Transcript 0:00 I think there's going to be a large dichotomy even more than today. 0:04 Either housing is af- affordable for as many people as possible, or housing is an outperforming investment and wealth creation vehicle for as many people as possible. So what happens when these things collide? 0:17 You have political unrest. We're gonna flip the chessboard upside down. Let's just burn it all down and start over. 0:22 Welcome to the Purpose Driven Capital podcast, where we help you align your money with your mission and maximize your impact. Here's your host, Matt Johns. 0:31 Some commercial buildings will never come back, but it's not because the economy failed, it's because behavior has changed. 0:38 Over the last five years since COVID, commercial real estate absorbed a shock unlike anything in modern history. Remote work, rising rates, refinancing cliffs, and a fundamental repricing of risk. 0:51 And the effects go far beyond office towers into housing, lending, even entire cities. 0:57 Kevin Stoffman has operated in finance and real estate through the great financial crisis in 2008 to the COVID shutdown just a couple years ago, and now this new norm in real estate. 1:08 We discussed what changed, where capital's moving next, and then how to think about risk in a world that no longer behaves the way it used to. Welcome to my conversation with Kevin Stoffman. 1:18 Discipline is not something that- that's foreign to you by any means. I mean, you're- you're an Ironman triathlete. I did Ironman Texas in 2013, then I did Ironman Miami in 2014, and then we got engaged, 1:34 and my wife said, "This is a really neat habit you have going on there." A habit. "Uh, um, but could you not do that for a little bit?" Hmm. 1:46 When you, when you do a lot of this prep with other people, you have other accountability partners, you have other people on the journey with you, it really creates, like, this sense of community. Yeah. 1:57 It's gotta be nice to be driven just by yourself in one particular direction, uh, for whatever that is that, that you're trying to achieve. You know, best time just to finish, whatever. 2:05 Y- for me, it'd be just to finish- Yeah... one part of the race, let alone the entire thing. But, you know, to finish the race, to get the best time, to whatever it is, to be self-motivated that whole path. It... 2:15 I think it's a, it's kind of a character trait that, like, a lot of successful people have. 2:22 Like, I'm not gonna say it's causation, it's more just correlation, but there's definitely a clear correlation between people who are just, they have some sort of con- competitive physical spirit and the discipline that's required to go with that, and a lot of that then translates into work, not just work life. 2:42 Yeah. Now, I do wanna talk about your profession because you've, really, your focus in, in recent years has been on commercial real estate. And, uh- [laughs] Yeah... 2:49 you kinda came into it, uh, expecting to go back into maybe some consulting or something at, like that, but you really found that you loved this world. And especially the, the tech side, the prop tech side of all this. 2:59 But you were there from the time, I think in 2019, uh, and beyond, and that was right when COVID hit. 3:06 And I'm just trying to think, how much did your industry change in the time that you started with this particular company, growing it from m- a smaller startup into something s- far more significant down the road? 3:17 What did you see in that time as COVID took place, as, uh, the commercial real estate went through the, the up and the down, the major down that it went through, uh, as everybody started working from home? 3:27 What did you see in that time? Well, going through cycles will humble you, uh, for sure. [laughs] Yes. I remember thinking, this was actually the week before the border basically got shut down. This is early March 2020. 3:42 We had just gone through this six-month run of signing up a bunch of enterprise clients. We were growing rapidly. And we were at the, the hotel bar at the St. 3:52 Regis in San Francisco, and I was joking with some of my colleagues, like, "Why, why does everyone say startups are so hard? Like, startups are easy. 4:03 You just have to, like, go sell and then, you know, grow revenue, and, like, everything works out." And then a week later, like, no one is getting on an airplane. The budgets are frozen. Like, nothing is happening. 4:19 And we didn't do... We, we did a couple small deals, but we didn't do another enterprise deal for seven months- Seven months... after that week. So I just, all I could think about is, "Man, I jinxed it so bad. 4:31 Like, how bad must it be for us?" And then I just looked around, and it was, you know, it wasn't just us. Hmm. It was carnage everywhere. 4:39 Uh, but I also, another lesson I learned from that was, um, everyone that had, like, basically predicted that life was over and Armageddon, and it was just another market cycle. 4:50 Well, why were they saying it was over and it was Armageddon at that time? The people thought, "Okay, no one's going back to an office. RTO's never gonna happen. It's a new normal. 5:02 We're all gonna live on Zoom, and we're gonna do happy hours on Zoom, and somehow that's gonna, like, fulfill this hole we now have in our social heart." Yeah. 5:10 "And we're all just gonna be content to, like, you know, put a spray bottle to our delivery food, and everything's gonna be fine. 5:16 And oh, by the way, no one's gonna go shop at a retail store anymore because now Amazon can deliver everything that we could ever desire, and it can do it with Prime in 48 hours. Therefore, these two 5:29 formerly core verticals of real estate are now dead. We're, we're calling it. Here's the date. You know, th- dead on arrival. And multifamily is the safest asset class, so please put all of your money there." 5:43 And for 12 months, these prognosticators were correct. Mm-hmm. And then mid-2022 hits, interest rates go up, ChatGPT gets introduced- Yes... to the world. 5:58 All of the sudden, uh, m- every multifamily investor that put floating rate debt on their property is now upside down. Their collateral that was backing the debt... is, is lower in value. 6:11 Previously marked dead asset class retail is now on the rise because people have been starved for experiences because they've been trapped in their homes for a year and a half, 6:22 and now they don't really wanna buy a lot more stuff. They've been buying stuff for a year. Mm-hmm. Now they wanna see people, and they want unique experiences. 6:29 Now experiential retail is on the rise, and people don't wanna go to a state office building, but they do wanna be with other people, so now co-working's really big. 6:40 And wouldn't it be great if we could go to some interesting place making on the bottom floor? So now mixed use is back. And now we- here we are today in 2026, industrial real estate's being rethought. 6:54 What used to be like junkyard storage has been rebranded industrial outdoor storage, and it's like trading for high multiples. What I've learned through all of this is e- everything's a rollercoaster. 7:06 Everything goes up, everything goes down. So I think it, it comes down to placemaking. Like you- you... 7:11 I- I've, I've seen all the laughable, you know, RTO policies introduced by investment banks and tech companies trying to force 7:21 their people back, and there's always gonna be a, a, a push-pull between management and, and worker bee. But the, the companies that have done it the right way have said, "Look, with AI 7:36 we can now invest in our best people and worry about retention and not like laying off a bunch of people. 7:46 Instead, we're gonna like, we're gonna invest in our top players so they stay, and we don't have to spend all the money to go out and interview and hire and train new people. We're gonna invest in our best people now, 7:57 and we're gonna do that by giving them, you know, amazing places to come and collaborate when they need to collaborate." Now, that means they might only be coming two or three days a week to the office. 8:11 We can't really sublease the office for the other three or four days when most of our employees aren't there. Mm-hmm. But we can now better space plan. 8:19 So if we had built a campus or we had leased suites that were designed for 500 people, well, now we can grow in this market, and we can technically have 800 people at a time, and we don't need any more space because everything else is redesigned for collaboration. 8:43 And when they need privacy, there's little areas of privacy, and most of that privacy stuff, they're gonna do it from home anyway 'cause that's more convenient for them. But when they come visit, 8:54 they can be entertained, they can be wined and dined, they can get a lot of work done, and they're excited to come to these environments. 9:03 So the buildings that lose are the 1980s era office buildings that haven't been updated, and the cost to update them will actually be more expensive 9:17 than just demoing the thing and rethinking the entire building ground up. Now, there are some retrofits that, where the economics will pencil, and they'll work. 9:25 But in a lot of cases, some of these buildings are just, you know, they're dead, and they gotta, they have to go away. But what comes back up in their wake ends up looking a lot more mixed use. 9:37 So it'll be a building that has some office space. Maybe it has some co-working. Maybe it has some retail. 9:43 Maybe it even has apartment or hotel for people that are, that are coming in to visit from other places or that just want convenience and wanna live near where they work 'cause they're young, but they want mobility to move. 9:56 And, and like that's where, what's happening to a lot of these buildings. And I'm the believer that because 10:04 these buildings are still getting built and people are still coming in a couple days a week, it doesn't matter whether they come in Monday through Friday or only come in two days a week. Sure. 10:11 They're still having to pay the same amount of dollars per square foot to have exclusivity of that space for their people. Sure. So like y- although they'll have less space, it doesn't really affect rates. 10:25 It affects amount of space that is rented. I'm really curious to get your thoughts on, uh, the housing side of things because what we've seen- Yeah... 10:33 I mean, since post-COVID, we've seen this huge shift in homeownership and who's the haves and have-nots. But- Yeah... 10:40 now it's the haves are those who bought before 2022, and the have-nots are those who did not buy as prudently as maybe they would have otherwise before that time. 10:49 So you've got this really, really strange dynamic now of homeownership being like the cornerstone, cornerstone of wealth, right? 10:57 So I'm curious to get your take on that because y- we're talking about affordable housing, and that's one thing because that's, that's rentership as opposed to ownership. 11:05 And what, what is this gonna look like in the future just in your eyes from a com- from a real estate perspective? I think there's going to be a large dichotomy even more than today 11:17 between those who say, "I want to build wealth in my home. Therefore, I'm willing to sacrifice mobility. I'm gonna stay where I am and not... And, you know, my family's here. 11:32 Therefore, I'm staying here because this is my home, and I'm building wealth here. 11:36 And yes, I, I, I might have to say no to a job that requires relocation or, you know, I may not, you know, I may not be able to pick up and move, but I have this wealth-building vehicle." 11:48 And then there will be some people who say, "I don't wanna be forced to be in one place. I want, I want some freedom of movement. And not only that, I want the flexibility to do it whenever I need to. 12:02 Therefore, I'm willing to pay the same amount or maybe a little more in my living expenses without that wealth-building vehicle." 12:11 So that I have the freedom to move whenever I want until I find that perfect opportunity where I am going to then set roots. And because you have these two different camps 12:25 on that side, now you have two camps on this side. And camp up here is housing is an investment. It is the American dream. It is how I build wealth. I need this asset to continue to go up in value. 12:39 And then you have this other camp down here that says, well, life, liberty, and the pursuit of happiness, like, property, shelter is part of that. Shelter needs to be affordable. 12:51 Well, these two philosophies are at odds with one another. 12:54 Either housing is af- affordable for as many people as possible, or housing is an outperforming investment and wealth creation vehicle for as many people as possible. So what happens when these things collide? 13:11 You have political unrest, and we are starting to see that right now. And I, I think it is only going to exacerbate further. I mean, you see what's happening politically with our leaders, right? 13:25 Trump was populist on the right, Mamdani populist on the left, and both of them are more popular than ever because people who have not gotten 13:36 the long end of the stick are saying, "Well, we played by the rules, and the rules aren't working, so we're not just gonna work harder and innovate. We're gonna flip the chessboard upside down. 13:47 Let's just rip, tear, burn it all down and start over." I guess we'll have to see [laughs] on that one, 'cause the, the unrest is clearly there. 13:55 But I, I, I'm looking back at all this too, and, I mean, COVID really did shake things up i- in a way that, uh, from a real estate perspective, that certainly was not expected. Nobody could have. 14:04 But, uh, I think there were signs- Right... that might have been there, uh, that led it, that led to what was going to be inevitable, and then COVID- Right... 14:10 ended up being an accelerator, work from home being an example, right? But so let's just say we know where we are now. 10 years from now, 20- 2036, where do you see, uh, all of this kind of real estate morphing? 14:23 Is there a certain direction you see things going? Obviously with, with PropTech, you're, you're looking at that from a, a sort of unique angle there. 14:30 But I figure from a data perspective, from whatever it is, uh, it- it's real estate. It's a property. It's a place where things happen, right? 14:36 So it's not the, it's not the, the, the technology that's there, but maybe the technology is driving activity there. I don't know. 14:43 What are you seeing change over the next 10 years just in the trends that you are seeing from your seat? I think the biggest demographic group, the baby boomers, 14:54 uh, are now getting to the point where even their younger children, younger millennials... Now I'm a, I was born January of '81, so I would, I would call myself, like, the oldest millennial. 15:07 I don't think I'm quite Gen X. 15:09 But, like, the, so people 10 years younger than me, now they've already been out of college for a while, so that, that, that generation that had children is, are now, they're now all empty nesting, 15:24 and they probably don't need that big home anymore. 15:27 So they're not, but they're also not old enough to where they need continuous medical care or close proximity to critical facilities, and so there, there's this, there's this demographic band that is going to be moving to what I would call, like, luxury living active communities. 15:49 So a lot of senior living development happened a decade ago. It was a little too early. It didn't make the money I think a lot of people thought it would, and that asset class got soured on. 16:00 Like, if I had money, that's where I'd be putting it right now is, like, senior living but for 16:07 folks with means because they're now selling that asset that's been building over time, that wealth creation vehicle, that home. They no longer need it. Uh, so either that asset is being passed to the kids, 16:24 so you have a massive wealth transfer moment to a younger generation that could collateralize that asset and invest in other things, or that asset is being sold in the open market. 16:37 They're downsizing into an, in a community, and now they have this additional capital to live their lifestyle. 16:44 So what entertainment and experiential concepts are going to serve that community that now is retiring and has more time on its hands and has capital but is still young enough to where they don't, it, this isn't about healthcare. 16:59 This is about life care, right? That, that's where I think the next 10 years of real estate is gonna be really big. And then the other side of that, I think, we'll see some sort of data center bubble that pops. 17:15 Uh, it's just, it, it's, uh, the amount of money that's being invested in data centers, and they're not exactly making a lot of friends in the communities where they're being built. 17:22 And so I think you're gonna see a lot of pushback- That's interesting, yeah... on those buildings. Mm-hmm. And, and that's probably gonna happen sooner rather than later, I would imagine. Yeah. Ne- next 24 to 36 months. 17:34 I actually think it'll be a big, um, election topic in '28- Interesting... 17:41 is, like, what, what type of legislation is being passed to, quote unquote, "protect, protect residents from the, um, the problematic data centers that are popping up everywhere, and they're gross, and they're not good for neighborhood values" and all that stuff. 17:56 So on the one hand, you've got AI and this driving technology that is being pushed by anyone and everyone with a desire for progress, right? It, financial, technical, whatever kind of progress you're looking for. 18:07 And then on the other hand, you've got people who are trying to preserve their home, preserve their land, preserve their, the property of which they own. 18:15 And, uh, they don't wanna see it corrupted by this, this other thing that, that must grow. So that's a, that's a really interesting tension, um, that you just brought, brought to light. 18:26 Um, that- that's probably a whole discussion in its own right too. Yes. But, um, I don't know. D- do you sit on the, uh, the, the data center side of things very often? Is that something you- you're into? 18:36 So we, we, we, we have a couple clients that, that develop data centers. Yeah. 18:41 And it, it, data centers are following the same path that other industrial warehouses and logistics facilities went through, which is higher clear heights, more truck bays, you know, bigger, better, more robust to handle larger operations. 18:58 And right now they're still in areas of the city where they have access to trucking infrastructure and rail and highways, but they're not really infringing on residential neighborhoods yet. 19:11 But as with happens with every new city and property type, n- NIMBYism collides with affordable housing, 19:20 pretty common, and you're gonna see this exacerbated by data centers and other building types that are swallowing up compute power. And not only that, energy infrastructure. Right? 19:29 You see a lot of cities whose energy bills are going up because they have to pay for, uh, the ongoing operations of these data centers. 19:37 Well, Kevin, thank you for taking time with me today, and, uh, wish you all the best in all your endeavors here in this beautiful commercial real estate universe. Yeah. Thanks for having me on. This was great. 19:48 We hope you enjoyed this episode of the Purpose Driven Capital podcast. If you found this valuable, be sure to like, subscribe and share. Are you ready to align your money with your mission? 19:58 Discover the Purpose Driven Capital framework, access practical tools, and build meaningful connections to grow your movement and multiply your impact at purposefuldrivencapital.co. 20:09 The views and opinions expressed in this show are solely those of the individuals speaking and do not reflect the views or opinions of Honeyhive Capital, any broker-dealer, investment advisory firm or its sponsors. 20:20 The content is for informational and entertainment purposes only. 20:24 Nothing in this content nor any communications from it should be treated as constituting financial, investment, legal, tax or other advice of any kind, or as a recommendation to buy or sell an interest with respect to any investment. 20:36 We look forward to you joining us next time. [outro music]
