The text below is a transcript of audio from Episode 29 of Onward, "The largest developer in LA, Rick Caruso."
Disclaimer: This transcript has been automatically generated and may not be 100% accurate. While we have worked to ensure the accuracy of the transcript, it is possible that errors or omissions may occur. This transcript is provided for informational purposes only and should not be relied upon as a substitute for the original audio content. Any discrepancies or errors in the transcript should be brought to our attention so that we can make corrections as necessary.
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Ben Miller:
Hello and welcome to Onward, a Fundrise podcast. My name is Ben Miller. I'm CEO and Co-founder of Fundrise. My guest today is Rick Caruso, founder and owner of Caruso Affiliated, one of the largest privately held real estate companies in the country and an iconic real estate developer in Los Angeles.
His projects combined see more visitors a year than Disney World. Rick Caruso built The Grove in Los Angeles, reinventing the retail industry nationwide and helping spark our rebirth of investment and development in Los Angeles. Before we get started, I want to remind you this podcast is non-investment advice, is intended for informational and entertainment purposes only. Rick Caruso, welcome to Onward.
Rick Caruso:
Thank you for having me. It's great being here.
Ben Miller:
Excited to have you on. You have a lot of experience. I'm actually going to jump in with a report that came out today. Goldman Sachs put out there 2024 Macro Outlook. It was titled The Hard Part Is Over, which is a very bold call on their part and they basically are calling for inflation down to two, two and a half percent in 2024 and they basically no recession. And you've been through a lot of downturns. I was interested in your view of the next couple years, do you think there's a recession? What's Rick Caruso's view of this?
Rick Caruso:
Well, Ben, I wish I knew exactly, right? I wish I had that proverbial crystal ball that we all would like to have. As you and I were talking before the show, I mean, so much has happened in the last couple of years and it's difficult for any of us in business to navigate through it. You get through COVID, which there was no playbook or manual for that. We learned a lot and I'm proud of my team the way we got through it.
Then we had record numbers. We continue to have record numbers. What we're seeing now is our attendance on our properties is significantly higher, up double digits. Our sales per square foot remains very strong and growing. I don't think even with all of that and the consumer spending that is staying strong, I don't think with all of that we're saying to ourselves the tough part is over.
We have incredibly high interest rates. The consumer spending, we're starting to see cracks in it. We're starting to see all time highs of defaults on car loans, personal loans. We've got credit card interest rates at 20%. You've got a war happening in the Middle East.
You've got a war happening in Eastern Europe. I mean, there's a lot going on and it impacts all of us. I think we're going to have to really be on our game in 24 and potentially some at 25 to navigate through the complications that are facing us in business. I think it's doable, but we're going to have to be good at what we do.
Ben Miller:
So I have not been through as many downturns as you, but I went through oh one and I went through oh eight and then whatever 2020 was and I came away with a very fixed opinion that you can't go through what we just went through and not have a recession, but I've been wrong.
I've been surprised by the ability for an economy that had zero interest rates for a decade and everybody said we had to have zero rates to survive and now be at nearly 5% and everyone will say, "Oh, the hard part's over." I've been struggling with it. It felt like there's been some dissonance. I think real estate's hit harder by interest rates than a lot of sectors, and I think LA, some of the big cities have been hit a lot harder than other cities. Where you sit?
Rick Caruso:
I don't agree with the headline. I think it's going to be tough getting through 24. You're going to continue to have higher rates. Inflation may not grow as quickly, but we already have product that has been inflated, the cost of goods. Even if there's no more rate hikes, we've got significantly higher rates. And remember, for your better customers that are out borrowing, you're borrowing at a spread over the 10 year, whatever the case is, maybe a couple hundred basis points.
We're about to close a deal on a refinancing, rates have tapered back down, and so we've decided to lock and we're going to be in the 6% plus range, which is all right. It's not what we like, like it was a few years ago at 3%. I think that's all manageable, but the majority of the businesses out there are not getting those kind of rates.
You've got companies, especially smaller businesses, they're borrowing at maybe 10, 12, 13, 14, 15 percent. That's not sustainable in terms of filling up inventory and product and whatnot. So I don't know if there's going to be a recession or not. I tend to think, depending on how you define a recession, I think there's going to be a pretty good pullback of consumer spending, not at all levels, but there's going to be a pullback of consumer spending.
I do believe you're going to see more and more companies reducing workloads, cutting back their G and A, cutting back payroll and being conservative on capital expenditures and sort of this idea and plan of let's get through 24 and see where the world is at.
And on top of everything else that's going on, you've got a crazy presidential election that is going to take a whole bunch of twists and turns. And all of those things as you know, affect the consumer. So my business, we're obviously consumer centric, whether it's in our apartments, our retail, our hotel, we're going to keep a very close eye, but we're going to be very conservative on our spending going forward.
Ben Miller:
Us too. Let me roll back the tape because you've been through the two biggest real estate blowups in modern history. And I don't know which was worse, 2008 financial crisis or the SNL crisis, but they were both very bad for real estate, so I was curious to hear some of your personal stories from those eras.
Rick Caruso:
The overall design of my company is we design our projects to get through tough times. We don't over-leverage our projects. We keep a lot of equity in it. I don't have outside partners or investors. There's pluses and minuses to that. The plus is we can make decisions very quickly, pivot quickly, et cetera. How we invest, how we structure things. We all know that in the time of great disruption becomes great opportunities.
What we look for as we go through these times of disruption and they generally are in 10 to 12 year cycles, we want to have enough liquidity, sort of dry powder so that we can take advantage of opportunities that are out there. Because the properties themselves, even when times get tough, perform well. 90% of our leases are credit tenants. They're on long-term leases. You're going to get some failures going through it if there's a tough time, but we don't get impacted that much.
I mean, COVID was a completely different thing. So what I would say to everybody, you have to be a bit of a warrior on these things from the standpoint you've got to get ready for battle. You've got to be smart how you design your budgets going forward. You have to be anticipatory early on and see changes in the market and plan for it early because where I see companies getting in trouble is they're reactionary. So what we try to be is get way ahead of it.
When we saw back in the financial crisis days, oh eight, oh nine, we got very conservative very, very quickly and we started pulling a whole bunch of levers to save capital, reduce costs. We got through it fine. There was some pain moments for sure, and we're doing the same thing right now. We're pulling a lot of levers and cutting a lot of costs and driving a lot of cash flow to the bottom line and we'll be hoarding cash, cut our CapEx dramatically on this.
I don't think we're going to be going through anything anywhere near as dramatic as in the past of the great recession of the financial crisis. I don't see that happening. But I would certainly plan as we have in all of these recessions, you will get through them if you're very conservative and anticipate the worst and hope for the best, but have a plan.
Ben Miller:
Did you start that way or did you become that way over time?
Rick Caruso:
I started that way. Because Ben, I started this company with nothing and am always willing to take calculated risks. We do that every day. Your business, my business, we take educated, calculated risks. When things start happening beyond my control, the only way I can control that is by having financial wherewithal to weather the storm.
And I've always done that because it's all of my own capital in these projects. I'm at that point in my career and the size of the company that there's a hell of a lot more downside potentially than upside. And we probably manage a little bit more conservatively now, but we've always been conservative.
Ben Miller:
Do you have any vivid memories of when things were most scary? What was happening in that moment?
Rick Caruso:
On all of our projects, they've had ups and downs. The biggest challenge for me in my business is that I was starting a business that I knew nothing about. We were inventing these new rules on design and layouts. I frankly didn't know there were new rules. I didn't realize everything had to be an indoor mall with two department stores and no landscaping or fountains or whatnot.
I was designing things where I believe people wanted to go and if they wanted to go then they would stay longer and shop. And the indoor mall industry became very threatened by that, and so every project we were building, we were being sued by the adjacent indoor mall to stop us and they were using CEQA, which is the California Environmental Laws as a reason to stop us. I didn't have the capital to challenge it, but I found it and we fought back on every one of them and we won.
One, we took all the way to the state Supreme Court. So that was the biggest risk. The way the projects are designed financially, we're doing a lot of pre-leasing before we start construction. We take the risk on entitlements, but we know how to manage it. By the time we open up, we're usually 80 to 90% leased. Our income is predictable. We're financing against that.
We're locking in our financing usually to 10 to 15 years, and then we're planning against our interest costs. It's a really predictable model. It's almost like a bond in some respects except you get a lot more upside because we continually work all the little tools we have in our bag to drive more revenue, parking, sponsorship, advertising, releasing, et cetera. And our CAGR on our company has been 18%, which is really significant. It's unusual. They have a 18% growth rate year over year.
Ben Miller:
You make it sound easier than it is because my father's developer and I've been there. It feels like you've concentrated all the risks to the beginning and then because the entitlement process in LA or in California, the kind of things you built. And not just the entitlement process, also the kind of design, the kind of conceptions you had of what should be there, cross the board. People call it risky. I think of it differently having done it. It's more like masochism than risk.
Rick Caruso:
Just like you and your dad, when you love what you do, it's a battle, but you're a happy warrior. The payoff on these things, not only the financial payoff, I talked to my team about it. There's this huge psychic income component. And that sounds corny, but we build these places and I just walked around The Grove because my office here is at The Grove.
You get to see people enjoying the day and hanging out and enjoying life and being with their family and friends, and to me that's just so rewarding that I'm able to build things that not only are financially successful, but actually create real value to the community and to people's lives.
Ben Miller:
Another thing that's unusual, you said it, but it's highly unusual in real estate for someone to build the scale of real estate you have built as a single owner. It may be nearly impossible today in the way the capital markets they've evolved and how debt requires so much more equity, and so I'm curious how you've seen the money part of the business, the equity and debt financing part of the business evolve in real estate since start of your career in the early eighties, or you could even say in the seventies when you were an attorney.
Rick Caruso:
Again, I don't know if the way we do it has changed all that much. Capital markets go up and down. Lenders are in and out. We have always been very, very focused on having our lenders be relationship lenders. We want our lenders being lenders that are lending off their own balance sheet. We avoid a CMBS structure, those kinds of things. Now, we just did a CMBS because in today's market that made the most sense and we were able to tailor it to our needs.
We're doing business with five or six banks that we always do business with, so we built a relationship over time. You always have to plan on that relationship not coming through for you. As much as lenders will say, "We're always there for you," there's times that they're just not so you've got to have plan A, B, C, and D. But we're just borrowing to our equity and the value of the project that we're building.
We're not doing anything very exotic. Maybe we should, but we don't. Like everybody, we try to be really smart on how we ladder our maturities, on how we maintain our relationships and again, how we maintain our liquidity. We have not had to ever pay down a loan, we've never defaulted on a loan, we've never failed on refinancing a loan.
But we are very straightforward and over time we've got a really healthy balance sheet and our properties have very strong tenants, so they're easy to underwrite. It's an easy story we give the lender. We got to make it easy for the lender. It's never easy, but we make it as easy as possible.
Ben Miller:
For listeners, a CMBS is a commercial mortgage backed security. It's a securitization, which means you essentially sell into the bond market on Wall Street rather than borrowing from a bank. Was that true though? And building The Grove was so different and now you're describing today the kind of real estate organization and portfolio, but going back earlier, it seems like there was a quantum leap that happened along the way.
Rick Caruso:
There was, we were just finishing up The Commons at Calabasas. Great property, but significantly less complicated, smaller in terms of scope than The Grove. Moving to The Grove, we had a lot of interest in financing The Grove at the time on the construction loan. There was some definite battles on it. We put together three banks that did the construction loan and a couple of the banks were a little bit difficult at times.
In the middle of that, we had the theater crisis where most of the theater operators were going into bankruptcy. We had a theater here that [inaudible 00:16:39] complications for it, but again, we were able to get through it. And I've obviously got a really smart team that helps me through these things. But for the most part, our lenders have always been with us on this.
And I can tell you just to jump forward, COVID was that classic line that I think Warren Buffet said, "You know who's swimming naked when the tide goes out." When COVID hit, we had a couple of bankers that really disappointed me, that were very concerned about their own balance sheet. I didn't think were handling things fairly. And we had the majority that were very good, but the ones that didn't treat us as well as I thought they should, we've not done business with them again.
Ben Miller:
My experience with relationship banking is that everybody who knows you at the bank leaves and you end up with new people and it's much more corporate dynamic. If you have large deposits with them and you have fees and stuff there, they use their balance sheet to drive fee income as their lender second and a capital markets organization first.
Rick Caruso:
You're right, Ben. There's no doubt that's all part of the game. And somehow what you have to do with that, and you're right, people move around, and somehow what you have to do with that is you have to have enough relationships and deep enough relationships to counterbalance that. And even with that, you don't always counterbalance it. And that's why I said you got to have plan A, B, and C because otherwise you can get left high and dry if banks decide not to perform for you.
And it pissed me off to no end when that happens. I'm a man of a handshake. I believe in a handshake and if I tell you we're going to do something, we are going to do it come hell or high water and no matter what the cost. And that's the rule around this company, you shake somebody's hand, you say you're going to do something, even if it's the wrong decision that you've made, we will stand behind it. And when we find other people like that, we become very excited and loyal to them because you don't find them that often.
Ben Miller:
No. I'm surprised you did a securitization in this environment and so it makes me want to follow up with, do you think the banks are fairly strung out, they have a hard time lending off their balance sheet at the moment or is there something else?
Rick Caruso:
Well, the reason we did it at the time, so the securitization we closed was probably about five or six months ago. It was as rates were starting to rise dramatically, a lot of nervousness in the capital markets, no clarity on where this was going to end up going, and the balance sheet lenders had put in proposals on our refinancing. It was a very large loan, it was 500 million. Because of the size of it, they wanted to be able to syndicate it out.
Ben Miller:
They didn't want to take syndication risk. Right?
Rick Caruso:
I didn't want syndication risk. That's exactly right, Ben. As much as I didn't like the CMBS part of it, that was a better option than getting a commitment from a lead bank subject to syndication and then they say, "We're short a hundred million."
Ben Miller:
That happened to them a lot 12 months ago. They got hung with a lot of deals that they couldn't re-syndicate. They're still sitting on it more [inaudible 00:20:08]. It's interesting. I want to talk about Los Angeles. Most of our listeners don't live in Los Angeles. It gets a lot of shade.
Rick Caruso:
It sure does.
Ben Miller:
So I thought maybe to pan out, I feel like for my father or for me, I grew up in D.C., D.C.'s collapsed and then rose back from the ashes and so did LA. And you grew up in LA and you've been building in LA for decades. Is there a way for you to tell the LA story? It's gone through this total rebirth and you were part of that. You were part of what drove that change. You were on the stage, not even a first seat row.
Rick Caruso:
I'm big on LA, I'm bullish on LA. LA is going through a lot of challenges now that a lot of big cities are going through. It's unfortunate. I'm a firm believer that there's solutions for all these challenges. I don't see the political will to get things done, which is unfortunate, but LA has really grown in a lot of great ways and we were on a really great trajectory for many, many years.
We had the arts really exploding in Los Angeles. Fashion has exploded in Los Angeles, the restaurant scene, of course the entertainment industry is prevalent in LA and there was a lot of really great things happening. What really has dampened it down now, we've got a homeless population that continues to grow. We've got crime that continues to be a problem. We've done some things here in LA like additional tax on real estate that has really put a damp blanket over the commercial and residential market.
So we just don't have the political leadership, quite frankly, that I think is very thoughtful or smart in how to grow our economy, create new jobs and continue to get investment to come into Los Angeles. And that's what we've got to turn around. It can be done.
We've just got to see if we can get the leadership to make some good decisions to do that. But it's an incredible city with a lot of great industries and incredible neighborhoods and different cultures and it's wonderful. So I'm confident we're going to bounce back and get through it. We just got to figure out some of these issues that are plaguing us right now.
Ben Miller:
Yeah. We bought and are redeveloping I think 18 industrial buildings along West Jefferson trying to build something where there's street life. There's not a lot of activity on West Jeff. And-
Rick Caruso:
That's a great area though, by the way. Good for you.
Ben Miller:
We started back in, I don't know, 2017 I think, but certainly the last couple of years have been really challenging. We have all sorts of challenges when we have 20,000 apartment units and all different kinds of assets and LA is the hardest by far. Crazy stories we have to deal with on the ground.
Rick Caruso:
Yeah, I believe it. I feel for you.
Ben Miller:
I don't share them because they're just so outrageous. At some point I may need to, so I understand what you're saying. I am bullish on LA too, the weather, the energy there, nothing like it. And I guess, one of my theories is that the Olympics could restart a narrative of rebuilding and bring a lot more capital and attention back to the city, but all this has happened to LA before. It's like Déjà vu. How did it happen last time and how did it get out of it last time?
Rick Caruso:
Well, I think the politics of Los Angeles have changed. The last time we had the Olympics there were 84. It was a very different political landscape than we have today. I started my business about that time and knew the council, knew the mayor. A big difference, and it's a difference that frankly upsets me is elected officials have always had maybe a different approach or a different opinion, but there was always a sense of a common purpose to move the city forward and figure things out and do what's in the best interest in the long term of the city.
And the Olympics were a good example of that, of a city coming together in 84, different rules of using the road, all of these kind of things in the investment in the city. The vastness of difference in the politics in the city council today is insane. You've got members that don't believe there should be police. You've got members that don't believe people should be in prison. This is craziness and they have influence on the direction of this city.
And so the people at the city council that are more moderate or even left-leaning but have a more of a sense of how to operate this very complex enterprise of the city, it's very frustrating to them and very tough to get things done. Hopefully the pendulum has taken such a far swing that it will come back to somewhere in the middle and we can move the city forward. Because the trajectory it's on today is a tough one.
To your point, in doing business in the city, it is a very complicated, difficult place to do business. And for guys like you and me and other companies that have wherewithal, we can sustain it as much as it frustrates us and is costly, but the impact on small and medium-sized businesses is huge and 90% of the economy of LA is small business.
Ben Miller:
I'm trying not to tell you some of the stories, you probably have them too. I feel like the case for optimism for me, I think D.C. hit bottom worse in LA in the eighties. D.C. went bankrupt and Marion Barry was mayor at the time. It was a famous story, gets arrested for doing drugs and the city basically couldn't make the hard decisions until it had to.
And then a whole new generation came in, in the nineties and the city really turned around. I just assumed that that's just the circle of life of cities, and so that's why I'm optimistic that the natural consequences of all of the challenges that is sort of a rebirth, maybe a new generation of people stepping up who are excited about taking on these challenges.
Rick Caruso:
And I think that's a great way to look at it and I think you may be right. Sometimes cities have to get to a point where things become critical and then there's another point of view that comes in and gets things cleaned up and turned in a better direction.
Ben Miller:
Again, the reason I'm optimistic is what happened before, you literally were part of what happened before. This is something, I know because it happened in D.C. and I was very close to it, but happened in DC and New York and San Francisco, LA, where it's hard for people to realize that when you built The Grove, some people thought you were crazy. I mean, it was just completely outrageous.
I know other people built in cities like that, in situations like that and the idea of building in center cities, nobody was doing it. It was iconoclastic, it was pioneering. It was so outside the norm of how people thought to build and to invest that it defies for people now to understand how far away from the way that cities are today unless you were there, it's really hard to appreciate it. I keep going back to optimism because you were part of the wave that changed it in the first place.
Rick Caruso:
I appreciate that. I was also very involved in city government at the time. I worked for three mayors in this city. I worked for Tom Bradley when I was very young. I worked for Dick Riordan and I worked for Jim Hahn, so I had a good understanding how government works and also a good understanding how it fails sometimes. So I was optimistic and it was fun being part of the change.
We also had a major earthquake in Los Angeles in 94 and I was in the middle of construction on a project we were doing out in Encino and all the codes changed and we had to quickly pivot and re-engineer a lot of stuff, the steel and whatnot. And so I think that just part of the optimism you need being a developer. There's a solution for every problem and you're going to work hard to go figure it out. And I do believe there's a solution for every problem, including where we're at with the city right now. So I share your optimism.
Ben Miller:
How did knowing how the city really worked help you when you were thinking about what to build, how to build it, where to build it?
Rick Caruso:
Where to build it and what to build were driven by data and metrics that I felt were important. Demographic information, household incomes, density, shopping patterns, all of those kinds of things that we sort of went to school on with every project. How to get it built in the city. Because I was a city commissioner, I just saw how government worked, how elected officials didn't want to take risks.
If you had the community against something, very difficult to get built, how the process was for permitting both discretionary permits and both construction permits. The one thing that was the most important in my career was seeing that if you could get the community behind a project, the elected officials very much fall into place. The minute you've got the elected official of your council district supporting you, it makes everything else easier. And that's what we did.
That's why we spend so much time in the communities meeting with homeowners and businesses and we spend months and months and months just listening and having sessions and going to people's homes and we create this sense of support. We fashion the project to what the community wants so it becomes theirs. And if they own it, they want it built and the city follows in tow and that's been the way we've gotten every project approved.
Ben Miller:
As an observer, when I think about some of your magic, it's been an attention to detail. Every detail matters, every detail is thought through and it's a combination of the details and this positivity. What am I missing or how would you think of what you bring that's different than most people?
Rick Caruso:
Well, I think what we bring is we're bringing a project into a community that the community wants, that literally is designed by the community, that's laid out by the community. We ask them what kind of tenants they want and the architecture they want and the scale of it that they want. We're not trying to put something in a neighborhood that just doesn't fit.
The one thing I do know is the local community knows better than I know or anybody on my team what feels right. And we want to build things that feel right in a community from a scale standpoint, an operating standpoint. If you take a look at The Grove or the Americana, very different scale than what we built in the Palisades. If we tried to build The Grove in the Palisades, it would've been the wrong thing to do and the community would've sued us to stop.
We built the Palisades project. When you think about that, we literally built in the middle of a residential neighborhood, up against a residential neighborhood, and we did not do an EIR, an environmental impact report. We did a mitigated negative deck. That typically would've opened so many lawsuits.
But we spent months and months dealing with the community and listening to them and working closely with them so that there was so much energy behind this project and it had a council person at the time that was a relatively anti-development council person, but he was very respectful of the community that wanted it.
We got that project approved in record time, in less than a year. Never got sued, and then got it built in 16 months. That's what we bring to the table, is this very genuine, sincere commitment to listening and then exceeding people's expectations on the product that we not only build, but how we operate it.
Ben Miller:
But inside that you're going face-to-face, you're meeting with people, you're listening to people, you. I mean, your team too, but it's a level of engagement at a personal level. And then when somebody says, "I want this kind of tree," that tree is going to end up in the project. It's down to the most minuscule things. That's hard for people to appreciate what you're saying when you say that your level of engagement, it's not normal.
Rick Caruso:
It's not normal, but it works, and I got to tell you something, Ben, when people start picking out the trees, we know we're in good shape. The answer to that is yes. Tell me what kind of tree and that's what we're going to have for you. That's always a really good sign.
Ben Miller:
Do you have a story around that that you feel like is most memorable?
Rick Caruso:
I do. We were building or going through the entitlement on a project out in Encino. We were the third developer into this deal, like we are almost everything that we do. The council person at the time, a terrific woman, said, "Rick, just stay away from it. You'll never get that community to support you." It backed up against a residential neighborhood and they fought everything. And for the most part, rightfully so. And we had meetings with them.
They said they're worried about what they're looking at. I said, "Fair enough, we'll put a row of trees." They said, "Well, what kind of trees?" I said, "You tell me." I rented a van. We loaded up the residence the next weekend. We went to a nursery and I said, "Just tell me which ones you like and those are what we're going to plant." The tree is important, but what is more important is the respect for the people that every day are waking up and going into their backyard to get a cup of coffee in the morning and respecting that they had to go look at whatever is there. And we got full support on that project and continues to operate today.
Ben Miller:
What are the things that you feel like you did wrong, whether it's what you built, how you engaged, how you finance, what are the lessons there that you take away?
Rick Caruso:
Yeah. We've done our fair share of things not right. We've been pretty good, but not always right. We had a project down in Carlsbad. We got approved by the city. There were some members of the community against us, and they got a referendum that went to a vote. We lost the vote. We stepped away from what we knew worked. We didn't listen enough. We didn't engage enough. We got a little bit complacent.
That's the only project that we've lost, but boy, that was a painful lesson. And it really is staying close to the community and listening and being respectful of the people we serve. On the financing side, I think we all made a big mistake a year ago when rates were at an all time low. We did a lot of financing. We did over a billion and locked down rates at 3%. Some were sub below 3%.
The deal that we did on CMBS, we should have run an analysis on the prepayment penalty and to see if it made sense to pay off early and lock in lower rates. We're paying a lot more interest than I think we should have. So we've learned a lesson to be more mindful of our maturity dates and planning a little bit more ahead. But I'm not sure we're going to see rates like we've had in the last decade anytime soon. We stabilize around 4%, four and a half.
My guess is that's where we're going to be at. But we learned good lessons. The Grove, a lot of demand. People want to live here. When we did Americana, we added residential. And the other big lesson we've learned and we've tried to do a better job is when we build something, we try to buy. We haven't, but on the new ones, we're trying to buy everything around us, so we take advantage of the increase in values. Those are good problems to deal with.
Ben Miller:
Sure.
Rick Caruso:
I could go on and on things we could do better.
Ben Miller:
Yeah. Yeah.
Rick Caruso:
We've done great, but we can always do things better.
Ben Miller:
I remember sitting in this room, sitting in today, and we had MetLife financing where they wanted us to lock. I guess, it was April of last year. And I thought, it was 4.15 and I thought, "4.15. That seems a lot higher. I guess, we'll lock." We did not recognize how much rates would move. I did not expect it to go.
Rick Caruso:
Nobody did.
Ben Miller:
I look back being like, "Oh, I wish we had figured out how to lock more and actually even how to buy more derivatives." One of the things I don't think I have enough grasp of is the Wall Street execution rather than the real estate execution. You don't need to be locking on a property, you can lock with synthetics. I didn't really have enough understanding of that at the time.
Rick Caruso:
I don't either. That's what I'm saying, our financing has been very traditional, maybe provincial, you could say. And I've talked to the team that we should know other exotic instruments that maybe we want to take advantage of. But I don't know how important that is because I do think to be successful in real estate, the fundamentals have to work. If what makes the project work is the kind of financing, it's probably not the project you want to own. And the financing should be additive, but not be the tipping point to making it work in my opinion.
Ben Miller:
As a builder, it's more authentic, organic. The financier, to them, it's a different mentality.
Rick Caruso:
It's transactional.
Ben Miller:
It's foreign I think for the builder to think about synthetics. Have you ever sold anything?
Rick Caruso:
No. We've never sold anything we've built and never will.
Ben Miller:
That's what I thought. One of the challenges I have is our investors want to buy when everything's hot, and some of them want to sell when everything's cold. And it's a challenging dynamic because right now, if you try to sell something, prices are just, they're not fundamental. Okay. Last question for you here. If you could wave a magic wand and change something about the world, I'm wondering what would it be?
Rick Caruso:
That's a big list, Ben. I would want to take away all the pain, all the sorrow, all the grief, all the tension that's happening in the Middle East. It's so sad to what's happening on both sides of that border of the innocent people that are being killed. I was with three families the other night that flew in from Israel. They all either had a family member killed or kidnapped.
And to listen to a father talk about how his daughter was at the concert, hiding behind a bush, calling him terrified, then getting shot and then getting kidnapped, I just couldn't imagine. We're in a very complicated dark time in our world. I don't mean to be overly dramatic about it, but there's so much anger and we see that in our politics. As corny as it sounds, I just wish everybody would settle down, calm down, be respectful of each other, and figure out how to work together.
You can always have differences, but how to work together. But there's just a lot of pain in the world right now. And I see that even in our city. Older gentleman that died out in Thousand Oaks at a rally. He was a pro-Israel supporter, and there was a pro-Palestinian supporter that hit him on the head and the man died. The collateral damage is massive. We just got to have faith and to your point, be optimistic that there's better times ahead and I think there are.
Ben Miller:
Well, thank you. That was beautiful.
Rick Caruso:
Nice.
Ben Miller:
Onward.
Rick Caruso:
Onward.
Ben Miller:
You've been listening to Onward, the Fundrise podcast featuring Rick Caruso, founder and owner of Caruso Affiliated. My name is Ben Miller, CEO of Fundrise. We invite you again to please send your comments and questions to onward@fundrise.com. And if you like what you've heard, rate and review us on Apple Podcasts. Be sure to follow us wherever you listen to podcasts. For more information on Fundrise sponsored investment products, including relevant legal disclaimers, check out our show notes. Thanks so much for joining me. We'll see you next episode.
