Real Estate...Real Problems?





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Recent news on real estate has ranged from bad to worse, but Seth Singerman of Singerman Real Estate remains optimistic as he breaks down the diverse asset class and shares his thoughts on key areas of growth and opportunity going forward.

Seth joins Greg to discuss the state of real estate and offer his insights on the health of housing, the macro trends in industrial, the areas of opportunity in office (yes, they exist!), and the discrepancies between public and private real estate valuations.

Key takeaways include:
  • Life science office has unique value-adds compared to traditional office that makes this a profitable avenue for investment
  • Public real estate valuations are typically more accurate than their private counterparts
  • Many areas of opportunity remain in real estate (even in the face of a potential recession), including senior, medicine, and education.


Episode Chapters
0:00 Introduction
3:05  The State of Real Estate
3:55 Mo Office, Mo Problems
11:52  Office Breakout - Life Science
14:24 Post-COVID Impact on Lodging and Hospitality
18:35  A Look at the Industrial Market
23:45  The Housing Market
28:03  Unique Challenges of Senior Housing
29:56  A Few Macro Questions: Top and Bottom Sectors if we are in a Recession, Public versus Private Real Estate Valuations, Advice for New Entrants in Real Estate
34:39 Lightning Round




Greg Dowling, CFA, CAIA

Chief Investment Officer, Head of Research, FEG

Greg Dowling is Chief Investment Officer and Head of Research at FEG. Greg joined FEG in 2004 and focuses on managing the day-to-day activities of the Research department. Greg chairs the Firm’s Investment Committee, which approves all manager recommendations and provides oversight on strategic asset allocations and capital market assumptions. He also is a member of the firm’s Leadership Team and Risk Committee.

Seth Singerman

President and Managing Partner

Seth Singerman founded Singerman Real Estate, LLC (“SRE”) in 2010 and is responsible for the overall strategic direction of the firm. SRE is a value-driven real estate investment firm that has deep experience executing complex transactions and unlocking embedded value through the ownership of properties, real estate loans and operating companies. SRE focuses on maximizing risk-adjusted returns through investments in both debt and equity across all major asset classes including industrial, hospitality, retail, office and multifamily in addition to secondary real estate asset classes such as life science. Since 2010, SRE has sourced and executed, with partners, over $4.0 billion of investments across the major property type on behalf of institutional investors including public and private pensions, endowments, foundations, and asset management firms.

Prior to forming SRE, Mr. Singerman was a Managing Director of GEM Realty Capital (“GEM”), where he worked from 1999-2009 and was the youngest partner in the history of the firm. At GEM, other than one of the founding partners, he was the only partner to have senior investment responsibility for both GEM Realty Securities, a long-short hedge fund and GEM Realty Properties, a direct investment opportunity fund. Mr. Singerman championed the utilization of relationships with public real estate companies to source direct real estate investment opportunities.

Mr. Singerman is on the Advisory Council of the Center for Real Estate and Finance, Cornell School of Hotel Management; a Board Member of the Graaskamp Real Estate Program and the Real Estate Applied Security Analysis Program, University of Wisconsin – Madison School of Business; member of the Kellogg School of Management Real Estate Advisory Council; member of Owners Advisory Board of Aimbridge Hospitality; and a Board Member of the Next Generation Council to the United States Holocaust Museum. Additionally, Mr. Singerman was a Board Member of publicly traded IMH Financial; on the NAREIT Investor Advisory Council; and Co-Chair of Jewish Federation of Chicago’s Young Real Estate Division. Mr. Singerman is a member of the Young Presidents’ Organization. He received his MBA with a concentration in Real Estate and Finance from Northwestern University, Kellogg School of Management, and his B.S. with a concentration in Real Estate and Finance from Cornell University where he graduated as a Ye Host Honor. Mr. Singerman currently resides in Chicago with his wife Dana and their children Sloane and Grant.


Greg Dowling: 0:06

Welcome to the FEG Insight Bridge. This is Greg Dowling, head of research and CIO at FEG. This show spans global markets and institutional investments through conversations with some of the world's leading economic and philanthropic minds to provide insight on how institutional investors can survive and even thrive in the world of markets and finance.

Greg Dowling: 0:30

Every day there seems to be yet another news story on issues within U.S. real estate. Therefore, the FEG Insight Bridge invited Seth Singerman, managing principal and founder of Singerman Real Estate, to the show. Prior to founding Singerman, Seth was also a managing director at GEM Realty Capital. We invited Seth because he runs an opportunistic fund investing across asset classes, across geographies, across security types, and across both public and private markets. We will attempt to get the real scoop on real estate and find out if the office sector is really as bad as the headlines seem. Are life sciences the harbor in the storm? How about industrial? Can rent support new family, multi-family investment? And why is there such a difference between private and public real estate valuations? We'll get real on real estate.

Greg Dowling: 1:22

Seth, welcome to the FEG Insight Bridge.

Seth Singerman: 1:25

Greg, it's great to be here. I've listened to several of your podcasts and truly appreciate the opportunity to join this talk.

Greg Dowling: 1:32

I appreciate you listening to all the podcasts, that's wonderful. So you know the deal, I just wanted to start off by maybe having you introduce yourself.

Seth Singerman: 1:39

Sure, my pleasure. We're a Chicago-based opportunistic real estate investment firm and we invest primarily in assets, but we'll also invest in loans and other structured investments. We do it nationwide—it's a little bit of a tilt now more towards the Sunbelt as there's been a lot of demand there—and we do it across the major food groups: industrial, residential, hotel, office, and retail. We do it in some of the niche asset classes as well. I think for us, really the key is we're ultimately value investors and we need to take risks to generate returns just like any other investor does, and we really focus on taking those right risks. For us, that's finding dislocations that are in the market. An example is a property may be doing 80% of what its competitive set is, and we think that—whether it's injecting capital or operational improvements—we can narrow that gap. We like that because we don't want to have to assume market rents are going to grow for apartments at 5% in Raleigh, or Dallas industrial will grow at x percent. If we can control the asset level, if there's growth beyond that, that's excess return, and we view it as gravy, effectively.

Greg Dowling: 2:47

That's one of the reasons we wanted to have you on, Seth, is that you have a very flexible and opportunistic mandate, so we're going to go across all these different areas. But there's been a lot of negative news on just real estate in general. We're thinking about calling this, “Real Estate, Real Problems?” So how bad is real estate?

Seth Singerman: 3:06

That's a great question. Our house view is Armageddon is not coming. You may think so, hearing what Jamie Dimon and Warren Buffet and even Elon Musk say, that real estate is falling apart. There are pockets of challenges, but the broader comment is real estate is very diversified. Clearly the problem child is office—which I imagine we’ll touch on—and it is very challenged, but even in office there's a few pockets of opportunity. But overall fundamentals in real estate right now are pretty good. And in some sectors, such as industrial, very good, albeit not growing quite at the historic levels they were a couple years ago. The question for real estate, probably like some of the broader market, is investors are putting a high emphasis on if—or more likely when—there will be a significant recession and what does that look like?

Greg Dowling: 3:55

Trying to come up with a title for this, someone suggested, which I thought was really cute, that we should call this “Mo Office, Mo Problems.” We're going to talk more than just office, but I love that. So maybe we talk about the problem child. Let's talk about office. What's the difference between central business districts, Chicago office, and Sunbelt office? Is it all bad or is it just kind of “it depends”?

Seth Singerman: 4:17

I'll frame the sentiment first and then I'll give a high-level point. I think that this summed it up.

Seth Singerman: 4:37

That's obviously an overstatement, but it's going to be tough sledding for the majority of the office sector, and it'll create some opportunities for some. Again, to frame it... A friend of mine shared this with me, I really liked it. To look at the office situation, about 20% of bank's loans are generally in real estate—and this varies from the money center banks that have a little less, the regionals a little bit more—and of that 20% of their loans that sit in real estate, roughly 20% of them are an office exposure. Take that, and then if the original loans were, let's say, at 50%, 60% of leverage, not all loans are going to be bad. There is going to be a diminution of value, but maybe there's, across all office loans, a 20% impairment, which is not inconsequential for those office loans. You do that math of 20% x 20% x 20%, that equates to about an 80-basis-point capital loss for these banks. But it's not all going to hit at once, there's going to be a lot of loan modifications and what we call “extend and pretend” or kicking the can down the road, and you've seen that in some of the bank's impairments.

Seth Singerman: 5:40

So I think it's going to be difficult, it's going to take time to work out the system, and we don't think that that is going to be the tipping point. I think the approach that you're going to see in office is there'll be some loan workouts in the near term, but many of the lenders are going to kick the can down the road with what are called “blend and extends,” where they're going to help prolong what is ultimately the workout of some of these loans, provide the borrowers some optionality, and that in itself is going to provide an extension of how long the office malaise persists. As it relates to certain product type, whether it's office or suburban, I think it really depends on the market and the dynamic. One of the more interesting characteristics is the physical product. Newer properties absolutely are outperforming, and there's actually some parallels to the mall sector. I think 10 years ago you saw on the cover of a magazine the picture of the dead mall. Clearly there's been a massive change in the enclosed mall space, where there's probably 15% that are very viable right now and are getting densified, and the remainder are somewhere between dead and being repurposed and hanging on there. The percentages will be different, but the concept is the same.

Seth Singerman: 6:54

If you look at it—even New York, which is very challenged... An interesting statistic is more leases were signed in 2022 above $100 per square foot than ever in New York City. Over 6 million square feet, over 200 leases. The highest rents ever. That was for a very select winners, and those winners are getting stronger. The remainder, it's very difficult. I'll give you just a practical example that I think we can all relate to. If you take a typical law firm, they maybe have 5 floors and their lease is coming due, they may shrink to 2 or 3 floors, and to your question, Greg, they may even have a satellite office closer to their houses somewhere in the suburbs. But they can go—if they're going to shrink their footprint by 50% plus or minus, they can go pay 20%, 30% more in a fancier building and still be net less expense on their overall business. That dynamic is going to play through across markets. It's going to have a drag on vacancy, but it's also going to show that the best product will still be viable and quite healthy.

Greg Dowling: 7:56

I just got back from New York City and that's so true. There's One Vanderbilt, which is a newer building in Midtown, right by Grand Central. It is super-high rents, uber nice, great amenities package. That's full, but there's a lot of other older inventory, maybe class B, that's just kind of sitting there and has some pretty high vacancy rates. Places like San Francisco, Chicago, and New York, what do you do with them? I keep hearing that they're all going to be apartment buildings, but that seems pretty tough. Is that possible?

Seth Singerman: 8:24

I think you nailed it. We certainly have a housing problem in the United States, but the solution isn't converting every non-viable office building to apartments. We've seen some academic work, we've seen some broader work, some were probably between 15%, at best 25%, of non-viable office building probably makes sense for conversion. So you will see some of that, and you'll see some of that in the New Yorks and Chicagos of the world. You're already starting to see some of that happen. But the key is that is for a limited subset. For the remainder, it is going to be challenged and it takes time. It may take some city incentives. Even in Chicago they're talking about that in the area that was the classic downtown—LaSalle Street, State Street, Central Loop. They're talking about incentives to try to work with some of those older buildings. Now, we'll see if it is successful or not. It does create investment opportunity though.

Seth Singerman: 9:15

So a parallel, as we talked about the malls, on something that we did that shows how far and how fast values can fall. We were invested in a mall about 7 years ago that we invested in at $0.15 on the dollar of what the loan balance was. This was in a very fast-growing, attractive market, and a good location in that market. So we valued this asset and invested in it at $0.15 of what the loan balance was. A remarkable impairment of value. We looked at this mall and basically said, “We think it is attractive on a per-acre basis, not as an ongoing mall,” and looked at it as a 4 million square-foot development opportunity in a very attractive location in a very fast-growing market. I think you will see some, again limited, opportunities like that also in office space, where the physical product may not make sense to do a straight conversion but it's an attractive location and you'll see some—particularly in suburban markets that have large land sites—be used for alternative uses. We've seen it actually occur with acquiring suburban office buildings that ultimately have become industrial, which is a darling of the real estate sector right now.

Greg Dowling: 10:28

That's interesting. Probably the focus has been—maybe rightfully so just because there's a lot there—in places like New York, Chicago, San Francisco, but in other office locations… Is Austin still a good market, or Phoenix, or Charlotte? Where is there office that is new office that we're putting up that's attractive?

Seth Singerman: 10:44

There's new office that's attractive in a lot of even the more challenging markets that you're talking about. Chicago is a good example. An area called the West Loop has had significant office absorption lately. The Googles are there, many headquarters have moved there of the ones that are still in Chicago, and it is a really vibrant, 24-hour mixed-use area. And that's an example even in Chicago where there's been negative absorption. You gave the example of New York. A broader overlay which is very clear is the Sunbelt is absolutely getting a lot of demand and it is tangible. You can look at Tesla moving to Texas from California, you can look at Oracle moving from California to Texas. You can look at Caterpillar moving from Illinois to Texas. I'm just picking on Texas, but the same thing is true with Nashville and some of the other Sunbelt states. And so you are actually seeing good or very reasonable leasing absorption in office in some of those Sunbelt states driven by migration. We're seeing that. We have a project in Dallas—and Dallas has been strong. You look at the tenant depth, the majority of it is coming from out of state, new to the market.

Greg Dowling: 11:52

One of the most vibrant cities I've been to recently is Miami, that whole Florida corridor on the Atlantic side. They have light rail now. I mean, it's pretty amazing. So you're absolutely right, there are pockets where things are pretty vibrant. One area that seems pretty vibrant but it's maybe like a sub-sector of office—and I know you break this out differently when we look at your reports, you break out life science from generic office. Why do you break out life science differently than just plain vanilla office?

Seth Singerman: 12:17

Life science has very different characteristics than traditional office. We just talked about the reduction of demand and vacancy that's going to be rising in traditional office. In many ways, the opposite is occurring in life science. The tailwinds to demand are really driven by what's remarkable innovation in bioscience. For example, the FDA will likely have more approvals this year than any other. That is really what's driving this demand. You've actually seen the consumption of life science space nationally grow by nearly 50% over the last 6, 7 years. It's been a dramatic increase of demand. We think that's a really positive dynamic. From a real estate perspective, how it's different than office is lab space is clearly a very different build-out and use than say—let's go with that traditional law firm. It's so much more expensive.

Seth Singerman: 13:09

For lab space, the landlord could be contributing $150, sometimes $250 per square foot to the tenant for lab build-out, and the tenant, in some instances, could be putting in another $500 more. There's an enormous amount of capital that's going into this space. That also has an impact if the tenant chooses to move or not survive or grow, because these are dynamic companies. So a key to it is: What is the reusability of that space, whether it's the lab benches, the hoods, or the HVAC system? We've really spent time... Much of that can be reused for other tenants if—and you may have heard the saying, “location, location, location”—you're in the right location that's driven by some of the strong life science ecosystem.

Greg Dowling: 13:56

So we're talking like in Cambridge, some of the clusters that we see. And there are other cities, right? I mean, there's a little bit in Chicago. But you can't just put one in—I don't know, choose some random Midwestern city—and think that you'll be able to quickly replace that tenant.

Seth Singerman: 14:11

You lose a tenant in a Des Moines life science building, it's going to be much more difficult to replace, whether you're in Cambridge or even in suburban Boston—there's a major corridor called Waltham and Lexington that has 8 million square feet of life science tenants there. That is its own ecosystem.

Greg Dowling: 14:29

That's pretty helpful and very interesting. So there are ways to play office that are a little different, a little interesting. Where office has been somewhat impacted by secular change coming out of COVID, one of the other impacts of COVID—really COVID reopening—has been revenge travel. It seems like hospitality and lodging are on fire. We talk about real estate being all bad, that's not true, there are some pockets that are pretty strong. You mentioned industrial, we'll talk about that. But lodging, how long will this last? Is this kind of a temporary thing where we're just—everybody's going to get their couple trips in that they missed and then we'll go back to normal.

Seth Singerman: 15:05

We all travel. We also know how expensive it is, both the flights and the hotel room these days. I do think that there has been some semi-permanent changes to demand in the hotel space. Frankly, 2023 performance to date has exceeded most people's expectations. To your question, Greg, I think most people thought the air was going to come out a little bit, and frankly, the trajectory has been better than we have anticipated. When you break down that hospitality demand further, we are seeing a normalization in demand trends for leisure. We're starting to see a slowing of room rates off of those very high levels, and that's to be expected. But overall leisure is quite good and frankly more resilient than I would've expected. The real positive outlier has been the more recent recovery of group business. For example, Hilton's group booking pace is up 30% year-over-year. Combine that with the traditional road warrior business travel—and that group business and that road warrior combines the majority of total travel—that's where the biggest growth and probably biggest growth relative to expectations has occurred.

Seth Singerman: 16:10

Another demand trend that we've seen that is tangible is a concept called “bleisure,” which is a combination of business and leisure. You're seeing that… Sundays and Thursdays used to be slower nights nationally, and you're now seeing those nights’ occupancies even better than they were pre-COVID because people are staying longer. The dynamic also has a positive effect operationally on margins, because longer stays have lower expenses. The last point I'd say that's at least encouraging for the hotel space—with the big caveat being if there's a massive recession, things could change—is that the international traveler still has a long way to come back and is only at 75% of pre-COVID levels. That will come back and that should benefit both urban markets and some of the resorts.

Greg Dowling: 16:55

Well you mentioned that you're hopeful that rates will start to level off. I haven't seen that yet. I just got back from a trip and the hotel room rates were pretty high. One thing that I also hear though, like yeah, there's a lot of demand, but if you're an operator of a hotel there's just tremendous wage pressure. In fact, sometimes you can't even find people to work the front desk or to clean the rooms. Can you speak to that at all?

Seth Singerman: 17:17

It's so true. It's particularly important in hotels where over half your expenses are tied to labor and wages. The wage pressure has been material. I do think we are seeing that normalize significantly over the last, let's call it 3 to 6 months. The wage pressure is still growing at, let's call it 4% to 6%, but that is way down from what it was last year. Last year was so bad that we actually contemplated buying into a contract labor company, both because we knew the demand was there, but also to help secure staffing for our own hotels. We didn't ultimately do it, but we developed the relationship. And you had to, to your point, lean in and use some very expensive temporary labor. That is starting to normalize more. We think we are at an elevated but more steady state now from a staffing and expense management standpoint.

Greg Dowling: 18:10

I think that some people have just kind of naturally come back into the workforce, which I think has helped a little bit there, but probably offset by some of the higher room rates that we're paying. It is crazy.

Seth Singerman: 18:19

I'll tell you what they're doing. I wouldn't bank on room rates coming down anytime soon. Occupancies in a lot of these hotels are still not at pre-COVID levels, but as hotel owners they're hanging onto that rate as long as they possibly can because that's what really drives the margins.

Greg Dowling: 18:35

Another area of strength is industrial, it's been strong. I know coming out of, or kind of during COVID, everything was e-commerce; we couldn't go to the stores, so we ordered things. Everybody's trying to get logistics hubs here and there, but it's just remained pretty darn hot. Why? [laughs] Will this also be something that kind of fizzles out? Are there fundamental changes that we need to have industrial and more industrial space?

Seth Singerman: 18:57

I absolutely do think there are fundamental changes. That doesn't mean you can't tip the scales and have too much supply, but there are a lot of positive dynamics that are occurring right now in industrial. Certainly e-commerce is one of those, but others that are very material are nearshoring and onshoring. That is a major trend that you're seeing. Continued manufacturing—you are seeing the trends there. Further investment in third party logistics, you're seeing the East Coast ports gain a significant market share as well. So there are a lot of underlying positive dynamics that we think still are occurring in the industrial sector. Why has it been so hot from an investment standpoint? It's real simple. Rents nationwide for industrial have grown—and this is extraordinary—75% the past 7 or 8 years, 75% growth in rents the past 7 or 8 years nationwide. That's why it's been so successful.

Seth Singerman: 19:52

One reason why you could grow those rents so much is that if you look at the tenants, the actual rent is still a very small portion of their overall cost structure. It could be 3%, 4% of the overall cost structure. And so to move that on a percentage basis isn't moving the needle. The transportation costs are so much more. So we still feel very good about industrial. If you think about nationwide, the vacancy rate is still sub 5%. For this year, again, nationwide, industrial is expected to grow their rents mid- to high single-digits. And so the overall backdrop is quite positive. The capital markets’ disruption actually is a good thing because despite those positive dynamics, we're seeing a 40% to 50% decline in new development starts on the industrial front.

Greg Dowling: 20:38

Can you speak to how different new industrial spaces are versus some of the old legacy stuff that's out there? Maybe I'll start there first.

Seth Singerman: 20:45

Absolutely. There's a lot of functionality and there can be obsolescence in industrial. Many people think of it as just a concrete box, but there is more to it. The clear heights are very important. We just acquired an asset where the tenant, they effectively manufactured t-shirts, underwear, other consumables like that, they stack 60-foot high in this industrial building. It is very efficient for them. For them to be in an older building, they would need twice the square footage. That gives us some pricing power to it. Another example beyond just clear heights are dock doors. We talked about the transportation, the number of dock doors and trailer storage for all of this transportation that's going on right now—a lot of it driven by e-commerce——has very different requirements than it did, say, 10 or 15 years ago. So newer product without a doubt, in industrial, commands a premium. Both the product and the location.

Greg Dowling: 21:44

I had the opportunity to do a tour of some brand-new industrial space right outside of New York City on the Jersey side, and it was a great tour because they pointed out all these different things. You just think it's just space, and there's so many like, “Hey, trucks need this, if it's cold storage they need that.” There's so much going on there versus what it used to be, kind of a stark structure with a concrete slab. It is very different. But if you can't put new industrial spaces in some of the more densely populated parts or right next to a port, where are some of the new industrial builds going on in the U.S.?

Seth Singerman: 22:20

So you are seeing significant supply growth near the ports. We recently made an investment near the port of Houston.

Greg Dowling: 22:27

Not like New York, LA, you're seeing other ports kind of take a bigger role?

Seth Singerman: 22:32

A macro trend. People see the lines at the port of Los Angeles... The port of Los Angeles is very strong, and the Inland Empire has exhibited some of the greatest rental growth in all of industrial in the United States, but a macro trend also is East Coast ports are growing market share over West Coast ports. That has been occurring really for the last decade. It's truly driven by several factors. One is the expansion of the Panama Canal, which allows large Panamax ships to come through. Another is there's been significant investment in some of the ports on the east coast: Savannah, Charleston, Norfolk, and Houston as well right now. The last is population growth—whether it's the growing Southeast, Texas—and getting to those people. And so you are seeing that macro trend. In some of those markets, and what you were alluding to Greg, there’s still land, so you can grow. And you are seeing meaningful supply growth in the Savannahs of the world and others like that. But the demand to date has been extraordinary and has matched that supply growth that has occurred. To give you a sense, I would imagine the total square footage of industrial in Savannah has doubled the last five or six years, yet vacancy hasn't really moved.

Greg Dowling: 23:45

Wow, that's fascinating. It makes perfect sense when you've had all the issues with West Coast ports—labor issues and the backup they've had during COVID—that you're going to diversify. So that's fascinating. Maybe an area that's been hot but seen a lot of growth—and maybe growth because we haven’t been able to put actual single-family homes up—is multifamily. So what's going on in multifamily and how does that potentially hold up if there's a recession?

Seth Singerman: 24:11

If industrial has been the number one performing asset class, multifamily probably has been the number two performing asset class and has been very strong. I think the backdrop is—and very few people will debate this—there is an acute lack of housing in the United States. At the minimum, 3 million more units need to be built. And so that is a strong backdrop. You are seeing some supply, and I'm talking about the multifamily space specifically, where the supply has started to exceed demand, at least for now. Interestingly, in some of the Sunbelt and large migration markets—Phoenix for example—rents are flat to slightly down year-over-year right now. There's still strong migration in, but the supply has gotten in front of that. Interesting note: some of the fastest growing rents right now are actually in the Midwest. Indianapolis and Columbus are two of the top five growing rent markets right now in the United States. Why? Because there's still good labor. Counterintuitively, while the Sunbelt markets may have great migration going on, some of those markets have gotten a little, frankly, over their skis as it relates to supply and will take some time to absorb some of that supply and do not have that strong rental growth right now.

Seth Singerman: 25:30

Interestingly, you're seeing some of the Midwest markets—Indianapolis and Columbus are examples of those—where there's been lower supply but the labor force is very strong, employment is very healthy, and you're seeing those two markets as two of the top five in terms of rental growth in the United States. A lot of those people are working in some of the industrial buildings, they're reasonable growing markets, and you're seeing really attractive fundamentals. You will see a dip in occupancies a bit, you absolutely will see some delinquencies, but overall, the durability of income in multifamily is very strong. You did not see it drop that much, even in the Great Financial Crisis. So if there is a recession looming and even if it is deeper than the market may anticipate, we think multifamily will hold up relatively well, particularly if you're capitalized reasonably and have the ability to ride out the storm. Another dynamic in multi that is very meaningful right now is that the cost to own a home has risen significantly relative to rent. While rents have increased, you've seen mortgage rates double the last couple of years.

Greg Dowling: 26:39

Is the issue with building new homes regulation and affordable land? There's land places, just maybe there's not land in the right places and that's the mismatch? Because some of the rents that I hear some younger people paying, I mean they're astounding. They're more than I paid for my first mortgage. Now that was a long time ago, but still surprising.

Seth Singerman: 26:56

New York City is a great example of that. I was just hearing about what first-year analysts are paying in New York City for apartments that they're putting three, four people into right now. It partially becomes a social issue. But to your question on single family, it is partially construction starts, it is committing more capital to it, and there is absolutely a NIMBY effect of “not in my backyard” that is occurring. There are things that are occurring both on municipal levels and at the investor level to try to relieve that, but the gap is so wide we think that there's going to be a lack. The other point to it is people aren't selling their homes. They have very low mortgages that were locked in generally for term, and they can't afford to move, whether it is to trade out to a larger home or the second choice or what have you with life changes because they have this asset, that long-term mortgage, in place. It really clogs the system.

Greg Dowling: 27:52

No, that's interesting. You're right, I'm not moving anytime soon because I think I have like three and a quarter on my mortgage, so [laughs] I don't know if I can afford to.

Seth Singerman: 27:59

We're in the same boat on that one. We're locked and loaded in our place.

Greg Dowling: 28:03

So maybe a final kind of broad category—and then we’ll jump around a little bit—is senior housing. I know that's something you do, it seems that it would be highly regulated and very operationally intensive. Sure, I get the demographics, but is senior housing attractive?

Seth Singerman: 28:19

Well the demand outlook for senior housing is really quite favorable right now and that's driven in part by the 80-plus population growth, which is going to accelerate meaningfully, particularly through the second half of this decade. There is an absolute wave. There's a saying that “demography is destiny,” and that, I think, does have some truth. So the operating fundamentals are going to benefit from that. They're also going to benefit from the normalization of some of the COVID-induced issues related to senior housing. It also helps when housing prices—if they are stable to going up, a lot of people are tapping into that. So we think the overall backdrop to seniors is quite interesting. The other overlay I would say to that is, it's extraordinarily operationally intensive, so those labor comments that we made regarding hotels apply to seniors and I would say are even accentuated further.

Seth Singerman: 29:11

Seniors had a problem that during COVID, a significant portion of the workforce left the senior space and they've been very slow to come back. That has been a major issue as occupancy has ramped trying to fill those. The other point, I would say, related to seniors is you can't just take a one-size-fits-all approach. The dynamics really vary by state to state, and the regulations have a major impact on both performance and profitability of assets. You really need to see what are the restrictions, what are some of the reimbursements state by state, because not just the macro backdrop, but the municipal and state backdrop has major implications on the ultimate profitability and performance.

Greg Dowling: 29:56

Couple questions I wanted to ask. They're kind of big more macro types of questions. We alluded to this a little bit before, you mentioned a few of these, but just in general, what will be the best-performing and the worst-performing sectors if we go into a recession?

Seth Singerman: 30:12

If you look at it, you want to go to assets that either have long duration in their leases so they can ride out its softness in the economy, if there's credit. But from a sector standpoint, I would say the comment “meds and eds.” And that could be medical office, it could be related to student housing, or other things that are tied to both the medical community and the educational, those that are less sensitive to economic stresses and are really demand-based. I would add high-acuity senior housing into that as well. I think those will hold up relatively well in a deep recessionary environment.

Greg Dowling: 30:49

I like it. “Meds and eds,” that's good stuff. How would you explain… There's this huge difference in valuations from public real estate and private real estate? Who's right?

Seth Singerman: 30:59

The short answer is, I think the public markets are closer to right. The reason for the disconnect is the public markets reprice daily, as we all know, and while they're not perfect, they are a reasonable barometer, I think, of the direction of private market valuations. And there's a pretty positive correlation of that with a 6-month lag, meaning the public market will be a good tell for 6 months later where the private market's going. To give you a sense—and I'm using first quarter data here—the REITs were down 20% over that past 12 months, while the private market index, called , was down 1%. It's the largest disconnect we've ever seen between public and private.

Seth Singerman: 31:37

To your question, one of them is right, likely, and one of them is wrong. And I think part of the issue is

Greg Dowling: 32:09


Seth Singerman: 32:10

So that disconnect really needs to end up narrowing.

Greg Dowling: 32:13

We talked about this earlier and you mentioned the banks. Is there an opportunity to buy properties, the loans off of bank balance sheets? Or is that, to your point, going to happen so slowly and there's going to be a lot of pretend and extend, so it's not as big of a deal as people are making it.

Seth Singerman: 32:28

There is opportunity and there is opportunity now, but it is not a tidal wave. This is not the Great Financial Crisis. It is not the bigger they were, the harder they fell and unloading. Trust me, many of the major banks would love to sell a lot of their office exposure now. And you are seeing some of those opportunities. The opportunities that you're seeing really come in a couple of forms. One is the banks potentially selling a whole loan at a discount, another is working with both the lender and the borrower and injecting new capital into the asset and allowing that to live another day effectively. An interesting dynamic you're seeing across office right now is that if many “owners” are underwater, meaning that probably the loan is greater than what the value is, even if there is a tenant that wants to go into that space, the landlord and the lender may not bond the tenant improvement dollars. If you can bring somebody in to inject new capital, you actually put yourself at a great advantage relative to some of the competitive set. We're seeing some of those dynamics play out now, but as you alluded to, it is going to be really almost a slow burn, a multi-year approach to working through the changes in office valuations and how they're recapitalized.

Greg Dowling: 33:46

A couple final questions. I wanted to ask what advice you'd give to somebody new just entering the real estate business?

Seth Singerman: 33:54

We get that question a lot, and I would say two points. One is, don't just focus on understanding what comes out of an Excel model as a return. Real estate is about the sticks and bricks, and truly try to get a whole holistic understanding of the physical property, meet the leasing teams, and you need to understand these assets to ultimately understand the inputs that drive those Excel models. The other point I would say, is that even at a young age, relationships matter. Invest in developing and maintaining them. It'll help you across the different dynamics of your career, whether it's deal sourcing or capital raising or business plan execution. I'll tell you, there's a lot of remarkable people that have and continue to help me and our entire team, and I'm extraordinarily grateful for that.

Greg Dowling: 34:39

Maybe a related question, did you have any mentors growing up?

Seth Singerman: 34:42

I was fortunate to have a lot of mentors growing up. Professionally, and it may sound surprising, my greatest mentor was my father. My father's a doctor, he's a retina specialist and he’s been fortunate to be part of many breakthroughs in the retina space over the last 40 years in terms of treatments. We clearly took very different professional paths. However, he taught me how powerful it is to truly have a passion for something and work ethic. He turns 80 this year and is still running strong. I think he sees 150 patients a week and he's still active in a lot of clinical research. The other point he taught me, which I truly value, is that you can be good at what you do and be a good person at the same time, those are not mutually exclusive traits. It's something that I think about a lot.

Greg Dowling: 35:28

All right. What was your coolest job growing up?

Seth Singerman: 35:31

I would say growing up my coolest job was ballboy for the Cleveland Browns. They had a coach that wasn't good enough for the Cleveland Browns, so they fired him, and he then went on to New England and probably becoming the all-time winningest coach of all time, it was Bill Belichick. So he wasn't good enough for Cleveland, but he was good enough for New England.

Greg Dowling: 35:50

What a cool job.

Seth Singerman: 35:51

I'll ask you a couple questions, Greg, on that.

Greg Dowling: 35:53


Seth Singerman: 35:54

Because I know you're a Cleveland sports fan. What baseball team has had the longest drought in all of Major League Baseball on winning the World Series?

Greg Dowling: 36:01

Well now it's the Cleveland Guardians, 1948.

Seth Singerman: 36:05


Greg Dowling: 36:06

By the way, the Browns could have Vince Lombardi as their coach and I still don't think they'd win.

Seth Singerman: 36:11

That's probably accurate, I would say. Also, Greg, how many times have the Browns been to the Super Bowl?

Greg Dowling: 36:15

Well, as I tell my other friends, we won a lot of championships back in the 50s. They didn't call them Super Bowls back then, but yeah, it's crazy. I was also a child at the same time and worked at Country Counter grocery store and I weighed the bananas of both Bill Belichick and Steve Kerr. I used to be at the produce counter. People would bring their melons over and you'd weigh them and you'd write it down there. Bill Belichick was always kind of a surly “just business,” “just do your job” kind of guy. And Steve Kerr, who ends up being this great basketball coach for the Warriors, was always very nice and always said hello. So yeah, a little fun Cleveland sports trivia here to finish our podcast. So who knew, real estate and real sports now on the FEG Insight Bridge.

Seth Singerman: 37:03

I love it.

Greg Dowling: 37:03

Hey, Seth, I just wanted to thank you so much for doing this. This is a—real estate's been a question that has come up, and people don't understand how heterogeneous real estate is. It's not all office. In fact, office is not even—if you look at the REIT indexes, it's not even a major part of it anymore. It used to be, but the market has changed, so I really appreciate your comments and your experience in all these different areas. Thanks so much for coming on.

Seth Singerman: 37:28

Greg, I appreciate you having me. It was great to join you and it was fun.

Greg Dowling: 37:34

If you are interested in more information on FEG, check out our website at, and don't forget to subscribe to our communications so you don't miss the next episode. Please keep in mind that this information is intended to be general education that needs to be framed within the unique risk and return objectives of each client; therefore, nobody should consider these to be FEG recommendations. This podcast was prepared by FEG. Neither the information nor any opinion expressed in this podcast constitutes an offer or an invitation to make an offer to buy or sell any securities. The views and opinions expressed by guest speakers are solely their own and do not necessarily represent the views or opinions of their firm or of FEG.

This was prepared by FEG (also known as Fund Evaluation Group, LLC), a federally registered investment adviser under the Investment Advisers Act of 1940, as amended, providing non-discretionary and discretionary investment advice to its clients on an individual basis. Registration as an investment adviser does not imply a certain level of skill or training. The oral and written communications of an adviser provide you with information about which you determine to hire or retain an adviser. Fund Evaluation Group, LLC, Form ADV Part 2A & 2B can be obtained by written request directly to: Fund Evaluation Group, LLC, 201 East Fifth Street, Suite 1600, Cincinnati, OH 45202, Attention: Compliance Department. Neither the information nor any opinion expressed constitutes an offer, or an invitation to make an offer, to buy or sell any securities. The information herein was obtained from various sources. FEG does not guarantee the accuracy or completeness of such information provided by third parties. The information is given as of the date indicated and believed to be reliable. FEG assumes no obligation to update this information, or to advise on further developments relating to it. Past performance is not an indicator or guarantee of future results. Diversification or Asset Allocation does not assure or guarantee better performance and cannot eliminate the risk of investment loss. The views or opinions expressed by guest speakers are solely their own and do not represent the views or opinions of Fund Evaluation Group, LLC.


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