The Exchanges

Q want to speak, though, about the kind of complete inaffordability that you mentioned there. You said kind of older, more affluent people. I absolutely noticed it in London, and as you've said before, real estate in core urban areas is more expensive than it's ever been. I'm intrigued, then. Do you think we'll see continued appreciation in these pricing, or do you think we'll see a correction to the mean?

A I struggle to understand Percentage of income that people are paying in rent. In most of these cities, it's well above 50%. In New York, it's between 55 and 60. In San Francisco, it's between 60 and 65. People just can't afford to spend, what's it going to go to 70? Going to go to 75? And unless you see secular wage growth, which that's a totally different question of whether you're going to see that, I can I find it hard to understand how it will continue to appreciate, and if you're looking at the underlying asset value, we're already talking about very compressed cap rates. That's basically the ratio of the purchase price of an asset to the income produced by an asset. Very compressed cap rates in a variety of markets, which is partially just driven by the amount of capital that's out there, but partially also driven by a lot of international capital that's been flowing into big urban centers in the U.S., so I Find it hard to make a strong argument for why it will continue to appreciate.

AI assessment note: “I Find it hard to make a strong argument for why it will continue to appreciate.”

Q Do you agree with the move fast and break things then? With that thesis in mind and being in the startup ecosystem, do you agree with the leave the license till tomorrow? Let's get going today.

A Well, unfortunately, that's just not an option for a lot of the people who would start, say, a moving company. Because if you start a moving company and you go into debt to buy a truck and you post an ad or two, and then the local competitors are Obviously, you're going to notice, and they come and shut you down. I mean, you're really a sitting duck, and that, that could be devastating to someone's life. You could lose your house. You could no longer be able to put your kids through college. So I think move fast and break things works really well when you're dealing with a fairly privileged, venture-funded entrepreneur who is not going to lose their house if the business fails. Unfortunately, a lot of these small businesses involve personal guarantees and way more personal risk, and occupational licensing, to the extent it's gone out of control, Really limits a lot of that and shuts all that down.

AI assessment note: “move fast and break things works really well when you're dealing with a fairly privileged”

Q want to speak, though, about the kind of complete inaffordability that you mentioned there. You said kind of older, more affluent people. I absolutely noticed it in London, and as you've said before, real estate in core urban areas is more expensive than it's ever been. I'm intrigued, then. Do you think we'll see continued appreciation in these pricing, or do you think we'll see a correction to the mean?

A I struggle to understand Percentage of income that people are paying in rent. In most of these cities, it's well above 50%. In New York, it's between 55 and 60. In San Francisco, it's between 60 and 65. People just can't afford to spend, what's it going to go to 70? Going to go to 75? And unless you see secular wage growth, which that's a totally different question of whether you're going to see that, I can I find it hard to understand how it will continue to appreciate, and if you're looking at the underlying asset value, we're already talking about very compressed cap rates. That's basically the ratio of the purchase price of an asset to the income produced by an asset. Very compressed cap rates in a variety of markets, which is partially just driven by the amount of capital that's out there, but partially also driven by a lot of international capital that's been flowing into big urban centers in the U.S., so I Find it hard to make a strong argument for why it will continue to appreciate.

AI assessment note: “I Find it hard to make a strong argument for why it will continue to appreciate.”

Q Can I ask, does a price depreciation not concern you in the fact that it will allow for a lot greater affordability within the core segment that you're targeting?

A Well, I think it would have to drop precipitously to actually have a meaningful impact on what we're doing. Keep in mind that, you know, common tends to price at about a 20% discount to a Traditional studio. Ours is an all-in price that includes Wi-Fi, utilities, cleaning, etc. And most people are moving in, not primarily because of the affordability. Keep in mind, they can find a much cheaper place on Craigslist, but because it's a great community, it's super convenient, so when they move in, everything is taken care of. They don't have to spend their first two weeks buying furniture, setting up utilities, waiting for the con-ed guy, that big power guy. They really can just come in, and it's ready to go, so there's a big service component as well that differentiates it, and I don't necessarily know, just to add on to that, whether there's going to be a steep decline in rents. I actually still believe that people are going to, do want to live in cities. There's a huge attraction to urban centers, but I guess I just don't see it appreciating vastly beyond where it is right now.

AI assessment note: “it would have to drop precipitously to actually have a meaningful impact”

Q Okay, hit me. Why? Because I'm bullish, so we're gonna, we're gonna, we're gonna go for it here. Why are you bearish?

A Well, I believe, one, you have to look at the retail rents that a lot of these landlords have been underwriting, particularly in major urban centers. They've been underwriting retail rents that are almost impossible to break even on. And look, there are a lot of retail tenants out there that don't need to break even on their retail space. When Louis Vuitton rents space for 600 dollars a foot on Fifth Avenue, they're not going to break even on that space. That's a loss leader to build their brand. There are only so many companies and so many spaces that can be operated in this way, and I think you are going to see a major correction on the rents that these landlords in both prime and secondary areas have. Are asking for. The other is, and a lot of people talk about this, is e-commerce. It's so easy for me to get something on Amazon, on Jet, on any number of platforms that just going down to, you know, three blocks down the street to a store to pick something up is a bigger hurdle than it's ever been. So I think between all these forces, between the already very high underwriting that you've seen of retail rents, And the coming of e-commerce, I'm, I'm just very bearish on it.

AI assessment note: “one, you have to look at the retail rents that a lot of these landlords”

Q look at the likes of Louis Vuitton not even breaking even, it makes me think to kind of atomistic units like malls in suburban areas. And kind of the thing that immediately draws me to is the impact of AVs. Now, I'm continuously stuck between two rocks here. Will it cause the reversion of urbanization or create further densely populated areas? What are your thoughts on this? I'm continuously mindfucked.

A Well, that's the big question. I think the obvious answer would be, hey, it makes it a lot easier to come from the suburbs into an urban area every day. You know, I can do work in my car, and therefore the commute is less painful. On the other hand, a lot of people have looked at a lot of technologies in the past as the harbinger of the end of cities. Thinking about video conferencing, for instance, uh, there was certainly a period in the nineties when everyone thought that video conferencing would lead to the end of cities. If anything, urbanization has accelerated since then, and people have seen more reasons to work together, to work in the same place, to be physically present. So hesitant to say, just given a lot of natural preferences that go towards cities, that AVs are going to really disrupt things that much. Also keep in mind that AVs makes life easier within cities as well. So, you know, I have a nine-month-old at home, and one of my biggest pain points and the main reasons that I might move out of New York City is that it's so hard living in Chelsea to get Out of the city. So if there was an AV with a car seat that I could call that would just pull up outside my apartment, I could load my son in and, uh, you know, we'd be on our way as opposed to, you know, either paying for parking or renting a car. It just makes living in cities a lot easier too. So it's hard to pi…

AI assessment note: “hesitant to say, just given a lot of natural preferences that go towards cities”

Q Is it the end of property ownership, then, for millennials? Is it an inheritance or foreign investment?

A Well, I hope not. I think it would be extremely sad if we ended up in a world of landed gentry, where people simply Handed homes down to their heirs, as opposed to sold them when they were done with them. But I think things like Prop. 13 in California, which Prop. 13 effectively froze all property taxes back in the seventies, and they're reset to market levels when a home is sold. So what that means is there is a strong disincentive to ever sell your house in California, because then your property taxes go way up. So most people I know in California who own homes have no intention of selling those homes. They simply plan to pass those homes down to their children and then to their children's children, which is about as far as you can get from this idea of the American dream of homeownership and climbing the economic ladder. So you pretty much can't own a home in California unless you make it big in tech or parents own a home.

AI assessment note: “you pretty much can't own a home in California unless you make it big”

Q Okay, hit me. Why? Because I'm bullish, so we're gonna, we're gonna, we're gonna go for it here. Why are you bearish?

A Well, I believe, one, you have to look at the retail rents that a lot of these landlords have been underwriting, particularly in major urban centers. They've been underwriting retail rents that are almost impossible to break even on. And look, there are a lot of retail tenants out there that don't need to break even on their retail space. When Louis Vuitton rents space for 600 dollars a foot on Fifth Avenue, they're not going to break even on that space. That's a loss leader to build their brand. There are only so many companies and so many spaces that can be operated in this way, and I think you are going to see a major correction on the rents that these landlords in both prime and secondary areas have. Are asking for. The other is, and a lot of people talk about this, is e-commerce. It's so easy for me to get something on Amazon, on Jet, on any number of platforms that just going down to, you know, three blocks down the street to a store to pick something up is a bigger hurdle than it's ever been. So I think between all these forces, between the already very high underwriting that you've seen of retail rents, And the coming of e-commerce, I'm, I'm just very bearish on it.

AI assessment note: “between all these forces... I'm, I'm just very bearish on it.”

Q the deciding factor, obviously kind of autonomous vehicles, if you applied to Trucking. It's, it's a wealth distribution system as well as a goods distribution system. So I'm intrigued because does that not destroy local economies who are very dependent on truckers coming, buying petrol, buying food, going to bars? Does that not create kind of further decline of suburbanization because of this lack of trucking community? Four million truckers.

A Well, right. I, I, I certainly think the decline of, of trucking as a profession will have a lot of secondary effects. I don't necessarily know what that But I think it makes a lot of rural communities a lot less sustainable. So think about communities that are really based around gas stations, around stop-off points for truckers. I think gas stations, rest stops in particular, take a huge hit off of this between moving to autonomous vehicles and moving to electric vehicles as well. So I think there's, there are a lot of challenges in On the horizon for rural America in particular, which unfortunately compound a lot of the challenges that those areas of the country already face.

AI assessment note: “makes a lot of rural communities a lot less sustainable”

Q the deciding factor, obviously kind of autonomous vehicles, if you applied to Trucking. It's, it's a wealth distribution system as well as a goods distribution system. So I'm intrigued because does that not destroy local economies who are very dependent on truckers coming, buying petrol, buying food, going to bars? Does that not create kind of further decline of suburbanization because of this lack of trucking community? Four million truckers.

A Well, right. I, I, I certainly think the decline of, of trucking as a profession will have a lot of secondary effects. I don't necessarily know what that But I think it makes a lot of rural communities a lot less sustainable. So think about communities that are really based around gas stations, around stop-off points for truckers. I think gas stations, rest stops in particular, take a huge hit off of this between moving to autonomous vehicles and moving to electric vehicles as well. So I think there's, there are a lot of challenges in On the horizon for rural America in particular, which unfortunately compound a lot of the challenges that those areas of the country already face.

AI assessment note: “I think it makes a lot of rural communities a lot less sustainable.”

Q I, I'm intrigued though, with regards to the Amazon Whole Foods, uh, acquisition and merger, I'm intrigued, does that not signify Amazon's knowledge that really to be the sustainable global player, they have to have retail physical footprints as such, and does that not signify that actually online is not the sole way?

A Oh, well, I certainly feel like they need those distribution centers. I feel like them having a physical presence could Close to their customers, given the deliverability expectations and the timing expectations is very important. This is not to say that there will be no retail space ever going forward. It's to say there's going to be a collapse in the market. Keep in mind that the United States is wildly over retail in comparison to other developed countries. The U.S. has some Retail space per capita than most major European cities. So we're really overbuilt retail, and if that Amazon distribution hub, Whole Foods, becomes the distribution hub for everything that's sold on Amazon for that area, there's a lot of spaces down the street that are going to be put out of business and landlords that can't necessarily find a tenant to take that space. I actually, from a broader economic perspective, think this is a good thing, Because I believe it enables a lot of innovation in retail, because right now, it's very, very tough to get into the retail business as a tenant, just because the initial ask and the outlay is so high. So, even though I'm bearish on retail rents in the space, I think it's going to be a good thing for the economy as a whole.

AI assessment note: “I feel like them having a physical presence could Close to their customers”

Q look at the likes of Louis Vuitton not even breaking even, it makes me think to kind of atomistic units like malls in suburban areas. And kind of the thing that immediately draws me to is the impact of AVs. Now, I'm continuously stuck between two rocks here. Will it cause the reversion of urbanization or create further densely populated areas? What are your thoughts on this? I'm continuously mindfucked.

A Well, that's the big question. I think the obvious answer would be, hey, it makes it a lot easier to come from the suburbs into an urban area every day. You know, I can do work in my car, and therefore the commute is less painful. On the other hand, a lot of people have looked at a lot of technologies in the past as the harbinger of the end of cities. Thinking about video conferencing, for instance, uh, there was certainly a period in the nineties when everyone thought that video conferencing would lead to the end of cities. If anything, urbanization has accelerated since then, and people have seen more reasons to work together, to work in the same place, to be physically present. So hesitant to say, just given a lot of natural preferences that go towards cities, that AVs are going to really disrupt things that much. Also keep in mind that AVs makes life easier within cities as well. So, you know, I have a nine-month-old at home, and one of my biggest pain points and the main reasons that I might move out of New York City is that it's so hard living in Chelsea to get Out of the city. So if there was an AV with a car seat that I could call that would just pull up outside my apartment, I could load my son in and, uh, you know, we'd be on our way as opposed to, you know, either paying for parking or renting a car. It just makes living in cities a lot easier too. So it's hard to pi…

AI assessment note: “So it's hard to piece that out. And I, I don't have an answer”

Q Does it have the ability for venture returns with the physical aspect?

A It does. I think there are some aspects that scale and some aspects that don't, and not Everything has to scale, so property management is just one of those things, for instance, that you hire one person for every X members, and the distribution channels, however, do scale, and I'm a big, big fan of organizations that have scalable online distribution channels, but that they own themselves. Marketing channels, yeah, that they, they really own themselves, but the fundamental operations don't necessarily have to scale perfectly, you know, keep in mind that Even some of the best, most scalable businesses ever, specifically Google, have, you know, warehouses full of people in India that, you know, go through Google Images and make sure there's no porn in there or do customer service for Google AdWords and all sorts of things like that. So not every aspect of a scalable business has to scale perfectly. You just try to make it as close as you can to a server plugged into the wall that makes money.

AI assessment note: “It does. I think there are some aspects that scale and some aspects that don't”

Q Can I ask, does a price depreciation not concern you in the fact that it will allow for a lot greater affordability within the core segment that you're targeting?

A Well, I think it would have to drop precipitously to actually have a meaningful impact on what we're doing. Keep in mind that, you know, common tends to price at about a 20% discount to a Traditional studio. Ours is an all-in price that includes Wi-Fi, utilities, cleaning, etc. And most people are moving in, not primarily because of the affordability. Keep in mind, they can find a much cheaper place on Craigslist, but because it's a great community, it's super convenient, so when they move in, everything is taken care of. They don't have to spend their first two weeks buying furniture, setting up utilities, waiting for the con-ed guy, that big power guy. They really can just come in, and it's ready to go, so there's a big service component as well that differentiates it, and I don't necessarily know, just to add on to that, whether there's going to be a steep decline in rents. I actually still believe that people are going to, do want to live in cities. There's a huge attraction to urban centers, but I guess I just don't see it appreciating vastly beyond where it is right now.

AI assessment note: “it would have to drop precipitously to actually have a meaningful impact on what we're doing”

Q I, I'm intrigued though, with regards to the Amazon Whole Foods, uh, acquisition and merger, I'm intrigued, does that not signify Amazon's knowledge that really to be the sustainable global player, they have to have retail physical footprints as such, and does that not signify that actually online is not the sole way?

A Oh, well, I certainly feel like they need those distribution centers. I feel like them having a physical presence could Close to their customers, given the deliverability expectations and the timing expectations is very important. This is not to say that there will be no retail space ever going forward. It's to say there's going to be a collapse in the market. Keep in mind that the United States is wildly over retail in comparison to other developed countries. The U.S. has some Retail space per capita than most major European cities. So we're really overbuilt retail, and if that Amazon distribution hub, Whole Foods, becomes the distribution hub for everything that's sold on Amazon for that area, there's a lot of spaces down the street that are going to be put out of business and landlords that can't necessarily find a tenant to take that space. I actually, from a broader economic perspective, think this is a good thing, Because I believe it enables a lot of innovation in retail, because right now, it's very, very tough to get into the retail business as a tenant, just because the initial ask and the outlay is so high. So, even though I'm bearish on retail rents in the space, I think it's going to be a good thing for the economy as a whole.

AI assessment note: “This is not to say that there will be no retail space ever going forward.”