The text below is a transcript of the audio from Episode 42 of Onward, "The greatest capital broker in the nation, with Simon Ziff".
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Ben: Today’s guest is Simon Ziff, a legend in the real estate industry. He is President of Ackman Ziff, one of the preeminent boutique real estate capital advisory firms. Simon has overseen more than $100 billion of debt, mezzanine and equity financings for some of the most prestigious real estate firms in the country. He knows more about capital markets than almost anyone.
Before we get started, I want to remind you that this podcast is not investment advice, it is intended for informational and entertainment purposes only.
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Ben: Simon Ziff, welcome to Onward.
Simon: Thanks, Ben. Great to be here.
Ben: So I think I've known you almost 20 years now. I think I met you back when I worked for my father. Definitely pre 2007 or 8. I don't know if that was 2003 or 4 or 5. I don't exactly remember.
Simon: Whatever it is, it's not that long. 20 years isn't long in a long career like mine of 36. So it seems like we met yesterday.
Ben: Okay, yeah, it's true. It does seem like things are more recent to me.
Simon: It was a long time.
Ben: We'll see. I guess all relative.
Simon: I'll tell you, I remember the time I got to know you a little better. It was in Washington, D. C. at a conference that I was speaking at for young real estate people. And you were one of their celebrities, I think, a little bit earlier. And we ran into each other in the bathroom. And I think that was one of our more substantive conversations.
I really enjoyed that.
Ben: So, okay. I think you've done 80 billion dollars of transactions in your career? Probably more.
Simon: Yeah, that's an old resume, but I barely did any of those. I had a team around me doing them, but I oversaw over maybe 110 now.
Ben: Okay, over 100 billion. So you know something about real estate? You are the CEO of Ackman Ziff? Is that the title? Managing partner?
Simon: Title is president.
Ben: Okay, president. You used to be partnered with Larry Ackman. Who's now, hopefully like me, the son is more famous than the father at some point.
Simon: Yeah, that's true. It's just like you. Larry passed a few years ago, but long before his passing, his son Bill became probably a little more famous than he was.
Ben: So how did you come to end up at Ackman Ziff? What's the backstory here?
Simon: Sure. It wasn't Ackman Ziff. It was called Ackman Brothers and Singer, and I was at grad school at NYU getting my master's in real estate. There were probably two or three firms I really wanted to work at. Having spent a year in real estate finance at MassMutual in Springfield, I knew I wanted to stay in real estate finance, and I knew brokerage was probably a track for me, so [00:02:00] the two big firms were Sonnenblatt Goldman and Ackman Brothers and Singer, and lucky for me, there was a New York Times ad to join Ackman Brothers and Singer in 1989.
Ben: 1989 though, that's the beginning of the savings and loan crisis. That's when things start to go off the rails.
Simon: Yeah, I think one of the reasons why I've had a decent career is when I got in, people were leaving and it cleared things out. So I was a vintage of my own.
Ben: The only new employee in New York City in 1989.
Simon: Real estate got very hot eventually, but not when I started, it was cold. And I answered that New York times ad and I went in to meet Larry Ackman. I'll never forget it. It was like it was yesterday. I think he was 49 white hair, just like Bill, except Bill had white hair at 22. And I'm sitting at Larry's desk, this big marble desk.
And he's like a bigger than life guy. We had a nice talk and he told me. Simon, good business ethics is good business. And at the time he was writing a very significant check to Harvard Business School where he went for an endowment in business ethics. And he said he had teamed up with a few of his colleagues who were unhappy with the ethics of others in the industry and they started an endowment in business ethics.
I don't remember what it was called, but at Harvard Business School. And that was the day I met him. He had in front of him, my covering letter and he wrote notes on it. So I still have that letter. We're not going to hire this guy.
Ben: He wrote that?
Simon: No, he didn't write that.
Ben: Was he right? What were his notes?
Simon: Fourth choice. No, he didn't write that either. He put a couple notes down, but he eventually gave me a job offer and I became his analyst.
That's how I got into New York real estate. Cause I wasn't from New York. Didn't know anyone in New York other than my grad school student classmates. And that was the beginning
Ben: Okay, so you joined Ackman Brothers in 1989.
Simon: as an analyst, underwriting deals.
Ben: What kind of deals were people doing back then?
Simon: So the firm was doing the biggest of the big deals in New York. And big then was 50 to 150 million office in Malta, some construction. When I started, they had already done 30 transactions for the Durst family. They'd done a lot of business for the Elganians. Silverstein, but the big firms that we think of today, the Blackstones and the Rock Coins and the other funds, but many of the firms we think of today, Brookfield, Blackstone weren't around then like they were today.
It was the families who were the primary owners of major properties in New York.
Ben: Yeah, the SNL crisis basically forced the institutionalization of real estate because everybody got wiped out and had to go create REITs. So I've always wondered, I've heard stories, but I'm always interested in more stories. What was it like before it became private equity, institutional, the MBA, real estate?
Simon: I have a lot of great memories of multi generational families. Seymour before Doug Durst, and I could go through a long list. Sarah Kareen was an owner, a Hungarian Jewish woman who amassed an incredible portfolio, which their family still owns in New York. I remember going to her apartment with Larry and bringing her loan quotes, and we'd sit at a table and she'd have a notepad and we would tell her what the quotes were and she would direct Larry, all right, go get that 100 million loan.
at 50 over LIBOR. And Larry would say, well, I told you the best rate we can get you is 100 over LIBOR. She'd say 50 over LIBOR. You know the punchline, what rate she ended up with. 50 over LIBOR is where the final rate would be. Wherever Mrs. Kareen wanted it to be was where the final rate was. Now back in the day, I think our special sauce, I guess the business, the special sauce is always finding money, finding unique money, finding less expensive money, finding more aggressive cap, whatever it is.
Back in the day, it was foreign banks and we were doing most of our deals with Japanese banks, some German, some French, but mostly Japanese banks.
Ben: Because Japanese investors were like the big thing in the 80s. They'd bought Pebble Beach. They were riding high. What was the business culture of Japanese banks back then?
Simon: They didn't do business with everybody. They wanted to do business, at least on the lending side, the Fuji banks and the Toyo trust and Mitsubishi, they would take deals from top sponsors. We always worked on an exclusive. So we were one of the handful of intermediaries that they would look at deals from.
And I think to Ackman and Singer's credit, they spent a fair amount of time cultivating those key relationships with the foreign banks. It was Japanese representatives in the United States, representing those institutions, sometimes along with Americans. oftentimes negotiating with someone from Japan that was placed in New York for a few years to represent the bank.
Ben: Was it more of a relationship business back then? Because these days I feel like it's much more mathematical. It doesn't seem like there's a lot of relationships actually. It can move the needle much in real estate.
Simon: Well, I would say today's mathematical and not relationship oriented, because if I go through almost every substantive closing that we do over not too much money, there's a relationship involved that somehow impacts the success of the transaction. But I know what you mean. If you had a billion dollar cash flowing financing today, You're down to the basis points with three Wall Street firms bidding.
But in the end, I think your borrower picks the relationship that's been there for them in the past and over the two or three basis points. So it's always been a relationship business, more so like you're alluding to back then. When we would go see Jim Fitzgerald at Credit Lyonnais and ask him about a deal, I think that the trust between Larry Ackman and Jim was really important.
I don't think he was taking that meeting from most, and he wasn't making those loans to most.
Ben: So roll us forward. You're in the 90s. What happens next?
Simon: Well, for me, I'm a little entrepreneurial, not a lot, because I'm at the same company 36 years doing the same thing, so I wouldn't call myself an entrepreneur, but back then I noticed that when CNBS started, a dollar of income from Kmart became just as valuable as a dollar of income from Walmart, even though the credits were different.
Ben: Back then, Kmart was way better.
Simon: No, Kmart wasn't great then, Walmart was investment grade.
Ben: Okay, so this is the 90s.
Simon: Early 90s, but what we learned from the street was in the creation of CNBS, and you can credit different people. I was there every day to certainly give Ethan Penner a big credit for building it out and being at the forefront. There were others too, Andy Stone and others.
But what we learned was a dollar of income from a credit tenant from a cash flowing asset was no greater than a dollar of income from a non credit tenant. That's what CNBS did. And a dollar of income in a shopping center with non credit tenants could be underwritten almost the same way as credit tenants.
Now you couldn't get insurance companies to ever finance those non credit anchored centers. But Wall Street did, and they did it in an aggressive way. And that Wall Street was New York. Still is today. CMBS market is still a New York centric business. You might have some agents, you might have some loan officers in LA or wherever, but they're reporting up to their team in New York.
So I went to shopping center conferences around the country, probably where I met your dad, DC, Philly, Fort Lauderdale, Miami. I think it was Fort Lauderdale back then, Chicago, to these ICSE conferences, and I'd go to these shopping center owners and say, I can finance your center now. You don't need to go to a local bank and give them a recourse loan.
See that 7 million loan you have, I can actually get you nine on that million dollar NOI. And that's where my personal business took off. There weren't many of us there. There were two other guys. One of them runs a pretty big lending group today, and the other one is retired. And we ran around. And my big hit came when I drove out to Johnstown, Pennsylvania.
So, I'm from rural Pennsylvania, and I never got super comfortable in New York, it took a little while, having only been there once before I moved there. I drove out to central Pennsylvania, Johnstown, where there was a mall developer named George Zemias and his boys, Damian and Steve. And pitched them on doing business with another hillbilly from central Pennsylvania.
And two months later, they called, We're flying to New York. We have a mall in Vermont. We have a mall in Georgia. The bank from New England stopped funding and our seal's getting rusty. Can you help us find a loan? And that was a 76 million construction loan for two malls. I got on their plane, they flew to New York, we flew to Georgia, we flew to Vermont, looked at them, and went to the foreign banks.
We found Toyo Trust to make a 76 to finish those two malls. We made a 1 percent commission, and Young Me made a 380, 000 commission, that was my half. So that was a breakthrough in the early 90s.
Ben: So for people who aren't as familiar with what CMBS is, CMBS is a securitization of commercial real estate where Wall Street chops up the loans into pieces. So I think most people know what that is, but it's interesting, I'm obsessed with this period of real estate from the end of the 80s to the mid 90s because all these things happened in that period.
It's the birth of securitization, really the birth of private equity. Birth of public REITs, and the whole industry became almost unrecognizable compared to before. And here you are, you stood your personal business up on some of that transition from a local bank making a loan to a securitization or to an international lender.
And it's interesting hearing first hand, because you saw that and most people hadn't, just didn't realize what was happening.
Simon: It was a tool in the toolbox. It wasn't the only tool. Like I mentioned, these foreign banks were still doing significant transactions and the money center banks, primarily recourse for construction. But yes, what CMBS did was it made what was historically not financeable or financeable by recourse, financeable at a higher leverage on a non recourse basis.
And along with the drop of interest rates, I believe had the biggest impact on dropping cap rates. In the beginning, cap rates for retail were 10 11%. And they walked down from 1011 to nine to eight to seven to six to five over a period of time. And it wasn't just interest rates going down. It was the availability of capital for real estate, all parts, all types of real estate that brought that cap rate without that debt liquidity that didn't exist before.
Cap rates wouldn't have moved nearly as much as they moved. The liquidity was super important.
Ben: Yeah, this is like, One of those megatrends, the amount of money created globally because of China, which is everything, but for you and I, we're closer to real estate. My father, back in the 90s, he said, we're building to a new construction to a 14 now. That's like, if you could build to a six, you would be a hero, maybe six and a half or something.
So. That's not just liquidity. It's also, I think, cost of construction has really changed over that period. So you do this big deal, the International Bank, how does that catapult your career? What does that do?
Simon: So one day I came in the office and doors are slamming, call this two years later, and it looks like Ackman and Singer might be coming to an end. They were cousins, but there was always a different style there that, I guess it wouldn't have been a huge surprise that it didn't work out, and both exceptionally talented.
Two of the most talented of all time, just slightly different styles. So it's coming to an end. And I've told the story many times. So if anybody knows me, they might've heard the story before, but door slam. I call my wife, Hey, I'm looking for a new job. I got to figure this out. Thing is, I always just kept my head down.
So I didn't realize that I was making a name for myself. I didn't go to school with a bunch of Park Avenue kids who expected to run Goldman one day. I had already exceeded expectations by so much that I didn't look at things the way my kid and other kids are looking. Not that I raised them on Park Avenue, but it was different.
So I thought I'd be looking for work. I didn't think, Oh, wow, great opportunity coming. And then I got called into Ackman's office. And a great opportunity was presented to me, and frankly, I was not the best in the firm. There were older guys that were more experienced. And then I got called in the singer's office and an opportunity was presented to me.
So I went home that night feeling better than I did midday. We spent some time thinking about it, but I would say a lesson learned that I've shared is There was probably an incident that happened along the way that made it clear to me which one I was going with, a single incident, and how that was handled.
The other thing was. So, when Bill Ackman left, Bill was there when I started. He went to business school. His trajectory was obvious. So he was around when Larry and Andy were splitting, and even helped settle things for them. He was mature, and like I said, Bill's trajectory was evident, as long as I knew him, so probably since he was born.
So one of the attractions to Larry was Bill too, and the relationships that he was building with the people like John Gray and others. I probably have to credit Bill for helping us get John Gray's business in the beginning. Back when John Gray was giving out business, he still may be, but he hasn't been giving any to me lately.
Ben: That's clearly an oversight.
Simon: Yeah, I gotta remind John. But obviously, two of the all time greats in the history of business, John and Bill. So Bill was in that circle. Bill was at Harvard Business School. He knew Seth Klarman. I guess he was his professor. Seth ran Baupost. We started doing a lot of business with Baupost, early raising equity from Baupost.
Bapost. Bapost. We raised 52 million of equity from Bell Post for Tishman Spire on a deal in DC above the Hex site before people had heard of Bell Post. So the relationships that we saw from Bill were also a factor in the direction we were going. But I was going with Larry Ackman anyway. He was my mentor and he had built a lot of trust in many ways.
Not an easy guy to negotiate with, so I didn't really negotiate.
Ben: You didn't negotiate.
Simon: I didn't negotiate a lot. So we made a deal. It was a, you call it a 10 year deal. You can call it a 30 year deal. The way it worked was I was buying an interest in the firm, initially getting a piece. And then I think I went to 50 by year three.
That was a little bit brought up by me, Bill Ackman and his partner, David Berkowitz, his former partner had a 10 percent interest. I had to buy their interest back out. They got me good on that. Cause I need more interest in the firm to earn appropriate earnings for me, given my production at the firm. So I had to get my ownership up or it didn't make sense for me to even be owning a firm.
I got my ownership interest up. It went to 50. And then over the next 10 years, it went to 90 and then Larry kept a life interest in the firm till he passed a few years ago. And that's the history. And I never own the share that I own because you have key partners in the firm and they have to be paid for their incredible value.
So we always whacked it up based on contribution, et cetera, not based on shareholdings. I don't view the shareholdings as meaning anything, frankly, in a professional service business. It's what you contribute.
Ben: Well, for people who aren't in the business, and probably a lot of businesses are like this, it's a production business, and the input is people. So you have to manage that dynamic. It's a lot of personalities, a lot of people who maybe aren't good at knowing how much of the production is their responsibility, maybe someone else's.
Sometimes they think it's more, maybe some people are quiet and think it's less. You need to keep everybody happy and productive. It's famous, like Goldman Sachs bonuses at the end of the year. These are famous stories of how hard this is. What do you have, principles, or how do you do it?
Simon: It's hard. But we have formulas we write. We have criteria for compensation. We also have partners who have elected to be pure commission. Meaning pure formulaic, so they don't have to think about if we're overpaying somebody or we're too aggressive in hiring or we're spending too much on marketing.
Their bottom line is they know at the end of the year, they know halfway through the year, they know what their comp is. And the good part of that is we've been able to set the firm up so we still have a lot of alignment with them throughout the firm and we don't have to sit at the end of the year with seven figure earners.
and negotiate anything because it's already been set and the splits are set. So that's a good thing when you can get very, very valuable people who you don't have to comp at the end of the year and you have structured bonuses and structured comp. I love that. In a way, I like to do everybody like that, but you can't.
You also need a lot of salary bonus support at the firm to really make it go. So it's a hybrid, and some people that are salary bonus, and some people that are formula.
Ben: Is that different than the big institutional shops like uh, Cushman or JLL or, how are you guys different, CBRE, in terms of comp structure?
Simon: I think they go through different periods doing different things, but their highest producers are also comped that way. So we're similar. One firm is all salary, bonus, profit. We're trying to call salary bonus. Bonus is profit, essentially. You pay out more than you keep to shareholders. The margins in our business are not high, which means you're paying your people more than you're paying your investors, for the most part.
And I think if you were to break down those firms you mentioned, Really break them down, their capital markets teams, you'll see their payout to people is considerably higher than their payout profit at the end. It could be a multiple of three, four times higher than what they show as bottom line net profit for that same group.
Ben: I know various people who've thought about going into your business, and I always tell them the challenge, as far as I can see, is very cyclical. So there's periods where there's a lot of activity, it's very profitable, it looks great, and there's periods where there's a lot less activity, it's a lot harder.
It's feast or famine. Is that right? What's that like? How do you manage that? What are some periods where that was true?
Simon: 06, 07 was a feast, and there have been some feasts since then. 09 was the worst year ever. Last year and the year before were not easy years. COVID year was not an easy year. These were years very hard to turn a profit in the brokerage business. And again, I'd argue that some brokerage firms aren't profiting.
The divisions that do what we do may not be profiting as much as you think they blend them into a much bigger firm with management and leasing and other things. But it's a bit of a roller coaster. If you have a long game mentality, it doesn't affect much. Most people don't. Most people struggle mentally in the bad markets and aren't able to.
Maybe they didn't save from the big years or don't manage it the way they should. It's not easy for most, that up and down. For me, again, 36 years, same company, doing the same thing, which is find money, find money, find money, find better money, find cheaper money, find more aggressive money. Build relationships with the money, all of that, but make x one year, make 0.
5x the next year and make 3x three years later. It is what it is.
Ben: I think one of the challenges I have in my business, 'cause I have hundreds of thousands of investors, is that most of 'em aren't that familiar with the business of commercial real estate. And it's much more cyclical than I think people realize. I don't want to get to this yet, but what's happened recently is that commercial real estate's been in a recession, as you said last year and year before, pretty hard.
A lot of those sectors are not in a recession. I feel like often commercial real estate's, it's going with the economy. It's not often that the whole economy's doing well, except for commercial real estate. And it seems like that's more the case now than I've seen. In 2009, everything was bad. It wasn't just real estate.
In 2020, with COVID, everything was bad. So right now, it's an interesting time if you're sitting across real estate and other things. Everyone in real estate knows. I know a lot of real estate developers, and they're just crying in their soup because they couldn't make a deal pencil for the life of them.
Simon: Look, interest rates are such a big factor for real estate. And when you go from 1 percent to 5 percent and Libra goes to SOFR and SOFR is as high as it is and tri trees are as high as they are. And you did deals three, four, five, six years ago. Bought them or perform at them and built them. And their value whack is enormous.
And it doesn't look like you haven't asked yet, but you will. I bet for 2025, what do I expect in interest rates or 2026? Well, my first answer is I've never predicted interest rates because there's guys that get paid a lot of money to do that and I'm not one of them. So don't ask me, but it doesn't feel like rates are coming down so fast.
And the argument for it, in my mind, was the government's not going to want to have high interest rates with this deficit. And they can control, to some extent, some of it, not all of it, and they'll do what they can. And other arguments are going to grow themselves. They're going to just grow. help the country grow.
And that can help to offset the higher interest rates. But I'm not an economist. It just doesn't feel like rates are going to be moving significantly down soon. So we're going to have to live with these higher rates and therefore lower values, which, for example, It's almost impossible to finance, equity wise, a ground up multi today, very few are getting built.
And yes, it's a little bit oversupply issue, which will change, will be the first thing that improves, but it's interest rates and costs and higher construction costs and higher costs to build.
Ben: I know you're saying you can't predict it, and obviously, There are a lot of things that could affect it, but you're expecting it to fall some, but not much.
Simon: I would love for it to fall like crazy.
Ben: Yeah, I was at a board meeting, and a lot of my board members are not in real estate, and I said, you don't understand, the real estate industry is praying for a recession. Nothing would be better for real estate than interest rates to come down, and the only reason they really come down fast is a recession.
I started telling people that real estate has become a hedge on the stock market. The stock market collapses. If there's a recession, the stock market goes badly, and real estate does great.
Simon: It's true. We need rates to drop number one, two, and three on the list of real estate values is interest rates.
Ben: Okay, let's go back to the 90s when interest rates actually probably were about where they are now. Maybe 5 percent on the Fed funds.
Simon: Cap rates, but we were at a different cap rate environment.
Ben: Yeah, cap rates were 6 7.
Simon: They never got down to three and a half or four back then they were. And for your followers, cap rates, the return on cost of the purchase. So if you paid 10 million, you had a 1 million NOI that was a 10 cap. If you had a 500, 000 or 400, 000 or 300, 000 NOI, you were able to sell for 10 million at the high points.
Ben: Yeah, 2021 22.
Simon: Yeah, and now it's not three or 400, 000, but it's 700, 000 or 800, 000. And back then it was 700 or 800, 000. The real shock is, yes, we're at similar interest rates to a time before. It's where we were coming from.
Ben: And cost of construction is not going to come down. So that means that there will be no more supply of most real estate.
Simon: You mentioned 6 percent as a good deal. There was a time we could raise equity if you had a deal at a 6 percent and there was a time we could raise equity if you had a deal at a 6. 5%. And now investors are saying we need a 7%, but the real question is, okay, I have a 7 percent for you. Will you do it? And the answer is, not many will do it.
So the number is 7, or 7 and a quarter, but the liquidity in that trade, we will build new multi at a 7, is very low.
Ben: Why?
Simon: I'll tell you what, we had COVID, and when COVID happened, the narrative for investors to their investors was, we're going to get you distressed. There's going to be so much distress, so at that point, you're saying, we don't need to build Roundup at replacement costs, we're going to go by distress.
That period hung out there for a while. Not much got done on the distress side. The money was raised and then we had Ukrainian war, higher interest rates pop up. They're telling their investors, we're going to see more distress opportunities. So anyone up until that point that was doing ground up had made a pivot to, we gotta be able to buy discounts.
We need a story to invest common equity. We'll do preferred equity, meaning not take the high risk piece, but call it the 75 to 80 or 60 to 85 piece. But in terms of doing common equity, I need a story, I want to stress that we haven't really moved past that. We've been muddling through it now for three, four years.
How many years ago was COVID?
Ben: Five years.
Simon: Five years.
Ben: Almost.
Simon: I try to forget. Foreign and strange. So we've had two events,
Ben: 28 days to 2025, Simon.
Simon: wow. So I'd say that's the real reason. The sentiment from investors is we can get a story deal now because there's so much blood in the water.
Ben: But then you got no one's doing deals.
Simon: Everyone's disappointed in their productivity of finding those distress deals that they thought they could get. Some found some, but no one found what they thought they were going to find.
I'll give you another thesis that happened probably in the last two years, not from COVID, but from that rise in interest rates. We are going to invest in multi that's over leveraged. We're going to take that sliver piece. We're going to manufacture a 17 percent return in preferred or Mez and give the parent owner some small backend piece that will help them refinance.
That was a common thesis by a lot of people going back two years. I would say the average investor that said we're going to do x did either 0 or 0. 25 of it.
Ben: Yeah. Soft landing.
Simon: Oh, we have kicked the can in real estate. Put that in your model.
Ben: So, okay, we kicked the can, but you just said you think your rates are not coming down much at all. What happens then?
Simon: Well, kick the can is lenders work with the sponsors. They don't want to take back properties. They give them a little more time. They ask for a small pay down and the owner or borrower hasn't had to face their worst nightmare of a maturity where the lender says pay me off or I'm taking back your property.
So that's kicking the can. And the lender doesn't want to necessarily take a hit on all their loans that can't get refinanced and force borrowers to come up with the money and then foreclose. So that's what kicked into cameras,
Ben: The last time I heard that that didn't happen, and I can't remember, the predecessor to the FDIC, under the Estates and Loan Association, was run by this guy, and he decided to tell every bank that they couldn't kick the can anymore, they had to foreclose. A third of the industry was in foreclosure by the time he was done, and in retrospect that was a disaster, bankrupted the FDIC, and the government had to bail them out, I think it cost the government a couple hundred billion dollars in 1992, today, I don't know what that is.
Simon: but it worked in COVID.
Ben: Yeah, Kick the Can worked, COVID worked in 2009. Everybody who kicked the can so far has been rewarded for decades now. I'm skeptical that we would ever stop kicking the can.
Simon: Yeah. It can be regulator. It starts with the regulators regulating the banks and what they force the banks to do. It seems to be good policy to not force action on banks to mark everything to market and sell.
Ben: I don't know if it's good policy, but I do believe it is the policy. And there's no political will for the consequences of all that. So they forced the banks to do that in the single family housing business, 2009 and 10. That was probably a mistake too. Let me go back to your story because today, my opinion, Acme and Ziff is that one of these legendary capital markets firms,
Simon: That's because the other ones are all gone.
Ben: well, that's a key to success.
Simon: Well, they sold.
Ben: Yeah, they sold.
Simon: Everyone sold. They sell most intermediaries. Although there are people starting new firms and there always are, and there's always boutiques. But sound like Goldman, the other firm I mentioned sold the closest we came to selling was in 2006 and that public company or significant company it's our public today.
wasn't really great at putting together the term sheets. So we were writing all the term sheets. We were drafting the agreements, which you wouldn't expect, but we did it just to keep things going. And I'm pretty confident the trade they made was after they didn't go through it with us mutually. was when they bought Sonnebluck Goldman, and I'd like to take some credit, maybe get some legal fees back for putting that deal together, but I never got credit or any legal fees back for doing it, but Sonnebluck sold, they were the last big independent that sold, there have been others, you saw Massey Nackel, which was an investment sales firm, they sold, those trades haven't worked out great, all in all for the buyer, And from my perspective, independence was more important.
And as long as we were executing to the level that we wanted to execute our deals, we didn't have a need to do it. So we've had a number of offers. So we're the last of the call it 25 to 75 capital markets, companies that have been around for a long time that work on exclusives that have some institutional clients are still standing.
Ben: What's been the downside of that?
Simon: And the downside is if you're about growth and growth and growth and growth, you probably needed to be the bigger platform to grow. So we haven't really grown. We've been the same size, providing the same service. And we believe you need a lot of horses. You can't work on every deal you can wave in. So you need a lot of resources on each deal.
So, that's another constraining factor. Not everybody believes that. You take on everything and you see what hits. That's also been a little bit of a constraining factor for us. So we haven't had the great growth. Had we traded six, my net worth would be higher today, maybe double. Double significant.
Ben: But your firm, it is not what it was. I, you can see, go back to how I originally knew you, which is ICSC, malls.
Simon: We were left few people
Ben: And your business did change a lot. Now you have a lot of fancy big boy partners. The capital you raise from the kind of deals you do are not like what they were back in 06.
Simon: we've stayed with cutting edge throughout. I can tell you that today we're still cutting edge. We have meetings every day about new capital formation. I think that maybe 10 years ago, one of the marketing themes was what's next. You got to know what's next, who's going to be hot money. So when I meet capital, capital says, I want to see all your deals.
Ben, if I meet Ben Miller, I say, Ben, I have capital. I want to see all your deals, but that's not the important question. Of course you want to see all my deals. I'm Ben Miller. You want to see all my deals. You want to show your boss that you're seeing all of Ben Miller's deals. The real question to capital source is.
Where are you winning? Where are you really aggressive? Because I don't need you to look at deals and quote non winning deals. Where is the money aggressive? Where is the money good? So we still have this passion for finding money and you got to find the good money. What wins? And you don't want to go to 30 lenders or 30 investors or 50 investors.
In a perfect world, you know who the top five are and you don't have to exercise people that can't win your assignment. They can win an assignment. You just want to show them deals that they can win, impress them on those deals and not all deals. So I'm not sure, I don't know that I answered your question, but the business remains about finding the best and appropriate money on all deals.
And I think experience and relationships and creativity. Are a big part of it. And creativity comes from experience. So I can show you deal after deal. We had a chance to work on a big one together. Great outcome. Thank you. Appreciate it.
Ben: We'll talk about that in a second. Maybe
Simon: Okay, good. Talk about that. Is that a plug? Do we get a plug?
Ben: we'll talk about that deal over a second. So yeah, we've been building a bill for rent platform for the last five years and our approach to bill for it was different back Then it wasn't called bill for rent It was called horizontal multifamily or the single family homes in a community the big guys hadn't been financing it yet they everybody just wanted to securitize it and Probably I would say about the worst time the capital markets probably end of 22 Think of what it was.
I think that was about the bottom You said, give me a chance. And I said, okay, I'm skeptical, but go for it. And you guys landed a deal. I went through the market. That's what I remember when one of your colleagues called us up and said, this term, she's through the market way better than anybody else by a huge amount of 770 million facility to huge loan.
You guys nailed it, which is absolutely knocked out of the park, greater than any expectations I could have imagined. And I watched you operate and watched people who really know capital markets. It's not the firm. It's the guy. It's the woman. You know what Andy wants, and how he thinks about things. Or, it's Christine, and you know Christine and the deals that she'll do.
So anyways, that's definitely a plug. Yes, I've seen it. It's real. I have high regard for you, because you're both substantive, but you don't take yourself too seriously. Like that.
Simon: If we were on video right now, everybody would see my fist bump. Or what do you call this?
Ben: I don't know.
Simon: Awkward? Was it awkward?
Ben: Old guy shaking his arm. Last time my kids would say to me, so let me go back. You said, you're all about trying to find what's next. You're all about staying at the edge. So what are you thinking about right now? Cause there's not a lot of liquidity. You're saying even for deals that should be good, everybody's frozen because they want to stress or they told a story and now that story doesn't match reality.
So what does that mean? What are your instincts telling you?
Simon: Well, I'll give you an example. So my instincts are that capital was raised where they needed to make 12 to 15%. That's what a debt fund solves for. They sell an eight piece and they keep a junior piece and they manufacture 12 to 15%. That is a sweet spot in capital. So now you look at assets and you say, where is an area, where's an asset type or a part of a stack that could use capital that should cost 12 to 15 percent that may or may not be getting much capital.
And we've been doing a lot of land right now we have I would say one of the best pieces of land in the country by one of the best developers of land and we have a second asset of theirs. Those are in the New York area with some very expensive homes being purchased on that property
Ben: The land for housing for sale.
Simon: that's for sale.
Ben: You land for other things, too?
Simon: Oh yeah anything we have a two pre dev land deals with a fair amount of equity in them for condos here in Florida.
Yeah. We could do large pieces of land with home builder takeouts. We did one for over a hundred million a year and a half ago, California. So we like land cause land price is there and we have an expertise in it. We know all the guys doing it. Outsigning 50 to a hundred million dollar land loans were pretty good.
That's manufacturing opportunity, knowing where money is. You really have to go where money wants to be. On the other hand, if a multi developer came to us with a six and a half rock in anywhere USA, we're passing. And that was our bread and butter deal just four years ago. For common equity,
Ben: Yeah, the challenge is the base interest rate when you stack it all up.
Simon: it has. So there's other things. Obviously, we've leaned into the build for rent space. We still do. Now we're doing some perms off of construction. We're doing some new construction loans for, I would say, a top three U. S. owner who's still building. They're the common equity and they backed sponsors. So we're doing those.
Those are in Texas. We're just doing a refi closing this week outside of Nashville, and we like the asset class. There was an article today, I don't know if you saw it, was it in the Wall Street Journal about how well the asset class is doing.
Ben: Yeah, it was yesterday. Wall Street Journal did a big piece on it. The real estate cycle, again, is a boom bust, so we're in a down period. So what do you think takes us out? So it's either interest rates come down, or what?
Simon: Well, the other thing that can happen is supply demand relationship changes in some of the oversupplied markets. So the obvious ones that you hear about the most in the U. S. are Austin, Nashville, and a few others. But, if those shells get put in the ground in 25, or the first half of 26, the second half of 24, or all of 24 rather, and maybe the second half of 23, then you'll have absorption, and then you'll have growth.
So, you'll have new construction. So I think that the over supplied hot markets will turn for sure. There's just so much demand in those markets, yet it's just too hard to justify building into the supply that's coming on. So if rates were to stay the same, I think that would be a catalyst for growth. I'm really just referring to multi now.
Each space is different. Retail's been performing really well.
Ben: But not being built.
Simon: Not being built, not too much. Some grocers are growing. We're definitely doing some equity on a major grocer's growth plan now, and they're signing leases. But you're right. Overall, the country was over retailed for a very long time. COVID cleaned it out a little bit.
Amazon cleaned it out a little bit. So we definitely have a refresh in retail. And I think there'll be more construction over time.
Ben: Well, I appreciate taking the time here, Simon. You're definitely one of my favorite people in real estate, so thank you. Oh,
Simon: you, Ben. I'm proud of everything you've done at Fundrise. You made a great company. You have so many investors that are repeat investors and you've done it the right way. So that's why you're still standing and still successful. So I wish you luck. Are you going to let me make one plug about school?
Because we have a class.
Ben: yeah, please do.
Simon: Okay. So back to the question about why I'm doing it. We have an active class in the summer, 40 undergrads, 40 grad students, four days by Zoom. We have great speakers. Talk about business ethics, leadership, mentoring, career advice, and playing the long game, building relationships. So if anybody here has a nephew, son, kid, brother, that is in that age range that wants to go into real estate, passionate about real estate.
We'd like high GPAs too from any school. We would love to have them apply to our summer program. And I'm now teaching a family real estate course. Both at NYU in September and University of Miami in January for people of all ages, it's in the school of continuing it. So you have people like Ben Miller and their father and others tell stories.
Oftentimes it's just Ben talking about his father, but telling stories and lessons learned from their family businesses. So if anybody gets the whole way into this podcast and they hear this, shoot me a note, I'm on LinkedIn, tell me you're interested and I'll share more information with you.
Ben: It's a great program. So, thank you again, Simon. Onward.
Simon: Thank you, Ben.
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Ben: You have been listening to Onward, the Fundrise podcast, featuring Simon Ziff, President of Ackman Ziff.
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 heard, rate and review us on Apple Podcast and 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.
