• Northland Wealth

The ARTISAN Podcast - How to Make Money in Real Estate in 2022

Updated: Nov 19, 2021

Northland’s The ARTISAN Podcast - a behind the scenes look where we share insights and views from some of the world’s top investors. The objective is to provide a deeper understanding of the complex challenges investors face today and the risks and opportunities we see for tomorrow.


In this episode we explore the topic, "How to Make Money in Real Estate in 2022", with Northland's Co-CIO Joseph Abramson and our our esteemed panel including:

  • Matt DeGraw – President and Co-CIO of Bridge Property Management, with 20+ years investment experience and over $25B in AUM.

  • Greg Romundt – President and CEO of Centurion Asset Management Inc. with 20+ years of investment experience and over $4B in AUM.

  • Brett Forman – Executive Managing Director of US operations at Trez Capital with 15+ years of investment experience and $3.9B in AUM.

  • Maxim Gagliardi – Managing Director of Capital Markets of Dalfen Industrial with 12 years of investment experience and over $2B in AUM.


Transcript

Joseph Abramson 00:13

Welcome to The ARTISAN Podcast, where we share insights from the world's leading investors and strategies. Today you're in for a real treat. We have four of the brightest minds in real estate. In no particular order, there is not the graph from bridge, which is a fun leader in US multi residential. In fact, it's the largest multi residential operator in the US, which provides excellent insights, as well as economies of scale. We also have Maxim Gagliardi from Dalphin. Dalphin is a leader in last mile industrial, which has been a huge beneficiary of the boom in e-commerce. We also have Greg Romundt, from Centurion Asset Management. Centurion dominates the Toronto multi residential market. It's widely viewed as one of the smartest operators in Canada, and it has a track record to back that up. Last but not least, we have Brett Forman from Trez Capital. Trez is a leader in the real estate debt space. And one of the few players in lot financing, which we'll speak to later. What all three have in common are exemplary track records with returns consistently outperforming their peers. They also have top quality management, and highly differentiated strategies, providing sustainable competitive advantages. Enjoy. So let's get down to the question on everyone's minds. How are we going to make money in real estate in 2022? First, with with you, Matt, go ahead.


Matt DeGraw 02:01

Well speak, you know, specifically to the multifamily market in the United States, you know, the dynamics are still good. Cap rates have obviously compressed considerably, which makes some people nervous, but we are seeing very high demand. Specifically in the class B, suburban space in which we plan we've never seen as much demand as we're seeing right now. Rents continue to increase at a faster rate than expenses. So at least in the multifamily market, United States. It's a sound, safe investment at this point.


Joseph Abramson 02:34

I know before the call, we talked about the market being a little bit frothy, what are some of the risks that keep you up at night?


Matt DeGraw 02:48

Some of the risks keep me up at night are you know, are we anticipating the right cap rate expansion? You were trying to be conservative on that front? But the other thing that keeps me up at night is are we being too conservative on that front, the other thing that keeps me up at night is you know, rents are going up at a dramatic pace. We're trying starting to see more, you know, more talk about, you know, rent, you know, instituting you know, certain percentage of brand creases in different markets. In different states, for example, California has tried to implement some rent increase regulations as well as Milwaukee's trying so, you know, that definitely keeps me up at night and working with the National Apartment Association and National Multifamily Housing Council to to feel that that's not the best way and not the best route for our renters and individuals living in apartment homes.


Joseph Abramson 03:48

Maybe after the call, you can speak with Greg a bit because unfortunately in Canada, we've had three or four decades of rent controls. So maybe first of all speak to the question of how your position for 2022 and then maybe speak a little bit about how you manage around you know the these rent controls and and how you can still manage to really make exceptional returns in that environment.


Greg Romundt 04:20

So look, I'd start with saying I think 2022 is going to be an exceptionally strong year you know, we're seeing red tightness pretty much everywhere starting to pick up as people you know, the border start to reopen. You know, cat has very aggressive targets for immigration about 450,000 people so when you think about that, you know, population growth, like one and a half percent per year, and you know, we're not building nearly enough product. House prices went up 2025 30% depending on which market you're talking about, and incomes have not gone up that that fast, I think people are getting squeezed out are certainly starting to see that that's starting to filter through in, in rats. And rent controls are something you can, you can manage to live with and make make returns. And you know, it all comes down to what you're buying Canada actually has very good representation of rent control and, and non rent controlled markets. And what you find with rent control markets is they can actually provide exceptionally good rates of return. If you're buying, you know, vintage product or older vintage product where you've got rents that can move up. But you also find that those markets tend to be extremely sticky when it comes to rent declines. So if you compare Alberta, which has no rent controls to Ontario, which has rent controls, if there's any kind of slowdown and softness in the market, France come down very, very quickly. And they respond. Whereas in Ontario, they stick. So you know, I would I would make the comparison that apartments in Ontario are much more like bonds. Not exactly, but similar to bonds. And Alberta is somewhat like equity. So you can learn a bit manage in those situations. But it comes down to having, you know, buying paying the right price for a product that you're that you're buying, and to having the systems to manage costs, because cost containment is very important in a rent control environment, and learning, you know how to push and how to generate value in a rent controlled environment. And it's certainly possible.


Joseph Abramson 06:51

So there you go, Matthew, you've had some experts advice in terms of rent control from somebody who's managed wealth through it for the past few decades. So Brett, you operate a lot in Texas and Florida, and the Carolinas. Sounds like that's a you know, it's it's a mix between the Ontario market and the Alberta market, the Alberta market, because it's very uncontrolled. And the Toronto market because as Greg said, that's, it's like a bond. And and you're actually on the debt side of the equation. And what we hear every day, from clients is this thirst for safe yield. So maybe tell us a little bit about your how you're positioned for 2022, that you can make some decent returns on the debt side, you know, without taking too much risk. I mean, there's always this threat of reaching for yield, taking on too much risk because you have to. And then when the tide pulls out, we find out who's not wearing any clothes. So tell us about how you're positioned for 2020 to go on the debt side?


Brett Forman 08:04

Well, you started with the geography, not sure I can necessarily compare to either Alberta or Toronto. But what I would say, in the United States, clearly the demographic growth, clearly the job and employment growth is in the southeast, and the Southwest. That's where growth has been positioned for 10 plus years. So we continue to have many boots on the ground, if you will, probably nearly 3035 employees on the ground in the United States in these markets that are growing the growth. And so we feel comfortable demographically for certain discipline for investment thesis for risk management, risk control, and consistent growth but also returns. That's where we're positioned. That's where we feel comfortable, always keeping the risk parameters first and return second growth behind that. But we have exhibited good discipline and been able to keep our returns for investors in a safe environment. I think 2022 will be more of the same. There will be frothiness there will be continued competition. But I think a competitive advantage we have is having people on the ground that really understand the market have deep and broad relationship and will execute on the right transaction. Remember debt you should have in theory, some safeguards because you're not in yet. And in theory, if you're backing good equity, good developer sponsors, there should be a margin for error.


Joseph Abramson 10:04

Okay, thanks a lot, Brett. And how about you, Max? Um, you're in a very different market. You're, you're in industrial. So how are you positioned for 2022? What are you seeing in terms of the market? Outlook?


Matt DeGraw 10:20

Yeah. So we're still very excited. I mean, it's been obviously, an amazing run over the last couple of years, there's been significant tailwinds. And really a change in how the economy structured with the shift that you pumps. Right. So obviously, industrial has been a big beneficiary of that, but specifically last mile industrial, which, which is, you know, we view as different from industrial in general, right. So we're talking, you know, close to the end user flows to the important transportation dogs, deep labor pools. And, you know, we've seen double digit rent growth over the last three years, and we're still seeing the same thing. So I think, you know, obviously, there's a lot of new entrants, people are coming in and trying to get in on that action. And, you know, I think it's important to stay stay focused. Right. And it's a difficult market to learn into. But, you know, we tried to be really focused and continue to target the markets we've targeted. You know, I think I'd echo Brett's comments about southeast southwest that that's been, those have been huge markets for us. And, you know, it's just, it's just tough to find deal these days. So, we've definitely seen in our space.


Joseph Abramson 11:37

Absolutely. And so, um, let's start off with you this time, Max, um, look, not on this panel. But in general, there's 1000s of funds that are in the industrial space. What makes yours different? What, what leads to your sustainable competitive advantage?


Max Gagliardi 11:58

Sure. You know, I think, if we look at most of the people, we compete with the reader, much larger funds, that has to go through operators like us, are much smaller funds. So it's, we don't see a lot of fully vertically integrated platform. So we have, you know, nine offices throughout the country, you have sourcing people in these nine offices, looking for deals in those in those locations, trying to source deals off market, especially when the market gets hot, we still believe we can, you know, over perform over target returns just just based on the rent growth we're seeing and capric compression, but you got to source deals off market, and we source about 80% of them off market. And, you know, the reason we focus on this last mile nice versus in general, industrial in general, is that, you know, there's really important secular trends that are driving that right. onshoring nearshoring, you know, we COVID, we've seen a lot of companies trying to increase their inventory levels, right? Because there's been disruptions and and trying to make sure they can they can provide and keep the supply chain sustainable. So ecommerce is obviously another one that's and those have all been pushing for, you know, locations that are close to the end user, because that last mile is the most expensive model. Right. So it's the only way to make your selection viable.


Joseph Abramson 13:15

Yeah, I think that that's a that's that's a good point. And one, you know, similar question to you, Brett, especially in terms of this proprietary deal flow. You know, that seems to be, you know, very critical on the private side. So maybe you can speak to the proprietary deal flow, particularly in terms of lat fannett financing. And then more generally, on the debt side, there's there's also a large number of funds. You know, why why should investors choose yours?


Brett Forman 13:48

Well, that's good question. I think that you know, in a market that is increasingly competitive, both on the developer side, and on the debt equity side, I think first and foremost, you have to look at a track record, and may not deliver the very highest. But that's not what we're aiming for. We're aiming for the most consistent, and that's why he consistent and has grown to be the most consistent, and perhaps the easiest to execute on the end of developers and tailor, and so forth. We are not a lender. We are very tailored and structured in our approach. And for that reason, we continue to grow in fact, we have a lot of existing relationships with whom we have long standing relationships. Going back to where you said proprietary, I'm not sure you would call it proprietary. But we do have a deep expertise, lot development that could be distinguished from land because we don't do the land finance. We do lot development finance, where the end customer is ultimately the homebuilder. And for that reason, we feel very bullish on our segment of the business. Our knowledge is tremendous, both our deep and broad relationships in that industry. And of course, as I believe it was Max or Matt, that you know, got tails in the southeast in the southwest, is explored. We tend to focus on the entry level or the move up level, certainly the freight attainable market. It's been extraordinary. So we feel very fortunate to have been both geographically positioned and the residential lot, and residential sector as a whole.


Joseph Abramson 16:17

Yeah, I think that that's well put, correct me if I'm wrong, but I believe in in kind of your key geographies. There's really only one or two other people providing lot financing for any degree. So as opposed to a lot of other deals in the debt world where you're really competing with 1000s You're competing with two or three in your, your core positions in Texas, or, or Florida. Um, okay, well, on to you, Matt. So, uh, you know, why why should investors pick your fund? I mean, beyond, you know, really, for many, many, many years, top quartile returns, I think we're at, like, 18 19% average a year. Um, beyond that, you know, what would be what would be the value proposition to say, here's why we'll be able to keep doing this in the future, even even if the environment is a little tougher?


Matt DeGraw 17:19

Ya know, it's a good question, you know, similar similar response, look at our track record, and look at the dynamics of why we were able to outperform our competitors. And look at the now I think the dynamics of how we're set up, are, are the same. We haven't, you know, our senior team has been together for over a decade, I've been a bridge for 17 years. So really, our approach has not changed, our approach is very similar to how it's been, on the three funds that were rated, number one, by pre Quinn, our approach is very similar, but at the same time, we're, we're sharpening the pencil every day with our business intelligence analytics. And, and, and, you know, in how we underwrite and how we execute. The other reason is similar to Max's reason we're vertically integrated, that helps us be very efficient. Across the country, we have, you know, vice presidents and regional managers stationed across the country, we know our markets very well, when we go into invest in those markets, our underwriters sound before we do the due diligence, and that's, that's helpful. I, you know, nine times out of 10, if you if we miss, it's because of the operations, and being vertically integrated, helps us adjust on the fly and adjust quickly. And, and, and be able to execute at the ground level, which is where really the alpha is is made is at the site level.


Joseph Abramson 18:43

How about you, Greg? I mean, it's largely, centurion and the Canadian market has really been in a league of its own, um, you know, what would be the value proposition for, you know, let's say a new investor, somebody, you know, that doesn't have that experience, you know, why should they be comfortable that that will continue in the future?


Greg Romundt 19:07

Well, look, I mean, I think you have to always be forward looking. And, you know, one of the things that, you know, we've been able to perform not only because I think we've been able to put systems and processes around our business, acquire smartly, not overpay. And those are important disciplines. But, you know, I can't deny the fact that the space that we're in, has had really strong fundamentals and a lot of positive tailwinds. And I think if we look forward, those tailwinds continue to exist, if not, are accelerating. It's been my view that, you know, apartments, unlike in the United States, have not really stopped developing as a country. In the 70s, and it takes so long to produce new product here. You know, four to seven years is kind of the development cycle here, where it's a fraction of that South, the border supply responds much more slowly to demand. And we've got record immigration and intentions to continue immigration. We've got exceptionally low vacancy rates and, you know, in our stabilized portfolio, we run 99 plus percent vacancy for sorry, occupancy, and really bad, yeah, no, one 1%, it tends to be just unit turning, right, but we rent, rent them as much as possible back back to back. But it's so you know, we've got this quarter view that in Canada, we're gonna build as many apartments in the next decade, as had been built in the last two generations or 5060 years. So we think there's tremendous opportunity. We think that that, you know, rents are extremely tight, rents are very cheap, actually, compared to the house or price of housing. You know, so we've talked about the price to rent ratio. So I think when you add up, you know, positive immigration, the inability of supply to respond, structural impediments to that supply, responding. And, you know, inflation picking up and all these, these are all really strong tailwinds, which I think carry us through for, you know, another decade.


Joseph Abramson 21:34

Yeah. And just while we're on that topic, we do have a lot of listeners in the metro Toronto area. I know, it's not your core investment, but it has a pretty big impact on on multi rez, and it's always of interest to really any Torontonian. Any, any thoughts on the Toronto housing market? I mean, valuations are more expensive than they were in the US. In 2005, when the bubble burst. Any thoughts on how this is gonna play out? Is it possible that it just played softly? Is it a disaster waiting to happen? Or is it not really a risk?


Greg Romundt 22:17

Well, you know, first, I would distinguish between what happens with houses and condo prices and what happens with apartments, right? Absolutely. This is a distinction, not everyone kind of understands. But, you know, became very clear, I think, to two more people in the last year, but more in the last year, because many people just the same thing, that there's this one thing called the real estate market, and there's not right apartments performed very different than retail or hotel did in the last year. And finally, I think people understand this. You know, I look at Toronto prices, and I think that they're absolutely crazy. I look the same thing with financial asset prices, stocks, etc. are are crazy. However, you know, this is a reflection, near unlimited money printing, artificially suppressed interest rates, and rising inflation, real estate bubbles tend not to deflate slow. They deflate in a very painful way. Now, what's different in this case? And, you know, and this could go either way, and really respond that depends on how policymakers respond. But my belief is that one of the reasons why real real estate prices are appreciating so quickly, almost everywhere, is I believe that people are people aren't dumb, they see that money is being given away can borrow 10 year money at 2%. And people understand, okay, if inflation is five, and I borrow money at two, and I can invest in something that goes up with inflation, people are responding rationally, to that. I think God really they're understanding that inflation is picking up. So and I don't believe that the government's can allow interest rates go up because they've spent so much money and they're basically already bankrupt. So, you know, there is every prospect that what we get is runaway rallies, in nominal terms, but not necessarily in real terms. When it comes to house prices, because people's purchasing power in the last year has not increased 25% of them. It just has not just the money supplies gone up by that amount. So yeah, no, it doesn't have to be a hard landing in nominal terms, but it we just could see continue to run away price growth. But that's just inflation by another means.


Joseph Abramson 24:55

I think that that you've, you know really struck a nerve there. And and you've spoken to a lot of themes that actually come up at Northland at our weekly investor meeting, we probably discussed them too much. And and that's this idea that all asset prices are expensive due to money printing. And so today, if we speak to that, you know, we see that stocks are falling, have the view that bond yields are rising. So maybe I'll turn to you, Matt, in what has to be considered one of the major risks, the risk of of rising interest rates, right? Because the decrease in in cap rates for the relatively steady yield that you see in real estate has not been linear to falling interest rates. It's It's definitely been faster than the decline in interest rates. What happens if interest rates go back up? And how are you positioned? Or how will you protect the portfolio?


Matt DeGraw 26:08

That's a good question. I guess it depends on you know, why the interest rates rise, if it's because the economy's doing well, that could be positive for rental increases across the country. But in any case, you know, the rates and the cap rates don't typically move in tandem. There's still a good, there's still good spread between cap rates and treasuries suggesting, you know, relative value. So, you know, I think that with the rent increases that we're seeing, that's probably our hedge, we are not underwriting the increases that we're experiencing, we're being very conservative in that realm. I mean, you can go to any state that we operate in, you're seeing anywhere from 20 to 30%. rent increases on on trade outs of someone moves out to when they're moving in. But we're not underwriting that, you know, we're being conservative and anticipating normal, normal rent growth and underwrites.


Joseph Abramson 26:59

And I just want to...go ahead.


Matt DeGraw 27:02

We also had our interest rate risk as well, sorry. You know, we do fixed rate loans or caps on floating. So that's another way.


Joseph Abramson 27:11

What actually rising interest rates have a bit of a different impact on on debt compared to equity. So, Brett, how do you think that rising interest rates will will affect trays? And how are you positioned to to offset those risks?


Brett Forman 27:31

Well, recognizing that our loans are made use floating rate, okay, and so our rates go up and typically have a floor as to how low they can go. So our loans themselves or interest rate, the counter would be, you know, if the value of the real estate were to decrease, but simply we don't see something here. However, there's a lot of money chasing both tangible and intangible assets. But certainly, interval is something that feels good international money is plugging into the United States, looking for real estate, and for real term yield. And so real estate is always something that can offer both tangible you own something. And you've got to get a return of sorts. So we treads although we will not pursue rising rental growth in anticipation of something becoming more valuable when we do a construction loan, or counting today's rains. So that we're not getting ahead of our skis, if you will. But I do think we will be you know, well positioned. Could there be a softening, because of the way we under discipline that we have?


Joseph Abramson 29:08

Very, very interesting. And how about you, Max? I mean, I guess with with multi rez, you tend to get at least annual rent increases. So if interest rates go up because of inflation, you can roll over quickly. Is the industrial market different than that? Because leases are longer or more flexible? Or the current dynamics? You know, what do you think the impact is of rising interest rates on your market? And how do you mitigate against it?


Max Gagliardi 29:40

Sure. So I mean, I think, you know, realistically, when you invest in real estate, you have to respect interest rates, just like the sailor respects the sea, right? So. So you know, there's, I think the key there is leverage, right? There is a risk interest rates can go up. Just like just like many other appears, you know, we usually have floating rate that, but we were fully hedged. Right? So we would have caps or swaps or something to mitigate interest rate risk to the full exposure of our floating rate exposure. But then again, you know, you want to make sure you can capture that upside. Right. And so we don't underwrite that. That railroad, but, but there is, obviously we're seeing, you know, you know, 10 20% is not uncommon for us, but to your point, yeah, I mean, listen, there's, there's, we typically have predetermined contractual bumps in our leases. And, and the truth is, you know, most of the leases are going to be three to five years, right. But you know, a lot of clients we're seeing now are requesting longer term leases, which is great for stability. But typically, that's something we prefer not to do. Unless you're an Amazon of the world or a target, you know, yeah, we'll do 10 years, but otherwise, we keep it at three to five years. And, but that's why you have a diversified portfolio so that, you know, not all your tenants are rolling at the same time. And sometimes that's good, because you never know what happens, if something happens, you still have, you know, some of that some of that higher rents that can that can continue for a couple of years. So eventually, over over the full term of an investment, we'll see through all that stuff. And given that the value is mostly are in great part of the right by the exit, right, typically in our world 7030. So as long as you get there, and even if you don't get there, you're usually able to get the the buyer to recognize that he's buying into the low market rents. So you're able to create value that way as well.


Joseph Abramson 31:31

Interesting, interesting. So I mean, so far, we've really spoken about maybe shorter term, cyclical influence, let's let's lengthen the time horizon a bit, and talk about some of the potential structural changes because of the pandemic. My thought is, there are certain things that people believe are permanent, that will turn out not to be permanent, because of what's called the recency bias, whenever something's happened, most recently, people put much more weight to that and simply extrapolate on on the other hand, there are certain things that are in place now that have created permanent change. You know, they say it takes 1000 hours to create a habit. Well, unfortunately, we've had the pandemic for a little more than a than 1000 hours. So a few things that have been going on, some might be permanent, some might not. This, you know, idea, you know, on the office side, I think in Canada, the occupancy is about 25%. Us, it's probably similar. It's, of course, going to go up from here, but my thought is there's about 10, or 15%, permanent loss. Because of people working from home, like me, my jobs in Toronto, I'm never living there. And there's a lot of people that that are like that needs, these are kind of structural changes, then you have people moving to the suburbs, you have cottage country that have gone crazy. I mean, when is the last time that Sudbury was one of Canada's hottest markets? Like the people in Vancouver today? Wow, price increases and separately are pretty high. So what what are your thoughts? You know, maybe we'll start with you, Matt, on impact of the pandemic, what are maybe a couple things that people think are true right now, that will turn out not to be three to five years that provides good opportunities. And on the other hand, some things that we've started to see that this they ain't going away?


Matt DeGraw 33:49

Yeah, you know, in the in the multifamily space, it's, you know, I don't think a lot has changed to be quite honest with you, the, the, you know, the, the one, you know, theory I would dispel is there's not a tidal wave of evictions about to happen. You know, you see that in the media that there's this tidal wave of evictions waiting to happen. You know, one thing that we learned was that, you know, our space is very safe. Instead of collecting 98 99% of the rent, pre pandemic, we collected 95% And, you know, there there's a, there's a percentage of those individuals that are working the system and not communicating with us, but the majority of our renters are, are, that we're, you know, that lost their jobs or could not pay their rent are working with us to get caught up. And they're not. They're not ghosting us. So you won't, you won't see the tidal wave of evictions happen. Our our goal is to keep everyone in their home, to work with them as much as we can. That you know, the structural changes is I think, you know, our company and most of our competitors move to paperless systems quicker than we thought we would, you know, requiring rent to be paid online versus with a check or money order, signing your lease renewing your lease online versus coming into the office, it just pushed our industry forward a little bit. So those are some of the structural changes. And, and man, we're, you know, how do we manage? How do we keep managing our apartment communities if this happens again, or something else. So all of our, you know, key employees can be mobile managers have laptops, System Managers have laptops, the leasing agents have, you know, handheld devices, so that they can still work from home if they if they need to. Whereas before that, that couldn't happen, but you still have maintenance guys on the ground that have to fix stuff inside the apartment. So there's, there's a lot of things in the apartment world that just just won't change.


Joseph Abramson 35:42

How about you, Max? How do you think the pandemic structurally impacts you know, the last mile industrial space or logistics or warehousing? You know, the areas that you play?


Max Gagliardi 35:56

Yeah, I mean, it was a very interesting year, right? When the, I think it was 2020, when the pandemic first hit, you know, for about a month, we were kind of wondering what would happen if people would stop paying rent or whatever. And, you know, very quickly, within, I think, two months, we went back to near 100% collection, I think, that's when people realize that like my, if you look at the overall supply chain, you know, labor, transport, that's, that's over 70% of the cost, real estate is just three to 6%. And that's and if you can't sell your goods in store, you need that warehouse so that you can ship those goods, it's the only channels you have. And now going forward, you know, stores are opening up again, and people are still gonna want, you know, the store experience for certain products. But, you know, look at ecommerce growth, you know, most forecasts are, are showing that by 2030, you're expected to be about two and a half times the level we are today. Right? Those are those are those are trends that are not that are not stopping, that are going to continue. And obviously, last mile industrials, two big beneficiary of that. So I think, you know, we're excited on that front. And, you know, I think there's a lot more to come on that on that stuff.


Joseph Abramson 37:18

Very, very interesting. And how about you? Greg, what are we seeing, either in Canada, in general, or the Toronto market? Kind of core downtown? You know, versus the suburbs versus smaller municipalities? What do you think, are the structural changes because a pandemic? And what things are people extrapolating that are just going to be plain wrong?


Greg Romundt 37:45

So it's good question, I look, I think flexible work or work from home, it is going to be it's going to be permanent. And I'll give you some data points. And our own, I know, our own workforce, you know, we're continually serving our staff have their their views on return to work. And, you know, at one point we were calling 75% wanted to return to the office, not 100%, but some kind of flexible work arrangement 5050, our current surveys are suggesting over 75% of our staff now do not want to return to the, to the workplace, they want to stay permanently at home. That's around data. You know, I think it's work from home is continuing to drive more people to the suburbs. So in our own workforce, again, we we've surveyed this, about a third of our house, our head office staff have moved to the suburbs from Toronto, zero afternoon. So, you know, now we've been very forthright with our employees by telling them look, work from home is going to be a permanent fixture in this company, we're probably not going back to the office for a long time. We do want to get back together when we can. But people have taken that opportunity to maybe move from a you know, apartment they were renting in Scarborough to homeownership in the summer, or, you know, renting something that's much bigger. So I think that these are, this is a permanent thing. You know, one of the other things is, I believe that COVID shattered the inertia of life. What I mean by that means, you know, you can just go through day to day and do the same thing. And COVID forced everyone to think, do I really want to do this anymore. Hmm. And so we're starting to see this show up, you know, restaurants are opening and they can't find anyone to work there. People don't want to do these crappy jobs for crap pay. And they don't want to be precarious, like, on the edges of the financial system, and they can get thrown thrown to the wind. So a lot of discussion this is just because the free monies governments are giving away and and that's part of it. But I think people have changed In their view that, well, if I'm going to be prepared to be an entrepreneur, or be an influencer or online or do something else, that at least they get some of the financial upside of that precariousness in life. I think one of the things that, you know, certainly the politicians in the Senate, the central banks are trying to emphasize is that this, this inflation is transitory. And I've been trying to argue for the better part of a year that none of this is transitory. And this is structural. And one of the things that will make this structural aside from that you can't get these employees to come back into the workforce because they don't want. But even more importantly, is we're going through a process of D globalization, where, you know, we're really on shoring the supply chains. So we spent 30 plus years and globalization, which allowed these deflationary forces to work its way into lower inflationary numbers. But now we've got our supply chains tied up in China. And aside from COVID, we, you know, I think there's broad recognition that we do not want our supply chains tied to a communist country who's not really very friendly. And this has very significant implications to not only our supply chains long term, but the reversal of those disinflationary forces that will play out over the next decade or even 20 years. So it's gonna be very painful.


Joseph Abramson 41:37

They're very well put Greg in, and very thought provoking. I mean, perhaps we need for you to come in to the to our weekly meeting at Northland, because we're worth debating those topics. Sometimes it can get pretty intense, you know, luckily, luckily, I'm remote. So, you know, there, there can't be any, you know, physical violence. But if that wasn't the case, you know, I think we just, we should, thank goodness that some of us do work remotely. Now, now, Matt, do you give us a different experience or a similar view, in terms of inflation? Because, I mean, when you talk about boots on the ground, you know, preaches the largest, you know, multi raise operator in the United States, like they're seeing all kinds of things, not just real estate costs, but all the costs that go into property management, what are your thoughts in terms of the inflation Matt, transitory or? or permanent? And how did that impact how you manage? Or what are the implications for the asset class? Or the fun, depending on your view?


Matt DeGraw 42:55

Yeah, it's, it's a big impact, right? Right now, the, you know, one of the biggest struggles is, is finding maintenance individuals to, to do the work at the site, you know, it's, it's a constant battle. You know, you just have to really focus on culture, people have to love coming to work and enjoy who they work for. And, but also at the same time, you have to stay in front of the market and be competitive with your PE, right. So you know, it's a, it's kind of a rock and a hard place, you need to make sure you're paying well, but you also need to make sure that you're doing the right thing for your LPS because that payroll cost is a is a big is a big part of the, you know, the return on investment and align that asset. So it's, it's not easy right now. And the impact that it has is, what we found is, you know, in the apartment world, the quicker you can turn an apartment home, so when someone moves out to when you can turn it to be rent ready again, for that next person is critical to occupancy. So that's, you know, that's the struggle we have right now is, is, you know, making sure we're paying our maintenance individuals, competitive salaries, competitive hourly wages, creating an environment where they're happy to come to work and in an environment where they're, you know, willing to tell their friends you got to come work at bridge. So, you know, so far so good that, you know, unfortunately, a strong market can mask bad management. So, we're trying to, you know, make sure we're dotting our eyes, crossing our T's with our, with our culture and with our employees and, and making sure we're paying them a competitive salary.


Joseph Abramson 44:35

Interesting, very interesting. Um, so let's change pack a bit as they think, real estate. Sorry, go ahead,


Brett Forman 44:46

Joe. Joe. Sure. Joe, Can I Can I just echo what Matt proven ways to stay. But I think if this people are looking at quality of life, whether it be working from home, or having worked at home and enjoy family, and taking advantage of things that people did not take advantage of, because of COVID, that I think today work, and may very well contribute to replicate, and very, very interesting, but let's change tack a bit, as they say, in real estate, you know, it's location, location, location. So, you know, Max, what are what are the hottest markets? You know, if we weren't going to invest in your fund? Where should we be putting money? You know, right, right. Now, what what geographies look attractive?


Max Gagliardi 45:58

Yeah, you know, it's, it's interesting, because when you see the market going up, you know, very often you see the spread between, you know, A, B, and C, you know, product types and locations. I mean, these spreads are tightening, right? So, it used to be that you're buying an inland empire, it's going to be much tighter cap rates than, you know, the Midwest, for example. But as values are going up, you know, everything is tapered. So for us, you know, we're really trying to focus on you know, we're going up the quality spectrum, right, so we're making sure we're buying the best product right now that we've ever bought, you know, versus we're buying more recent, better a better construction, you know, better functionality, higher clear heights, because we want to make sure if we're gonna pay, if we're gonna pay a higher dollars, we got to buy the best stuff possible, right, that's the best hedge over, you know, anything bad happens. And so but that's also true for markets, right? So we're trying to, we're going a little bit heavier on the coasts, we love the southeast, we love the southwest. You know, markets like Seattle has always been robust, California, Georgia, Florida, Carolinas, we love the Carolinas, Texas, you know, Phoenix, Vegas has been a great market, we've been trying to aggregate portfolios, you know, a lot of the a lot of what we do is really buying one by one, right? If you if you buy a billion dollar portfolio in our space, you're going to pay the highest dollars possible, right. And so a big way, how we create value is because we've got boots on the ground, we've got a fully vertically integrated team, we're able to buy these assets, one off, you know, 10 to 30 million bucks one chunk at a time, and create a portfolio and then you can turn around and sell into that, you know, very institutional market. So it's all about trying to trying to stay focused on value, building portfolios, and and monetizing them.


Joseph Abramson 47:50

Make sense? Make sense? And how about you, Greg? Um, you know, what do you how do you see things in terms of Canada, or you're also actually involved in some other things? Beyond multi residential, you do have some exposure in the US? Which market do you think is the most attractive right now? What Where are you diversifying into?


Greg Romundt 48:13

Well, I mean, we like markets across the country, you know, some more than others, we, we very much want to, you know, our strategy is a suburban X urban market, surrounding major metropolitan areas. So, for example, you know, we don't buy inside Vancouver, but we buy the suburbs around Vancouver, because we think that rents on a relative scale are very cheap. The cost of product, you know, in dollars per square foot is also much cheaper, you get more space. And I think that that, you know, people were already moving to the suburbs and excerpts due to affordability prior to COVID Hmm. But now they're moving there for for lifestyle, you know, when you can't go to the theater, you know, to the extent that you did in Vancouver, or you went to the symphony, or you did all those cultural things, and then you didn't for a year and a half. Uh huh. Yes, some people missed it. But other people said I'd rather have twice as much space, right, and Ray, you know, the rent, and live in a tiny little box apartment at the top of the 30th floor. And by the way, you know, it takes me 45 minutes to get down and 45 minutes to get back up. Right. And man, is that a pain in the butt when I gotta walk the dots? Right? Three times a day. So you know, I think these are so that's one of the things that's attracting us to the those types of markets right. You know, I'm I'm an energy bowl so like, because I'm probably flow pro inflation view. So if we didn't have the government we did, I'd be all over Alberta, okay. But because of Politics, it's very hard to be an Alberta bull today, okay, they'll think that they will do fine. But I would be gobbling property there hand over fist because I think it's, you know, price per square foot. Right? Or quite reasonable, the yields are pretty decent. But it's hard to execute when you've got political headwinds that really have not gotten any better for for that province. Okay. You know, I certainly like also Quebec a lot, okay, for the same for the same reasons. price per square foot, and Montreal and surrounding areas is a fraction, like a fraction of what it is in Ontario, or in Toronto, so I'm able to buy brand new concrete products, and Montreal, way less like in dollars per square foot than I can for 15 year old product in the suburbs in Toronto. So you have to just look at values and all these places you can you can find value you can find growth is you know, weighing price price and yoke.


Joseph Abramson 51:13

Okay. No, it certainly certainly makes sense. And And how about you? Uh, Brett, you've had a, you know, a position in, in Texas and Florida for quite some time. You're moving into some other, you know, southeastern states, what would be your, your favorite markets right now? Yeah,


Brett Forman 51:46

I think, you know, overall, we have been bullish on the southeast, and Texas Southwest, and what that's continuing, but I think where we also find is being opportunistic, similar to what the equity sponsors are saying that they're looking for, you know, breadth, better rates, the yield, we could land better relative value, dope, potentially, rather than financing something in, you know, bourbon, Atlanta, Georgia, or Miami, Florida, you might pick a market like Greenville, South Carolina, or Huntsville, Alabama, that has very good demographics, it may not go up as fast, but then therefore, it's probably its foundation, very solid, it doesn't go down nearly as much as something else. So we find good value.


Joseph Abramson 52:46

Have you definitely, definitely makes sense, Matt, I know that part of what you have focused on are kind of fast growing markets and then also areas where you can create value some of that seems to overlap with the areas that Brett is involved in. So like I say, you know, you have huge exposure across the United States and a lot of local presence. So I'm really quite keen to hear you know what out of all of those markets what would be some of your favorites right now?


Matt DeGraw 53:23

Well, during the pandemic my favorite markets were Dallas and Phoenix because those were markets where we collected close to 100% of the for her I don't want to get political on the reasons why but those were my favorite markets but you know very very similar you know, we I guess I guess it all depends on on what your criteria is for the better market you know, I don't love California because of the rent control they're trying to institute yet. We've seen the the best rank growth in Sacramento and in the Inland Empire just outside of LA so those have been great markets for us even though you know, collecting the rent has been more difficult there. But definitely Phoenix definitely Dallas, we've had a lot of success in Tucson, Arizona recently they've had a tech boom there and the job market is excellent. I mentioned Dallas, love Atlanta, Tampa, Orlando and the Carolinas so and recently got into Virginia, which has been a fantastic market for us. So there are a lot of good markets across the country agreed with the tertiary comment to you know, we have an asset in Greensboro, North Carolina we'd love to buy more assets there but can't seem to to find a deal that that that we can make pencil with people are are bullish on that market as well. So there are a lot of fantastic markets across the country, but those are so many.


Joseph Abramson 54:50

That's great. So we have a few minutes left. So let's, let's do one final question. You know, Brett, if, let's say you were given, you know, $5 million a day and you could just put it in, in one investment, what would it be?


Brett Forman 55:19

Interest, one investment $5 million. It would certainly be residential, it would certainly be southeast southwest or themes. It would probably be in either lot development, which, you know, we have a tremendous business throughout Texas, the fastest growing state in the country. And perhaps something that will be focused on not as much for sale residential, but that single family for rent component of the market is tremendous. And it kind of brings the best of both, because it's a rental product, which gives people optionality.


Joseph Abramson 55:57

And same question to you, Greg. Let's clarify. This is 5 million Canadian.


56:05

Okay. So I'll give you two answers. First, if I'm trying to allocate that capital, inside of our own fine group, I would be doing you know, probably outside the suburbs of Vancouver. I'd be looking for something and I love Kelowna. Kelowna rents have been rock rocking, a lot of people are moving there. For all the things we've talked about, or you know, love Victoria, any of those areas and be looking for a new purpose built apartments. Who is outside of our group? I'd say brilliant. Okay.


Joseph Abramson 56:48

Clearly, I'll worry about inflation. How about you, Max? 5 million, you can choose whether it's Canadian or us,


Max Gagliardi 56:57

Okay, might need a little bit more than than 5 million, but I think, you know, would would build a brand new Class-A facility in South Florida, I think, you know, it's an established market. Exceptional rent growth, exceptional population growth, it is extremely supply constrained. You know, you've got, you've got the ocean, you've got the Glades, and then you've got this little piece of land. So West, Palm Beach, Miami, all these markets. We built to build something Class-A, 40 clear, you know, top notch facility there.


Joseph Abramson 57:29

Well, hopefully not for a very long term investment, because with global warming, your investment might be no pun intended underwater. How about you, Matt? Where would you put 5 million US?


Matt DeGraw 57:46

I'd put it in Bridge Multifamily Fund V.


Joseph Abramson 57:49

That's the easy one, man.


Matt DeGraw 57:50

I'd divert, I mean, I would diversify in multi-family space. And I you know, our fund is diversified across different states, different sub markets. You know, we don't have a, you know, we have regulations on how much we're going to do in, for example, Atlanta, versus how much we're going to do in Phoenix and not have too big of a contingency in one versus the other. So I diversify in the multifamily value add b b plus class space with $5 million.


Joseph Abramson 58:20

Thank you so much. That was an amazing, interesting roundtable. You know, I've been looking at real estate for years. And I learned a lot today. So thank you very, very much for your time. Just to kind of summarize for our listeners, you know, this is a group of managers with exemplary track records. They've consistently outperformed their peers. And part of that is what you can see today is really top drawer management, you know, with strategies that have sustainable competitive advantages. So if you need any follow up information, don't hesitate to email, you know, anyone at Northland. I believe my name was, was on the invite, and we look forward to seeing you next time. Thank you, and have a wonderful day. Thank you.

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