CrowdStreet's Ian Formigle is joined by Malcolm Davies, Principal and Managing Director at George Smith Partners, to discuss a wide-range of topics. From optimism in the markets thanks to recent vaccine news, the rise and promise of secondary markets such as Phoenix where more people are migrating to, the growth potential in 2021 in asset classes such as hospitality and how the NOAH effect will play a role in that.
Ian Formigle, Chief Investment Officer
CrowdStreet
CrowdStreet
Ian is a real estate professional and serial entrepreneur with 24+ years of experience in real estate private equity, startups, and equity and options trading. At CrowdStreet, Ian serves as the key decision-maker for all investments on its Marketplace, totaling over 400 offerings and some $13.7 billion of commercial real estate. Ian is the author of “The Comprehensive Guide to Commercial Real Estate Investing” and he is a contributing author at Forbes.com.
Prior to joining CrowdStreet, Ian was VP of Business Development for ScanlanKemperBard Companies, where he managed the firm’s alternative investment platform and served as a senior acquisitions officer on a team that acquired some $500 million of commercial real estate assets during his tenure. Previously, Ian co-founded and served as CEO of Clarus Property Ventures, a regional real estate private equity firm that focused on multifamily acquisitions. Ian began his career as an equity options market maker and member of the Pacific Exchange. Ian holds a BA in Economics and a BA in Political Science from the University of California at Berkeley and has held numerous securities licenses including Series 7 and 63.
Malcolm Davies, Founder & Sr. Managing Partner, Way Capital
Way Capital
Way Capital
Malcolm has over 25 years of experience as an award-winning capital advisor and developer, having advised and been involved with over $15B worth of total capitalizations, both in the equity and debt markets. Davies has utilized his expertise to lead developers and investors to structure and capitalize billions of dollars-worth of commercial real estate ventures. He has extensive experience in structuring transactions across the capital stack, including non-recourse senior and stretch-senior debt, mezzanine and preferred equity financings, and Co-GP and LP equity financing solutions for development, value add and stabilized projects.
Malcolm has vast experience in structuring various scenarios within the capital stack including non-recourse senior debt, mezzanine debt, and preferred & JV equity financings in the construction, value add, and permanent finance marketplace. Malcolm’s expertise as a developer has been instrumental in advising his clients through his real-world experiences in various stages of the real estate cycle, including the Great Recession.
00:00:04 Hi, I'm Ian Formigle, Chief Investment Officer here at CrowdStreet. Welcome back to StreetBeats for December 1st. In this weekly segment, we cover what's happening in the capital markets, economic current events, and how we see those playing out in the commercial real estate landscape. So with me as always, is Malcolm Davies, principal and managing director at George Smith Partners. Malcolm, welcome back for the December 1st edition of StreetBeats.
00:00:30 Thanks for having me back. Ian can't believe it's December.
00:00:33 I can't believe it's December either. But what's nice about this segment versus some of our last segments has been the outlook and kind of the optimism and a, a lot of what we're seeing out there. And so what we discussed a little bit offline, Malcolm, I wanna get right into, yeah. So tell me a little bit about what you're seeing out there as we start to head into 2021.
00:00:54 Yeah, I mean, look, I mean, we, we to 2021 is right, you know, we started planning for that in September and 2021 is obviously we have to be forward thinking in all the investment decisions that our clients are making, likewise, at CrowdStreet as well. So, you know, while we have the next few months, I think are gonna be quite difficult. Um, you know, probably as a society, I think in general, the optimism is quite there. Look, Moderna and Pfizer is vaccine, will likely receive emergency f d a approval, um, in the next week to 10 days, maybe even sooner. Uh, and that means we're gonna have folks, um, being vaccinated frankly before the end of the year, which, uh, is a huge win. So in that sense, we're planning on how are we going to get the deals that we thought might have been able to get done in 2020 that were sidelined by Covid.
00:01:38 Um, you know, the reality is we've had a tumultuous year, but I mean, I think we'd mentioned this before, I think we've closed 160 to 170 million in financings in the last seven days. And the, a lot of those deals were obviously pen up demand from deals that waited a while to get done. Some of them are newer in the equity markets and in the debt markets. So the optimism is absolutely there. Um, but you know, I, I think we talked about this earlier, there's things that we're paying attention to, uh, those growth markets. Uh, we are seeing data that absolutely shows that in growth markets, there are certainly things happening. For example, we spoke about this, uh, there is a stat, the U-haul, the, you know, cost of U-Haul 26 foot truck from San Francisco to Phoenix, 2,500 bucks. Okay? The same U-Haul, if you were to get it from Phoenix and San Francisco is 311. That is your supply demand curve right in front of you, showing you some trends. And this happens with Dallas and Houston and la but I, I just find that a staggering number that is eight times more expensive to rent, uh, a U-Haul going from San Francisco to Phoenix than it is from Phoenix to San Francisco. That should be opposite in light, you know, before.
00:02:52 Yeah. To your point on Phoenix, that's just struck out to me too, is that, you know, we were looking at a deal recently in just the pricing of what's going on in Phoenix. It is, it is priced for growth. There is just absolutely no doubt about it. And so there's a little bit of sticker shock when you're looking at anything in Phoenix right now, but at the same time, it's, I think there's sticker shock for good reason. It's just the population swelling, the cost of living, the affordability is still there. It it's an attractive market. It's, it is where West Coasters are, are migrating to, in addition to some of the other locations that we've seen. We've talked a little bit about kind of that mountain migratory pattern that we've seen, but talk about a a just a surging secondary market right now. Phoenix is, is basic kind of up there. Uh, and no shocker to see that year over year, even on multifamily rents. I mean, you're seeing almost 5% year over year rent growth. So just, yeah, you know what, meanwhile that, that same data point in San Francisco 20% down, so it just proves your point there. People are flooding outta San Francisco and they're going to Phoenix right now.
00:03:54 You know, look, there's other things going on. I mean, median house price is up 16% over one year ago. Now that is a, not exactly, because there's different kinds of homes that are sold each year, but that is, that's a huge number. Um, you don't see that number being up that, that high in a percentage just goes to show you that, um, you know, there's money out there that's for sure. Um, that is investing in things.
00:04:17 You know, the interesting thing on that, on the housing numbers is that, and, and CoStar actually just published an article this week that talked about this same phenomenon, that with this surge in, in single family housing prizes, what it's starting to do is it's starting to actually bring affordability back into question. So obviously going into the pandemic, the, the huge dump that we saw in interest rates was creating, you know, newfound affordability. And so we saw all these people around the country, you know, rushing in, we saw a savings rate that we hadn't seen before in years. And so with people locked down, people at home saving money plus cheap interest rates equals a lot of demand for single housing. Now we saw that just play out in terms of, well, when everyone does save their deposit, you know, deposits at home, and they go, they go out and they buy, they buy houses.
00:05:06 Well, shocker, now we have housing prices that have just surged mm-hmm. <affirmative>. And now the, you know, the, the, the pricing of those houses is now kind of saying, look, it's gonna be a little harder to afford a house coming into 21 than it was in March or April of 20. So that also starts to say that it's starting to look pretty good again for multi-family, right? Multi-family is going segment that's been, it's been steady, you know, collection rates have never dropped below 90%. You know, I, I, I remember we were doing the segment back in August and early September, and we were talking about the possibility of how collection rates could fall off a cliff, if, you know, with the burn off of stimulus and if we saw unemployment rates that didn't come down. Well, fast forward to December 1st, unemployment rates did come down. We're seeing what feels like a little bit more of a v-shaped than a U-shaped history.
00:05:54 And so hence demand from has stayed solid. And now when we have surging single-family housing prices, well now there's gonna be more households that are gonna kind of stay renters as opposed to jump into, you know, home buyers. And so now we're, we're, we're kind of looking at multi-family around a lot of markets and saying, look, we saw those biggest spikes in housing prices, for example. Like Denver's a really good market to, as an American that Sure, absolutely. On fire, single family housing market. Well, we're kind of a little bit more bullish on Denver multi-family than we were, you know, eight or nine months ago, given what's happened.
00:06:26 Yeah, no, I agree. I mean, it's a, people are going to where the jobs are, um, they're going to where high quality of life is, um, and you know, where the cost of living is an outrageous to the point where they can sustain themselves. But maybe we'll take a step back. Look, I mean, there are things that I think we're seeing pricing for multi is also one of the reasons why, uh, you're driving to low cap rate environment. I think we talked about some of the exit cap rates that we're thinking about on underwriting. These deals, um, are extremely low because the interest rates have never been lower for agency financing. So in that regard, it's a big deal. So, you know, growth market, high demand, low interest rates equals lots of buyer demand and investment activity.
00:07:08 Yeah. Uh, one other thing that's been happening as of late and what will be kind of a, uh, a specific to a December phenomenon for the marketplace is a spike in really high quality qualified opportunity fund, uh, investments, you know, Q f's, op zone deals that we call them. So, you know, we, we were gonna see probably at least three, potentially even four within the next month, you know, hit the marketplace. Uh, so it's was interesting to see, I mean, kind of as a reminder for everyone out there, you know, we've got one more year of availability to take advantage of, what's that, what's that step up of 10% basis of a deferred gain? So, you know, coming into q4, you know, we had our sites on, on a few q f deals. We have our own multi-asset Q O F that we were, that we're looking to finish off. And at this point, it'll be looking to finish off by the end of the year and just, but we're really impressed by the quality of some deals that are still out there. So qualified opportunity fund zone, you know, deals are, are still kind of out there kicking and you know, so we still see that there's gonna be this definite additional year or so of opportunity, who knows after 2021. Um, but honestly, some of the best stuff that we've ever seen is happening right now.
00:08:15 Yeah, no, no doubt. I mean, the, the big large scale project mentioned earlier in Phoenix, it's an opportunity zone. And, uh, you know, we think that, you know, 21 is that year to get this project done, it's gonna take three years to develop. Uh, so you can imagine what, what will life look like in 2024. We've all looked at, even in hospitality, we've all thought about, we'll be back by 2024, so we'll see how it all plays out. But growth markets, I mean, I think we've talked about it, you're, you've seen just a tremendous amount of activity, uh, from the investor appetite on, on, on the marketplace coming into these growth markets. And, you know, our clients are calling us up and saying, we'd like to go to those markets. You know, investors and developers and owners who are based either in southern California or California in general have likely been making more investments in Arizona, you know, Nevada, Utah, Colorado, uh, and the like, uh, Idaho, uh, than they've done in California.
00:09:09 Yeah. Uh, you know, all those markets that you just mentioned. I mean, so, you know, kind of our, looking towards 2021, our investments team is spending a lot of time the last few weeks, well, basically through the rest of the year, um, you know, preparing and revamping our market outlook for the marketplace. And what stood out to us was just our strong conviction, stronger than ever in the growing secondary markets out there. Mm-hmm. <affirmative> that as we're kind of exiting the pandemic period, we're thinking about growth again in 2021. And even potentially a little bit of like covid, you know, influenced and kind of, you know, instigated growth. Uh, but you know, the markets out there, the Nashvilles the Raleighs to the Western unit, the Boises,
00:09:53 Yeah.
00:09:54 Again, Phoenix, uh, Dallas. Again, it's just amazing to see that these, these, these secondary markets are just seeing so much demand, so much growth. Um, and, you know, anytime that we're gonna see populations showing up, you know, to your point earlier about, you know, how much it costs to go from San Francisco to Phoenix right now, just the ripple effects on that and how that you can, you can think past residential, you can go straight into industrial and say, look, the industrial market for Phoenix is gonna grow again next year because the population is growing and all things related to demand for people in Phoenix are gonna grow. Um, so just tremendous to see, kind of like that we're right back into the thick of growing secondary markets now that we have a little bit more visibility and clarity in terms of what a normal, you know, resumption of a growth market will look like.
00:10:41 Yeah. I mean, look, TW 2021 is definitely gonna be a lot of growth. Um, that, that is for sure. Um, and, you know, even some of these troubled assets, um, you know, for example, malls. I mean, there is a stat that says, I think one third of malls will be, you know, done I guess in 2020 with another 25% in the next three to five years. I think I've seen that stat for the last five years, that 25% will be gone in the next 35 years. So that means we're dwindling down at nothing. But that's a huge opportunity. What people do with, um, functionally obsolete ro resale centers and malls, um, conversion is to life sciences, biotech, we've seen, um, conversions to large, you know, other mixed use including multi-family, um, other more, uh, entertainment style, uh, uh, centers. So it, it, it should be interesting to see how that plays out.
00:11:29 But finally we'll get to some conclusion of, you know, as they say, COVID exacerbated some of the challenges that were already in the market before covid hit. Um, and that's certainly the case with retail. Um, but again, hospitality, I will, I'll bring that up. We've talked a bit about that. Um, still not quite there. Uh, we're going, you know, as we see spikes in, in Covid cases, uh, you, you start to see a bit of a, you know, hey, we're not quite, we're not quite back yet, right? And so the question is when that comes back, the vaccine is absolutely important. Um, so there's no question how that distribution gets done will be the key to hospitality.
00:12:04 Yeah, I mean, just looking at the hospitality data lately just clearly stands out to us that, you know, we're, we're, and what I've described kind of internally is saying, Hey, it's, this is like the, the covid slumber right now for the winter. Uh, it's an off season period anyways for, for the, you know, for the industry. So it's discern too much of what's going on. We saw the occupancies get up into the fifties, now they're back in the forties, rev Park, you know, getting to about $50 back at $36. So to us, there's, there's really nothing that's gonna happen materially until we hit spring again, until we start to have a little bit of the, you know, of the light at the end of the tunnel of the vaccine actually getting out there and getting distributed and people getting it. Obviously some travel and leisure tourism will pop up again, I think next summer. You know, if we hit mid fifties, you know, this summer, then you have hope that you're gonna see kind of like mid sixties, maybe 70% occupancies, you know?
00:12:56 But again, I think that has, uh, you know, will the vaccine, you know, we, we've talked about this, like how will the distribution of the vaccine, either the Pfizer or the Moderna or the others, I mean, will we have vaccinated 50% of the population by the end of June of 2021? I have, we don't, that's, that's so hard to figure out.
00:13:14 That's, that is the question for 2021. It's really just, it's, it's a, when, you know, if we, if we go to Q4 of next year, there's a lot of great things happening, right? Yeah. There's a lot return to normalcy. Now the question is, is that gonna happen in August? What happened in October? What could it happen in July? You're right. All dependent upon when the vaccine gets out there, which is why we come from a big picture perspective and say, look, 2020 one's the year that we kind of get back onto a growth part of the phase, phase of the cycle, you know, what month it happens, uh, who knows? Um, yeah. But at least it gives you the semblance of kind of the clarity. Again, when we think about real estate, we're always thinking in terms of multi-year, you know, decisions. So you kind of know that this is the year to actually, you know, to get in, to begin, you know, to get in on a basis that you, you have confidence and that 20, 24, 25 is gonna look better than where you got in.
00:14:03 Love the opportunity to see hospitality you know, shell out to a degree that if there is assets that are flushed out and they, they're trading at significant discounts to 2019 values, then 20 ones the year to pick it up because it's gonna look better in 22 and, and 23 going forward. You know? So there, there, you know, now the question is how much really shells out, you know, you saw that data that come out recently that, you know, Walker and Dunlop for example, you know, in a, uh, webcast that he Willie Walker gave about a month ago. Yeah. You know, he is kind of pointing out that, hey, look, 70% of their own, you know, hotel portfolio is in 70% forbearance, kind of indicative I think of what's out there, you know, now the question is what does forbearance really turn into in 2021? Does it turn into, you know, more brass tack foreclosures? Does it turn into a lot workouts? You know, who knows? Probably a little bit of both. Um, but you know, that's why we view that space, you know, kind of from that opportunistic lens to say, if we can get access to good deals at good basis, you know, next year is definitely the year to, to go at it. I think next year is actually the year to start, you know, looking at breaking ground on a hotel.
00:15:10 Absolutely. No, no question about that. We definitely believe that, that you will, if you're not breaking ground on q1, q2, I think you're gonna find deals getting done in q3, q4 particularly extremely well located, well flagged, um, you know, type hotels. And also I think that, you know, to your point, I, I do think that this growth in the conversions of, of, you know, maybe, you know, o obsolete or obsolescence as it relates to hotels into to multi is really a good one. Cuz it's very, it's an, it's a, it's noaa naturally occurring affordable housing. These are small units, but to an investor that's a high price per foot. But to the consumer who lives there as a low whole dollar rent, that means that they'll have more money to spend for their life than their rent. And I think in that regard, we're gonna continue seeing trends, uh, in that space.
00:15:59 Yep. You were now talking about one of my favorite strategies of the last couple months. We've seen this type of deal flow, enter our pipeline. And man, it is interesting and I, I love that aspect of the, that of what you just described, the Noah effect, right? Mm-hmm. <affirmative>. Cause in this scenario, you know, this isn't, this is gonna be a deal in Florida, but taking a deal in Florida, converting, you know, a 1990 vintage hotel into multi-family, you know, studio apartments, which are gonna look pretty nice when they're redone, you know? Yep. $750 a month. And when you looked at the submarket and say, could I go rent another, you know, studio for that same price? The answer is perhaps yes, but you're 30 minutes outside of town versus right in the zone. Exactly. And now you're, now you're like, minutes away, you're literally like a minutes shuttle right away from your job versus fighting the traffic, you know, coming in and out of town.
00:16:52 And I was like, the, the, and the kicker is the, the abundance of the amenities that you get on the property leftover from the days of it being a hotel, like large pool, fitness centers, even restaurants on site. There's all these things that, that are kind of just get thrown in. So I I, I mean I'm all in on this strategy right now. I think it's, you know, one of the most interesting things that's come out of the pandemic, come out of the sHieggelkeout, basically of hospitality. So I'm, I'm really hopeful that there's gonna be some additional opportunities that come our way over the next year to, you know, to take advantage and kind of get into like, let's deliver affordable housing into a market. We have a too many hotel keys on a lot of markets and not enough housing units, so let's, let's fix that
00:17:35 Problem and, and, and we'll leave it at this. Those hotels are located in great places where people wanna live. Yep. So, you know, that's the, that's the reality of it. So we'll see how that continues to grow.
00:17:44 They have transit at their doorstep, right? They wouldn't be no. If they, if it wasn't the case. So yeah, just a, a perfect o kind of opportunity for adaptive reuse. And again, I'm a big fan of adaptive reuse. It's the product council, you know, that I'm a member of at ULI. So anytime that we can talk about taking one form of real estate that is somewhat functionally obsolete, transitioning it into something new and vibrant that is, you know, meeting and need, um, you know, I, I feel like the commercial real estate industry is doing something good, you know, um, create, creating, you know, an opportunity. So, no doubt. All right, well I think that's a lot of stuff, Malcolm. We just, we, yeah. Rapid fire. So looking forward to doing this with you one more time in 2020. We'll kind of officially kind of kick off our 2021 preview. But, um, and thanks again for joining us. Um, thanks again everyone for out there tuning in and until we see you back here in a couple weeks, well Malcolm maybe will be back next week with, so either be me or Zack, but we'll, we'll see Anna-Marie next week. All right, well we got this segment next week. Uh, Malcolm and I may be back in a couple weeks and until everyone out there, just stay safe.
00:00:30 Thanks for having me back. Ian can't believe it's December.
00:00:33 I can't believe it's December either. But what's nice about this segment versus some of our last segments has been the outlook and kind of the optimism and a, a lot of what we're seeing out there. And so what we discussed a little bit offline, Malcolm, I wanna get right into, yeah. So tell me a little bit about what you're seeing out there as we start to head into 2021.
00:00:54 Yeah, I mean, look, I mean, we, we to 2021 is right, you know, we started planning for that in September and 2021 is obviously we have to be forward thinking in all the investment decisions that our clients are making, likewise, at CrowdStreet as well. So, you know, while we have the next few months, I think are gonna be quite difficult. Um, you know, probably as a society, I think in general, the optimism is quite there. Look, Moderna and Pfizer is vaccine, will likely receive emergency f d a approval, um, in the next week to 10 days, maybe even sooner. Uh, and that means we're gonna have folks, um, being vaccinated frankly before the end of the year, which, uh, is a huge win. So in that sense, we're planning on how are we going to get the deals that we thought might have been able to get done in 2020 that were sidelined by Covid.
00:01:38 Um, you know, the reality is we've had a tumultuous year, but I mean, I think we'd mentioned this before, I think we've closed 160 to 170 million in financings in the last seven days. And the, a lot of those deals were obviously pen up demand from deals that waited a while to get done. Some of them are newer in the equity markets and in the debt markets. So the optimism is absolutely there. Um, but you know, I, I think we talked about this earlier, there's things that we're paying attention to, uh, those growth markets. Uh, we are seeing data that absolutely shows that in growth markets, there are certainly things happening. For example, we spoke about this, uh, there is a stat, the U-haul, the, you know, cost of U-Haul 26 foot truck from San Francisco to Phoenix, 2,500 bucks. Okay? The same U-Haul, if you were to get it from Phoenix and San Francisco is 311. That is your supply demand curve right in front of you, showing you some trends. And this happens with Dallas and Houston and la but I, I just find that a staggering number that is eight times more expensive to rent, uh, a U-Haul going from San Francisco to Phoenix than it is from Phoenix to San Francisco. That should be opposite in light, you know, before.
00:02:52 Yeah. To your point on Phoenix, that's just struck out to me too, is that, you know, we were looking at a deal recently in just the pricing of what's going on in Phoenix. It is, it is priced for growth. There is just absolutely no doubt about it. And so there's a little bit of sticker shock when you're looking at anything in Phoenix right now, but at the same time, it's, I think there's sticker shock for good reason. It's just the population swelling, the cost of living, the affordability is still there. It it's an attractive market. It's, it is where West Coasters are, are migrating to, in addition to some of the other locations that we've seen. We've talked a little bit about kind of that mountain migratory pattern that we've seen, but talk about a a just a surging secondary market right now. Phoenix is, is basic kind of up there. Uh, and no shocker to see that year over year, even on multifamily rents. I mean, you're seeing almost 5% year over year rent growth. So just, yeah, you know what, meanwhile that, that same data point in San Francisco 20% down, so it just proves your point there. People are flooding outta San Francisco and they're going to Phoenix right now.
00:03:54 You know, look, there's other things going on. I mean, median house price is up 16% over one year ago. Now that is a, not exactly, because there's different kinds of homes that are sold each year, but that is, that's a huge number. Um, you don't see that number being up that, that high in a percentage just goes to show you that, um, you know, there's money out there that's for sure. Um, that is investing in things.
00:04:17 You know, the interesting thing on that, on the housing numbers is that, and, and CoStar actually just published an article this week that talked about this same phenomenon, that with this surge in, in single family housing prizes, what it's starting to do is it's starting to actually bring affordability back into question. So obviously going into the pandemic, the, the huge dump that we saw in interest rates was creating, you know, newfound affordability. And so we saw all these people around the country, you know, rushing in, we saw a savings rate that we hadn't seen before in years. And so with people locked down, people at home saving money plus cheap interest rates equals a lot of demand for single housing. Now we saw that just play out in terms of, well, when everyone does save their deposit, you know, deposits at home, and they go, they go out and they buy, they buy houses.
00:05:06 Well, shocker, now we have housing prices that have just surged mm-hmm. <affirmative>. And now the, you know, the, the, the pricing of those houses is now kind of saying, look, it's gonna be a little harder to afford a house coming into 21 than it was in March or April of 20. So that also starts to say that it's starting to look pretty good again for multi-family, right? Multi-family is going segment that's been, it's been steady, you know, collection rates have never dropped below 90%. You know, I, I, I remember we were doing the segment back in August and early September, and we were talking about the possibility of how collection rates could fall off a cliff, if, you know, with the burn off of stimulus and if we saw unemployment rates that didn't come down. Well, fast forward to December 1st, unemployment rates did come down. We're seeing what feels like a little bit more of a v-shaped than a U-shaped history.
00:05:54 And so hence demand from has stayed solid. And now when we have surging single-family housing prices, well now there's gonna be more households that are gonna kind of stay renters as opposed to jump into, you know, home buyers. And so now we're, we're, we're kind of looking at multi-family around a lot of markets and saying, look, we saw those biggest spikes in housing prices, for example. Like Denver's a really good market to, as an American that Sure, absolutely. On fire, single family housing market. Well, we're kind of a little bit more bullish on Denver multi-family than we were, you know, eight or nine months ago, given what's happened.
00:06:26 Yeah, no, I agree. I mean, it's a, people are going to where the jobs are, um, they're going to where high quality of life is, um, and you know, where the cost of living is an outrageous to the point where they can sustain themselves. But maybe we'll take a step back. Look, I mean, there are things that I think we're seeing pricing for multi is also one of the reasons why, uh, you're driving to low cap rate environment. I think we talked about some of the exit cap rates that we're thinking about on underwriting. These deals, um, are extremely low because the interest rates have never been lower for agency financing. So in that regard, it's a big deal. So, you know, growth market, high demand, low interest rates equals lots of buyer demand and investment activity.
00:07:08 Yeah. Uh, one other thing that's been happening as of late and what will be kind of a, uh, a specific to a December phenomenon for the marketplace is a spike in really high quality qualified opportunity fund, uh, investments, you know, Q f's, op zone deals that we call them. So, you know, we, we were gonna see probably at least three, potentially even four within the next month, you know, hit the marketplace. Uh, so it's was interesting to see, I mean, kind of as a reminder for everyone out there, you know, we've got one more year of availability to take advantage of, what's that, what's that step up of 10% basis of a deferred gain? So, you know, coming into q4, you know, we had our sites on, on a few q f deals. We have our own multi-asset Q O F that we were, that we're looking to finish off. And at this point, it'll be looking to finish off by the end of the year and just, but we're really impressed by the quality of some deals that are still out there. So qualified opportunity fund zone, you know, deals are, are still kind of out there kicking and you know, so we still see that there's gonna be this definite additional year or so of opportunity, who knows after 2021. Um, but honestly, some of the best stuff that we've ever seen is happening right now.
00:08:15 Yeah, no, no doubt. I mean, the, the big large scale project mentioned earlier in Phoenix, it's an opportunity zone. And, uh, you know, we think that, you know, 21 is that year to get this project done, it's gonna take three years to develop. Uh, so you can imagine what, what will life look like in 2024. We've all looked at, even in hospitality, we've all thought about, we'll be back by 2024, so we'll see how it all plays out. But growth markets, I mean, I think we've talked about it, you're, you've seen just a tremendous amount of activity, uh, from the investor appetite on, on, on the marketplace coming into these growth markets. And, you know, our clients are calling us up and saying, we'd like to go to those markets. You know, investors and developers and owners who are based either in southern California or California in general have likely been making more investments in Arizona, you know, Nevada, Utah, Colorado, uh, and the like, uh, Idaho, uh, than they've done in California.
00:09:09 Yeah. Uh, you know, all those markets that you just mentioned. I mean, so, you know, kind of our, looking towards 2021, our investments team is spending a lot of time the last few weeks, well, basically through the rest of the year, um, you know, preparing and revamping our market outlook for the marketplace. And what stood out to us was just our strong conviction, stronger than ever in the growing secondary markets out there. Mm-hmm. <affirmative> that as we're kind of exiting the pandemic period, we're thinking about growth again in 2021. And even potentially a little bit of like covid, you know, influenced and kind of, you know, instigated growth. Uh, but you know, the markets out there, the Nashvilles the Raleighs to the Western unit, the Boises,
00:09:53 Yeah.
00:09:54 Again, Phoenix, uh, Dallas. Again, it's just amazing to see that these, these, these secondary markets are just seeing so much demand, so much growth. Um, and, you know, anytime that we're gonna see populations showing up, you know, to your point earlier about, you know, how much it costs to go from San Francisco to Phoenix right now, just the ripple effects on that and how that you can, you can think past residential, you can go straight into industrial and say, look, the industrial market for Phoenix is gonna grow again next year because the population is growing and all things related to demand for people in Phoenix are gonna grow. Um, so just tremendous to see, kind of like that we're right back into the thick of growing secondary markets now that we have a little bit more visibility and clarity in terms of what a normal, you know, resumption of a growth market will look like.
00:10:41 Yeah. I mean, look, TW 2021 is definitely gonna be a lot of growth. Um, that, that is for sure. Um, and, you know, even some of these troubled assets, um, you know, for example, malls. I mean, there is a stat that says, I think one third of malls will be, you know, done I guess in 2020 with another 25% in the next three to five years. I think I've seen that stat for the last five years, that 25% will be gone in the next 35 years. So that means we're dwindling down at nothing. But that's a huge opportunity. What people do with, um, functionally obsolete ro resale centers and malls, um, conversion is to life sciences, biotech, we've seen, um, conversions to large, you know, other mixed use including multi-family, um, other more, uh, entertainment style, uh, uh, centers. So it, it, it should be interesting to see how that plays out.
00:11:29 But finally we'll get to some conclusion of, you know, as they say, COVID exacerbated some of the challenges that were already in the market before covid hit. Um, and that's certainly the case with retail. Um, but again, hospitality, I will, I'll bring that up. We've talked a bit about that. Um, still not quite there. Uh, we're going, you know, as we see spikes in, in Covid cases, uh, you, you start to see a bit of a, you know, hey, we're not quite, we're not quite back yet, right? And so the question is when that comes back, the vaccine is absolutely important. Um, so there's no question how that distribution gets done will be the key to hospitality.
00:12:04 Yeah, I mean, just looking at the hospitality data lately just clearly stands out to us that, you know, we're, we're, and what I've described kind of internally is saying, Hey, it's, this is like the, the covid slumber right now for the winter. Uh, it's an off season period anyways for, for the, you know, for the industry. So it's discern too much of what's going on. We saw the occupancies get up into the fifties, now they're back in the forties, rev Park, you know, getting to about $50 back at $36. So to us, there's, there's really nothing that's gonna happen materially until we hit spring again, until we start to have a little bit of the, you know, of the light at the end of the tunnel of the vaccine actually getting out there and getting distributed and people getting it. Obviously some travel and leisure tourism will pop up again, I think next summer. You know, if we hit mid fifties, you know, this summer, then you have hope that you're gonna see kind of like mid sixties, maybe 70% occupancies, you know?
00:12:56 But again, I think that has, uh, you know, will the vaccine, you know, we, we've talked about this, like how will the distribution of the vaccine, either the Pfizer or the Moderna or the others, I mean, will we have vaccinated 50% of the population by the end of June of 2021? I have, we don't, that's, that's so hard to figure out.
00:13:14 That's, that is the question for 2021. It's really just, it's, it's a, when, you know, if we, if we go to Q4 of next year, there's a lot of great things happening, right? Yeah. There's a lot return to normalcy. Now the question is, is that gonna happen in August? What happened in October? What could it happen in July? You're right. All dependent upon when the vaccine gets out there, which is why we come from a big picture perspective and say, look, 2020 one's the year that we kind of get back onto a growth part of the phase, phase of the cycle, you know, what month it happens, uh, who knows? Um, yeah. But at least it gives you the semblance of kind of the clarity. Again, when we think about real estate, we're always thinking in terms of multi-year, you know, decisions. So you kind of know that this is the year to actually, you know, to get in, to begin, you know, to get in on a basis that you, you have confidence and that 20, 24, 25 is gonna look better than where you got in.
00:14:03 Love the opportunity to see hospitality you know, shell out to a degree that if there is assets that are flushed out and they, they're trading at significant discounts to 2019 values, then 20 ones the year to pick it up because it's gonna look better in 22 and, and 23 going forward. You know? So there, there, you know, now the question is how much really shells out, you know, you saw that data that come out recently that, you know, Walker and Dunlop for example, you know, in a, uh, webcast that he Willie Walker gave about a month ago. Yeah. You know, he is kind of pointing out that, hey, look, 70% of their own, you know, hotel portfolio is in 70% forbearance, kind of indicative I think of what's out there, you know, now the question is what does forbearance really turn into in 2021? Does it turn into, you know, more brass tack foreclosures? Does it turn into a lot workouts? You know, who knows? Probably a little bit of both. Um, but you know, that's why we view that space, you know, kind of from that opportunistic lens to say, if we can get access to good deals at good basis, you know, next year is definitely the year to, to go at it. I think next year is actually the year to start, you know, looking at breaking ground on a hotel.
00:15:10 Absolutely. No, no question about that. We definitely believe that, that you will, if you're not breaking ground on q1, q2, I think you're gonna find deals getting done in q3, q4 particularly extremely well located, well flagged, um, you know, type hotels. And also I think that, you know, to your point, I, I do think that this growth in the conversions of, of, you know, maybe, you know, o obsolete or obsolescence as it relates to hotels into to multi is really a good one. Cuz it's very, it's an, it's a, it's noaa naturally occurring affordable housing. These are small units, but to an investor that's a high price per foot. But to the consumer who lives there as a low whole dollar rent, that means that they'll have more money to spend for their life than their rent. And I think in that regard, we're gonna continue seeing trends, uh, in that space.
00:15:59 Yep. You were now talking about one of my favorite strategies of the last couple months. We've seen this type of deal flow, enter our pipeline. And man, it is interesting and I, I love that aspect of the, that of what you just described, the Noah effect, right? Mm-hmm. <affirmative>. Cause in this scenario, you know, this isn't, this is gonna be a deal in Florida, but taking a deal in Florida, converting, you know, a 1990 vintage hotel into multi-family, you know, studio apartments, which are gonna look pretty nice when they're redone, you know? Yep. $750 a month. And when you looked at the submarket and say, could I go rent another, you know, studio for that same price? The answer is perhaps yes, but you're 30 minutes outside of town versus right in the zone. Exactly. And now you're, now you're like, minutes away, you're literally like a minutes shuttle right away from your job versus fighting the traffic, you know, coming in and out of town.
00:16:52 And I was like, the, the, and the kicker is the, the abundance of the amenities that you get on the property leftover from the days of it being a hotel, like large pool, fitness centers, even restaurants on site. There's all these things that, that are kind of just get thrown in. So I I, I mean I'm all in on this strategy right now. I think it's, you know, one of the most interesting things that's come out of the pandemic, come out of the sHieggelkeout, basically of hospitality. So I'm, I'm really hopeful that there's gonna be some additional opportunities that come our way over the next year to, you know, to take advantage and kind of get into like, let's deliver affordable housing into a market. We have a too many hotel keys on a lot of markets and not enough housing units, so let's, let's fix that
00:17:35 Problem and, and, and we'll leave it at this. Those hotels are located in great places where people wanna live. Yep. So, you know, that's the, that's the reality of it. So we'll see how that continues to grow.
00:17:44 They have transit at their doorstep, right? They wouldn't be no. If they, if it wasn't the case. So yeah, just a, a perfect o kind of opportunity for adaptive reuse. And again, I'm a big fan of adaptive reuse. It's the product council, you know, that I'm a member of at ULI. So anytime that we can talk about taking one form of real estate that is somewhat functionally obsolete, transitioning it into something new and vibrant that is, you know, meeting and need, um, you know, I, I feel like the commercial real estate industry is doing something good, you know, um, create, creating, you know, an opportunity. So, no doubt. All right, well I think that's a lot of stuff, Malcolm. We just, we, yeah. Rapid fire. So looking forward to doing this with you one more time in 2020. We'll kind of officially kind of kick off our 2021 preview. But, um, and thanks again for joining us. Um, thanks again everyone for out there tuning in and until we see you back here in a couple weeks, well Malcolm maybe will be back next week with, so either be me or Zack, but we'll, we'll see Anna-Marie next week. All right, well we got this segment next week. Uh, Malcolm and I may be back in a couple weeks and until everyone out there, just stay safe.