put them in the portfolio?

Anthony Frammartino:

Yeah. Today, I think it's mostly building to core. The development is more non-core. It's like a mid-teens return profile. But you have, in a lot of cases, some underlying credits that can be quite compelling. And if done right, it can look like a pretty compelling return with an underlying hyperscaler as a credit. So that's where the appetite in our portfolios has been. It's been more on the non-core side, ultimately building two core, and we are seeing some kind of early interest in understanding and investing in the Core Plus part of the equation. But I would say by and large, there's still a gap in investors' experience and understanding, things like what will be the impacts of technological investment on the ultimate obsolescence associated with the assets.

Just real focus on what does capital look like. We've always been very underweight to office structurally for long periods of time because we knew, you had to put close to 30% of your ROI back into CapEx. And what does that look like for data centers? Our sense is from others who've done it over time, that's a mid-20% type expectation, but there's just not a lot of experience of investors what that looks like, what that obsolescence looks like, what's the right pricing? Kind of feels like Core Plus is settling in the mid-sexes right now. So that's a little bit of a premium to what we would see in more traditional core, but also a lot in the way of risk that a lot of investors haven't quite figured out how they feel about it.

Nancy Lashine:

You mentioned earlier 65, 70% of the capital going to the largest managers. Do you think it's even possible to start a new real estate investment management company today? Or the barriers are just too high?

Anthony Frammartino:

Again, even in that story, there's always a caveat, right? So the larger are clearly getting larger. There's a number of reasons for that. It's investors with limited allocations that are emerging, looking to stretch those allocations. They're consolidating relationships across other private market areas for various reasons, whether it's staffing constraints, whether it's improving the terms at which they can access their investment partnership. In some cases, it may even be some implicit stress in the consulting model in terms of what it takes to really understand, have a well-developed market view and focus on more specialized, whether they be by sector or by region investment partners. But really where we see the greatest shakeout is probably in the middle markets. In some ways, the smaller specialists by property sector or by region, depending on what their focus is. Mike Garner disproportionately strong prospects in the market. Again, it goes back to what I was saying earlier. A lot of the interest is in sectors that haven't been addressed by traditional real astate managers.

So it's those specialist sectors like iOS and cold storage and data centers. These are far from the four food groups. So I think in some ways, it's never been a better opportunity for new entrants. It just comes down to what their focus is, and what they can demonstrate in the way their capabilities. And also, the universe of investors is frankly more aligned with them or has the potential to be, because they're embracing different manners in which they can access these groups. That isn't just a traditional LP coming into a blind fund. It might be a recapitalization or a secondary like exercise or GP and platform staking we had talked about is gaining an appeal. So I think investors, as they've gotten more comfortable with the asset class, more comfort with the structures, they're looking for ways to partner differently, particularly with that next group of managers, In some ways, that advances their prospects and enhances their ability to gain entrance to the market.

Nancy Lashine:

Do you see that as the GP platform staking is a growing trend, I think about it. When you think about when you got into the business, Anthony, in the early 2000s, the allocator model, what everybody was comfortable with, and as long as the allocator put in enough capital and there was a promote, the idea was there was a good alignment of interest. And over time, that has evolved. And I think most investors at that point in time wanted their manager to do just one thing. So they got to the office every morning, and they were just thinking about the pool of capital they were invested in.

That's evolved where many investors seem to want their managers to want to have a broader relationship with their managers because it simplifies their life as well. And they've also seen the rise of these very well capitalized big companies that can do a lot of things well oftentimes by buying a platform or investing heavily in the platform. But for the midsize or smaller investments and managers, do you see the GP platform stake becoming a way to create better alignment, reduce fees, and capitalize the businesses in a way that we haven't seen to date?

Anthony Frammartino:

I think it does have that potentia, I think enters at which investors have approached that style of investment, it really varied. Yeah, some that really look at it as very much just the way to effectively lower their fees. That's probably where it started, scale their capital and lower their fees. I think you have others that perhaps look at it a little differently where they believe they may have perspective that they can bring, that can accrue strategically to the benefit of the party they're investing with and in.

But I don't think it'll become universally a way investors are looking to access their managers. I think for a segment of investors that are maybe willing to think about what that capital market landscape looks like, understand their role in the capital markets, I don't think it's just supplying capital, I think it's perspective, but these groups are looking for, I think it's the ability to be a reference, the ability to help them speak with and understand other investors, access other regions of investors, understand some of these large parties. For instance, on the advisory side of our business, we've been partnered for many years with some of the largest, most sophisticated global organizations, and they use us as an objective advisor on their behalf, and they're privy to an awful lot.

They speak to many groups across many global domiciles, and a lot of the times they uncover things that you might not have on your own. And by virtue of advising them in diligencing these opportunities on their behalf, they learn a lot. So they're really in a position where they're quite informed and to the extent they're investing in a platform and have that kind of perspective. In some cases, I think there's investment partners that will be looking to access that perspective. And if they're aligned, it's a chance to grow their business, and that can be even efficient, can be an kind of efficient process.

Nancy Lashine:

How do you, as Townsend, stay ahead of the global trends? You've got people obviously sitting in Cleveland and a handful of people in offices around the world, I believe. Is it through those folks or what ways have you used to just be able to advise your clients who are in fact investing globally?

Anthony Frammartino:

Yeah, it's really about an ecosystem. There's no one thing, right? I think if you look back over the last 20 years, we've on average diligenced over 300 funds a year to a pretty significant of diligence through our IC. If you look at our GP relationships, we have well, over a thousand, our client relationships, the ones that we have today as well as those with whom we're partnered in the market through various JVs, et cetera. We have a really efficient mechanism for getting smart on areas where there's just generally not a lot of knowledge or experience historically. As you know, nobody wants to go out and do a flyer on something they don't understand, and clearly you don't do that. That being said, sometimes things get brought to you and a lot of the things we've talked about. There's not a lot of track record for legacy managers.

There's not a lot of experience for investors. So it's really understanding what you do know and where it's applicable, and then understanding what you don't know and having a large contingent, a large, again, I'll call it an ecosystem, partnerships in the market where we can get perspective about various new property types, new and emerging property types in various markets. And not only is it from the GPs, the many of whom we speak to, that come in our doors every day, but also from the clients that we advise in those regions that have firsthand perspective in those regions.

So it's a very efficient exchange, but it really comes down to, you got to understand yourself, what you've done well, what are your organizational biases? We have biases for sure, for sure you did, and how do they manifest themselves in the way that you make decisions as an organization? Where we've had the benefit is just this long association, having done this for over 40 years, many relationships on the GB and LP side and just a lot of knowledge. You mentioned it earlier, the team we've been able to keep in place for, I think about Jay Long, who's our IC chair. He started here in '94. He's been involved 10 years before I did. He's been involved in so many decisions, so many client recommendations, just being able to tap into perspective that we have in the individuals in the data.

Our databases go back to their mid '70s, and so it's observations and information that we've collected over many years that we can access. And again, it's just part of that ecosystem. It's no one thing, but it's about staying current. It's about keeping a team together, which we've been able to do. Our approach is also just being a consultative one. We've looked at far more things than we've ever been willing to do. If you look over that entire history, we're converting, I don't know if this is something to beat just about or not but maybe implicitly, it's our discipline. We've probably only converted, it's less than 5% and the numbers, it's probably 1 to 2% if you have things that we look at. So we look at a lot of, I guess, a lot of frogs.

Nancy Lashine:

Or as I had a boss who used to talk about, we all know about the sins of commission, but it's the sins of omission that none of us need to talk about.

Anthony Frammartino:

That's right. No, that's right. And that's another thing. It's a good point because a lot of times, whether we do something or don't do something, we still have visibility in terms of how it's done. And I think that's right. A lot of times, you see an opportunity. You react to it in one way or another. Maybe you do it, maybe you don't. If you do it, you know how it did. If you don't do it, perhaps you don't know how it did and what you missed. So for better or worse, we typically have the ability to see it because the likelihood is we're going to still maintain communication. We may have other investors, whether we've advise them or others who've had that kind of an experience. A lot of times, you look back at that and you can learn a lot. And so if we try to be mindful of that, we try to not lose that association, maintain that dialogue. And just because we did something in the past doesn't mean we'll do it again, just because we didn't do something. We still may do it in the future.

Nancy Lashine:

Well, you arguably have the best private real estate database in the world. You may have the most information and the best access, certainly the best access to information because everybody comes to you. Tell me, you have to forgive me this next question because people ask us, and I really would love to hear your answer to this, what makes a good real estate manager?

Anthony Frammartino:

That's a great question. One that can maintain efficient access to capital. So maintaining access to capital is pretty important. Don't discount the ability to attract capital and being relevant in the capital markets. But I think what we've seen is one that can, there's a level of value that can be added at the property level. You've got to be proficient in demonstrating that capability. Arguably, what we would see, it's tough to go against the wind. So if something is the best office operator in the current environment or the recent past is probably going to have a tough time outperforming the worst data center, you're just going the wrong direction. You're in an area that's everything's going to be against you, that terms are going to be more egregious, and capital availability is going to be restrained.

So what we've found is some of the best real estate managers, have been the ones who've been able to identify where they should be at a point in time, particular property type, and get kind of capital to access that property type, which I do think is one of the reasons why we've seen some of the global allocators that demonstrated that in an early stage that could take that capital and effectively help their investors make allocation calls. That's probably been the most consistent driver of performance is being in the right place at the right time. And to do, you've had to get capital access, right?

Nancy Lashine:

Stay in the markets, stay in the markets, and a little bit of better be lucky. It's good to be lucky and smart.

Anthony Frammartino:

Yeah, no, that's exactly right. You got to pick your points, right. Again, it's just, I point to some of the things we've seen in recent history, right? Go back 10 years, maybe if it's 15, retail and office would've been high on the list of what most global investors were looking to bring into their programs. And there were some tremendous franchises there, and they had varying levels of success with their various property efforts, but it wouldn't be all that hard to outperform having been in different places, which would've been-

Nancy Lashine:

Right. For sure. For sure. Yes, that's true.

Anthony Frammartino:

Getting access to capital, but identifying where those future opportunities would be. Again, it's a chicken or the egg. The reality is there's even in the strictest in terms of getting capital allocated in the latest times when investors and partners showed up with compelling portfolios or investment propositions, ideas that were kind of emerging, capital finds those opportunities. So I think it does still start with, you got to find the opportunity in the market and the groups that have really built the thriving platforms, the ones that are kind of accelerating out of this recent environment are the ones that have found opportunities that garnered appeal in the capital markets. So I do think it starts with, you got to find the right place to put that money.

Nancy Lashine:

Can I ask you a few rapid fire questions as we finish up here?

Anthony Frammartino:

Sure.

Nancy Lashine:

Who's had the greatest influence on your career?

Anthony Frammartino:

That's a good question. It's any number of people over any points in time. I think in terms of real estate, it would've been my parents, my father. They were school teachers through most of my formative years, meaning they had the summers off. And unlike other kids where they might've been at the pool or at the country club or wherever they were, we were buying, renovating and flipping properties, or some of which we would keep to rent.

Nancy Lashine:

I don't know, Anthony. My mother was a school teacher. We weren't buying and flipping properties in the summer. Good news to you.

Anthony Frammartino:

Yeah. So it was just a different experience. It was one, it got me interested in real estate, but two, just the idea of they would always have the mentality of it's not what you make, it's what you ultimately are able to save and invest. And I do think that has kind of shaped how I've really thought about one from the standpoint of a family of teachers and the necessity of their pension and the ultimate reliance on that pension, but also the sense that there's what you do day to day in your job, and then there's what you do in life. And so I think that very early on, they instilled that respect for hard work, the respect for money, and the power of money, and making sure it's invested in generating income.

And then I think having joined Townsend, we had a great group of partners. Frank Blaschko brought me in, and unfortunately, I didn't have a long enough period of time to work with them, was only a few years, but they were a meaningful few years. And then Terry and Kevin, who our two co-founders, they were really leaders in the industry and they had great perspective to offer with it. A long kind of institutional background, clear demonstrated leadership over the years, and hard to say, we didn't have perspective that I don't think really existed anywhere else in the industry.

Nancy Lashine:

Yeah, no, Townsend from the very beginning was very special firm. You travel all the time. You have clients all over the world. You have a favorite city.

Anthony Frammartino:

Favorite city. I'm a homebody. I say that first.

Nancy Lashine:

If you say it's Cleveland, I'm going to call an inaudible. I don't know, I spent too much time in Cleveland to believe you.

Anthony Frammartino:

I won't say it's Cleveland. I won't say it's Cleveland. I'll say I really always have a good time and really appreciate London. I think London is one. We've got a strong team in London and a great group of people. I think it's truly a livable global big city. I've always felt great about the interactions with our team there, with our clients there. Similarly, I've had great experience. It's so hard to pick, right? We've had great experience in Seoul with a great team in Seoul and clients in Seoul and Tokyo. These have just been markets where you really get a chance to enjoy the market, chance to enjoy our clients and the people in the market and understand their cultures. So I've been blessed to put forward those kind of opportunities.

Nancy Lashine:

I'm going to ask you where you enjoy the food, Seoul or London, where would you rather have dinner?

Anthony Frammartino:

Oh, wow. That's a great question because you can... Now, I will say in terms of my favorite cuisine, Korean is quite high. Now, the funny thing is you could go to a place like London and find tremendous Korean as well, as well as many other cuisines. So I might opt for the one that allows me to have the most variety of options, and that would probably take me to act to London.

Nancy Lashine:

Now you starting to sound a bit like a New Yorker too, because what I would say about New York, all right, my last question for you. Do you have a guilty pleasure?

Anthony Frammartino:

A guilty pleasure? Geez, I don't know if I do or not.

Nancy Lashine:

I know it's hard to talk about it on the podcast.

Anthony Frammartino:

I'm trying to think of what it would be. Yeah, I don't know that I have an answer for that one.

Nancy Lashine:

Okay, well, you can say it's watching the calves. That's okay.

Anthony Frammartino:

Yeah, I wouldn't have guilt about watching the calves. My guilty pleasure would be watching the Browns because though I liked them and I've been a lifelong supporter, when you look at how much time I've spent, that's where the guilt comes in. That's been received in return.

Nancy Lashine:

I went to college with Cindy Lavelli, whose father played for the Browns, and it was challenging to watch them in those days.

Anthony Frammartino:

There's periods of my life where I can recall that were good years, like in the '80s and early '90s, and since the newest iteration, since '99, it's been a little tougher run. But we'll figure it out. You got to be the ever-optimistic Cleveland fan. It's always next year. We'll figure it out. But we got the Buckeyes, right? Buckeyes got to die in wars.

Nancy Lashine:

I live in New York. We can commiserate about all kinds of sports but...

Anthony Frammartino:

Yeah, the difference is you have more things to do when your sports teams are bad than we can.

Nancy Lashine:

That might be true. Anthony, it's such a pleasure to talk to you. We could go on. You have such an incredible team and company and perspective on the industry and have lived through really a lot of the major trends that have affected this huge business. So thank you very much for sharing some of your perspective with our audience today. Really appreciate it.

Anthony Frammartino:

No, I appreciate it as well, Nancy. It's been great to spend time with you and we look forward to being partners in [inaudible 00:50:39].

Nancy Lashine:

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.