Former Vornado CEO, Mike Fascitelli, on the state of CRE

On the latest Walker Webcast, W&D hosted Mike Fascitelli, Chairman of the Investment Committee at Cadre and former Vornado CEO.

A handful of highlights from Mike’s discussion with Walker & Dunlop’s CEO, Willy Walker, include:

  • Mike's time as CEO of Vornado Realty Trust
  • The current market outlook for CRE investors
  • Market parallels between the Great Financial Crisis and today
  • and more!

A bit about each speaker:

Willy Walker
Willy Walker

Willy Walker is Chairman and Chief Executive Officer of Walker & Dunlop. Under Mr. Walker’s leadership, Walker & Dunlop has grown from a small, family-owned business to become one of the largest commercial real estate finance companies in the United States. With a $32B transaction volume in 2019, Walker & Dunlop is ranked top three with Fannie Mae, Freddie Mac, and HUD.

Mike Fascitelli

Mike Fascitelli is the Chairman of the Investment Committee of Cadre. He is also a managing partner and co-founder of the Imperial Companies. He is the former President and Chief Executive Officer of Vornado Realty Trust and former President of Alexander’s, Inc. He currently serves as a Trustee of the Board of Vornado Realty Trust. He is a member of the Class of 1978 of the University of Rhode Island where he received his BS in Industrial Engineering, Summa Cum Laude. After graduating from URI, Mr. Fascitelli joined the Bristol Myers Company. In 1982 he received his MBA with highest distinction from the Harvard Graduate School of Business Administration. As an undergraduate student, Dr. Frederick was admitted to Howard University’s B.S./M.D. dual degree program. He completed the requirements for both degrees in six years, allowing him to earn both his Bachelor of Science and his medical degree by the age of 22.

If you have any comments or questions about the evolving economic landscape and how it is impacting the CRE space, our experts are available to help. Additionally, if you have topics you would like covered during one of our future Wednesday webcasts, we would be happy to take your suggestions.

Q&A Transcript

A Conversation with Michael D. Fascitelli, Former CEO of Vornado Realty Trust

WW: Thank you Susan and welcome to another Walker Webcast. If it's Wednesday, it's the Walker Webcast. I had the honor of having Doctor Wayne Frederick, President of Howard University on the webcast last week. Dr. Frederick was extremely insightful and inspirational in his thoughts on the COVID pandemic, heading back to school in the fall and racial justice in America. If you missed my discussion with Dr. Frederick you can watch the replay on Walker & Dunlop’s YouTube channel. 

I'm thrilled to have my friend and commercial real estate legend Mike Fascitelli joining me today. I told Susan Weber who just introduced us that Mike was going to bring a huge audience and sure enough the number of people registered for today's webcast is the second highest we've ever had for the Walker Webcast. Mike and I were joking yesterday that we need to make today's discussion really great so it surpasses the total views of my discussion with Barry Sternlicht which so far is at 25,000 so no pressure Mike on our conversation today.

We have Dr. Larry Sabato, Founder and Director of the University of Virginia Center for Politics coming on the webcast next week. Dr. Sabato has spoken at the Walker & Dunlop summer conference here in Sun Valley several times and he's always incredibly insightful on the political landscape. I remember a number of years ago back in 2007 when Rudy Giuliani and Hillary Clinton both had commanding leads in the national polls for President and Dr. Sabato stood up at our conference and said that neither Rudy Giuliani nor Hillary Clinton would be their party's nominee. And since that prophetic statement back in the summer of 2007 we've listened to Dr. Sabato’s insights very closely.

Talking about politics, there's a great deal of focus on the next stimulus bill right now. A couple quick thoughts on that. First, there will definitely be a bill, it'll likely be over a trillion dollars. We used to say a couple billion here and a couple billion there and its real money, now it's sort of a couple trillion here and a couple trillion there and its real money. It will be framed and negotiated during the final week of July. Leader McConnell has planned it that way. He didn't want a lot of activity during June and July so it'll all go down in the final week of July and it will likely get passed and signed by the President before the end of the month.

One of the big questions that many real estate investors have, and particularly multifamily investors have, is the concern that the Bill will have some type of extension of the $600 a week supplemental unemployment benefits that was included in the Cares Act. Senate Republicans have been voicing their concerns that that benefit is a disincentive for people to return to the workforce but from many discussions that I've been having with lawmakers on both sides of the aisle I think there will be some type of extension, whether it's in a stepdown form of $400 or $450 a week or something else I think with the number of people in America still unemployed both Republicans and Democrats will want some extension of those unemployment benefits. As well, Walker and Dunlop and others in the multifamily industry have been working pretty hard to get some type of rental assistance program included in the next stimulus package. It's super important particularly if there is not an extension of the unemployment benefits.

And then, finally, we've been working pretty hard to try and convince lawmakers that the next stimulus bill not include a similar eviction moratorium that the Cares Act had over properties that have a Fannie, Freddie or HUD or government backed loan on them. I met with the Joint Economic Commission last week with a bunch of senators and republicans and when I was asked about this issue I basically said to them you haven't asked Walmart to give away free food, you haven't asked Walgreens to give away free medicine yet with an eviction moratorium you're essentially asking landlords to give away housing and I strongly encouraged them to solve the issue of housing through an extension of the stepped up unemployment benefits or some type of rental assistance program. And clearly if they give people the ability to stay in their homes or stay in their apartment, there's no reason to worry about an eviction or implement an eviction moratorium because people will be able to stay in place. 

So, with that as the backdrop I want to turn to Mike. Mike when you decided that you were going to leave Vornado Steve Roth was quoted as saying, “Mike is family. This was entirely Mike's decision. He works like an animal and each year at this job and running a company of this scale and size and complexity is like dog years.” You were at Vornado for 16 years which means that you were there for 112 dog years. You're looking pretty good, my friend, for someone who was at a company for 112 years.

Let me turn to your upbringing first before we dive into where the markets are today. You grew up in Rhode Island, the son of immigrant Italian parents, a seamstress and a factory worker, and you said you came from a very poor family but never felt poor. What are the key components to being poor but not feeling poor?

MF: Well I didn't know any better than. My mother and father were workers and we had plenty of food because she was Italian and that was important, so we ate well. I went to public schools my whole time. I didn't feel particularly deprived. I think lower middle class is a good way to describe our upbringing.

WW: One of the things that I've always known about you is that for someone who has had such incredible success you're a very humble person and you once said that your mom told you to be nice to people on the way up because they're the same people you'll meet on the way down. Not that you're on the way down but have you run into any of those people recently?

MF: Look, you’re always better off being nice to people, right, why not? I do think coming from a blue collar background and family, I grew up in that way so I try to treat everyone the same and I think that's one of the great things, if you get success and you can give back that's great. A lot of people are worried about their jobs or their next $400 or $600 paycheck or a Cares Act that they're going to get or not get. I was very fortunate to have a lot of good breaks and why not treat people nicely and really well because that’s who I am actually.

WW: I'm assuming that when you showed up at Harvard Business School there weren't a whole lot of other University of Rhode Island graduates who were in your section or in your class. What was it like showing up at each HBS the first day and looking around the room with a whole bunch of Harvard and Yale graduates?

MF: I was scared. Having gone to a public high school and the University of Rhode Island there were no other compatriots from that school at that thing and you look around and everyone's from Ivy League educations or fancy backgrounds or undergrad and everyone kept saying to me you're from Rhode Island, did you go to Brown and I said no. Why not? I got rejected at Brown. Somebody thought Brown was a state school in Rhode Island. I think that, candidly, for me it was an eye opening experience because I met a lot of great people there and I did feel a little intimidated at first quite frankly and I just worked my butt off to sort of get their respect.

WW: After going to McKinsey which as we both know recruits a ton of people out of HBS but isn't a place where people go to make their fortunes, Goldman Sachs was I guess expanding out into some type of experiment where they were bringing in lawyers and engineers and people who didn’t have traditional finance backgrounds. What was it that made you jump into and decide that finance was where you wanted to sort of take a risk and also look for opportunity?

MF: I had a bunch of friends out of business school that went into consulting like I did and a bunch of friends who went into investment banking and it seemed like investment banking was much more lucrative. People who were a few years out we're making a lot more money and quite frankly were involved in a lot of interesting things. McKinsey was like a PhD, it was an incredible organization, really smart people. I was an engineer as you pointed out, undergraduate, so that background was sort of more common in McKinsey, it wasn't that common at Goldman. I kind of felt like I wanted to be more transactional oriented and Goldman was far more transactional oriented than McKinsey was. I kind of felt like an experiment at Harvard Business School and an experiment at Goldman coming in - they needed a public school street kid kind of thing, rough around the edges to round out the field so I thought it was another good shot for me.

WW: I could see a hoops player from URI and HBS being on the trading desk at Goldman Sachs more than I can somebody going into commercial real estate. Why did you not go to sales and trading and be a bond trader rather than going into commercial real estate? 

MF: Well the opportunities at Goldman were - I probably had a better background to go into M&A and corporate finance given my McKinsey background in engineering. But real estate as you remember Willy was pretty nascent then, it wasn't that established, it was a wild, wild west. There were a lot of characters which still are in it and I thought Goldman was very insignificant in it as a business, so I thought it was a much more entrepreneurial path within Goldman and much more new uncharted territory. So I took a shot, I liked real estate, I always thought it was a hard asset you touch and feel and so I went into it at Goldman when it was relatively new at Goldman, not established, which was a risk but also an opportunity in hindsight.

WW: Talk about Whitehall for a minute. Why was Whitehall so successful?

MF: Timing was great. Goldman had started a principal business in the 80’s and it didn't do very well and when the real estate market crumbled and went to hell in a handbasket in the early 90’s Whitehall was kind of a derivation of the real estate market becoming dislocated and really, really tough and we thought if we went into the principal business and did it with our current knowledge that we had at that point and with the right skill sets of people we could really be successful. It turned out it was super successful and I think part of that was the concept was really good, the people were really good, but also the timing was perfect, we started to invest in the ’93, ‘94 timeframe in that real estate collapse and really ended up with outsized returns from that first two or three funds.

WW: Is there anything similar to Whitehall today in an investment bank? I mean Goldman's got their own capital, they raise funds and put it to work but what is it about Whitehall that makes it so difficult today for big banks?

MF: Well there was an awful lot of conflicts that occurred internally in Whitehall when we were at clients and competing at those clients and so the banks - Morgan Stanley also was involved and Mesirow was pretty strong in those days, Whitehall and Mesirow were the two leading funds, Blackstone was pretty insignificant in those days. I think there's conflicts, there’s regulatory issues that came up all the time particularly after the ’08, ‘09 disaster. So you were navigating through some real advantages being under the Goldman umbrella and the Morgan umbrella but you also had a lot of disadvantages. It’s unlikely today that you'll see those kinds of funds be within those big, big financial institutions. I think that the challenges from a regulatory and conflict standpoint are too great.

WW: You left Goldman in 1996. It was pretty unusual for someone to leave Goldman as a partner particularly at that time when it was still a partnership. Why did you end up jumping out to go to Vornado? 

MF: It wasn't a planned decision. I had worked on the other side of the table from Steve Roth. He was really smart, he had built a great company in Vornado but it was very small and

had a lot of firepower. Steve and I got to know each other again on opposite sides of the table and I turned 40 years old in September and Steve approached me and said do you want to do this, come in and be President and be a partner and I said only if we can grow that business dramatically and I had a lot of experience at Whitehall. At Goldman real estate never became that big of a deal, it was never the engine that drove that firm so you always were on the periphery and I thought if we're going to do real estate probably the best thing to do was in a more real estate centric environment and obviously Vornado was all it was and in the public markets so I took a plunge. It was risky, it was highly questioned, it was the subject of a front-page article, a lot of people called it stupid but I thought it was a good measured thing and I really was excited about working with Steve as a partner and, quite frankly, trying to build that company into something that I thought it could become which hopefully it did become.

WW: There was a front-page article in the Wall Street Journal about you leaving Goldman and going to Vornado and also the pay package that you received to go across to Vornado. Vornado’s stock didn't really move much in the first three years you were there and Goldman went public in 1999. Did you do the math in 1999 and sort of scratch your head as it relates to why you left Goldman and went to Vornado? And I'm going to get to what happened to Vornado’s stock in a minute so don't worry you're going to have the punch line here but I'm just thinking about that moment in 1999 when Goldman goes public and you sort of sit there and scratch your head about what you left on the table.

MF: Well I might have gone to a public university but I was always pretty good at math, always much better in math than English, and I would say that even if I didn't do the math many people were doing it for me and sending it to me. I had a lot of people who were keeping score. But I thought both of them were going to be financially acceptable, financially rewarding and hopefully really lucrative and I didn't really compare that much one against the other, I kind of felt like both were really good opportunities. I thought Goldman would go public even when I left, I didn't know exactly when, it failed the first time, there was a lot of dissent, but I was happy for the people who stayed at Goldman. Vornado, I thought, was a more singular bet and more our responsibility so I thought we could control our own destiny over a longer period of time so I really never looked back.

WW: When you joined Vornado, they owned 56 shopping centers, 9 industrial and office buildings, totaling about 12 million square feet. While it was $3 billion in assets it was still in comparison to what it is today – well when you left it had 30 billion in assets - but it was still a relatively small company and grew a lot. Was there anything that you and Steve immediately did? I mean there was Steve running it, he was plenty capable of running it and had a very successful firm and made the decision to bring you in. So I'm wondering was there anything that the two of you did that was distinct right away is it relates to the course you charted for Vornado, the types of assets you were looking at that came about once you joined and the two of you started partnering and you were running the firm on a day to day basis?

MF: Yes. I signed my deal at Vornado December 3, 1996. I actually worked at Goldman transitioning, they knew I was leaving, through January. But relatively quickly after joining Vornado we ended up buying the Mendik company which had moved to our New York office which turned out to be one of the great real estate deals I rather modestly say we made and that moved us into the office sector and we quickly followed that with the purchase of the office buildings and it all closed by April 15 1997. So within a very short period of time we had grown that small company dramatically and we had moved into New York City dramatically and we moved into the office business dramatically. Mendik was going public. I knew Bernie, and David three months into it at Vornado and was a lifelong partner of mine. We offered a very good proposition and that turned out to be a very important move very quickly for Vornado.

WW: Just on that of Steve bringing you on and the sort of change in direction that took place there. Here's someone who was exceedingly successful and didn't “need to go” invest in such a talented executive as yourself but made a really big bet to do so. There are very few owner entrepreneurs like Steve Roth who’d do that. It's not that people don't think about continuing to build their business, but they probably think I've done well, I've got plenty of assets, I'm making plenty of money, why kind of make that additional investment. What was unique about Steve and his thinking because it obviously paid off wonderfully for him to have made that move in bringing you across but so few people actually do it if they're sitting in that CEO position with a very successful company like Vornado was at that time?

MF: I think Steve was pretty secure in who he was and he wanted to grow dramatically. His background wasn't really a growth guy, mine was much more of a growth background. I think he thought he needed somebody like me that was more outfacing to the market and one plus one equals two and I felt he could really be a great partner, a really smart guy as you pointed out, and he had the courage to do it, he had the courage and vision to do it. He wanted to be a much bigger company. Vornado was a really good company, it was just small as you pointed out and it had a great base of assets to build from but it wasn’t the assets that attracted me, it was the foundation of the capital that could be deployed from a very low leverage company and we grew that dramatically over time. Steve had the courage and the vision to see that it was better to do that and was willing to share that kind of position with a partner. We were 15 years apart, it was a good relationship, it worked, sometimes you just work.

WW: If you look at Vornado’s stock price from 1997 to 2002 it does well but it moves along at kind of what you would expect as far as growth and returns. But then all of a sudden it kind of goes vertical in 2003 and I went in and looked to try and figure out whether there was some seminal event or acquisition and the one thing that I came upon was the acquisition of Charles E. Smith company in 2003. Was the change in the kind of returns on Vornado based off of having done the acquisition of Charles E. Smith or was it just what happened to the markets between 2003 and 2007 to the overall portfolio you’d assembled up until then? I’m just kind of curious whether Charles E. Smith was one of those seminal events or whether that just happens to be coincidence and it was really everything you'd done up until then that started to kind of blossom?

MF: A little of both. I don't want to question your math because you're the host here, but Vornado split the stock after I got there. I think the stock did do really well up until the dot com bubble, I think it sort of doubled and we had a really good run. We bought great assets cheaply in that 97’, 98’, ‘99 period and then we had the dot-com bubble if you remember Willy which really set everybody back. Then Smith came in after September 2001 which we closed January of the following year. That was a big move into D.C., so the cumulative things really got noticed after the dot-com bubble. People didn't like hard assets at that time, didn't like real estate. Remember everybody was up to their eyeballs in futures and stuff so we were out of favor for a couple years but in 2003 we became in favor and those cash flows we had bought relatively cheaply started to really prove themselves so I think we got a good run. But we had a really good run if you look back at the stock, I think the numbers maybe were off half because it split in the first three years and then it went down and then it came roaring back for the cumulative effort. I think that was made on very good investments in that late 90’s period and Smith was one of those movements that moved us into a whole other market. Our history had been buying a platform but then adding dramatically to that platform with that base and that's what we did with Smith, we bought the Kaempfer company, we added a lot of assets in D.C. so, again, people read through what we did in New York and they saw that same thing in D.C. and I think that helped the stock a lot.

WW: So, a couple things, first of all you're more than welcome to correct me on my math. You know W&D did 5x in its first five years as a public company so I just might have a little bit different sort of what’s success and what's not.

MF: I’m sorry, it wasn’t 5x, it took two or three years.

WW: So Mike from there 2003 to 2007 your stock actually does do a 4 or 5x trip between 2003 and 2007 and then we get into the Great Financial Crisis and basically over the next two years from 2007 to 2009 the stock basically backs up to where it was pre run-up of that 5x growth. Talk for a moment about - I mean right now everyone's trying to make sense of the landscape. Everyone's looking for either green shoots, everyone's sort of trying to gain conviction. Talk for a moment - because I mean obviously the Great Financial Crisis is not perfectly analogous to where we are today, there are lots of things that were very different back then - but talk for a moment about going into the crisis, what you are doing as it relates to making sure that Vornado was going to be okay and then when you started to gain conviction that it was time to start putting money to work again. 

MF: Well that was a scary time. Lots of stocks went down a great deal and the volatility was really high so the first thing we did was we hunkered down and made sure we had liquidity, made sure our lines - we never ran Vornado with more than 40 percent debt, pretty much that was the average and sometimes it was lower than that. Obviously, debt to market cap could change really dramatically when market cap collapses so we went to liquidity first. We got very conservative with our own assets. The cash flow actually did not get impacted that much. That was one of the I think revelations of the ’08, ‘09. We were not in short term assets. We had a lot of average lease duration that was 7 to 10 years, so we didn't suffer a great deal of cash flow diminution, but we did move around and the multiple went way down. We didn't feel we could issue stock. We did our first fund at that point to level off our reputation and our platform and we kind of just hunkered down and went through it. I do think it was instructive. Thinking about it, I look back and think one of the mistakes that we made was we could have been much more offensive coming out of that but it was scary then, we were worried about protecting the mothership, I think we had grown close to over $30 billion in assets and we just were protect the assets first, protect your own base and then look at growth secondary. So that's something that I think we did a very good job of, hunkering down, maybe not as good of a job of being offensive as quickly coming out of that cycle.

WW: Do you see any parallels between where we are today and where we were in the GFC as it relates to – I mean you just made the comment maybe we could have been a little bit more aggressive coming out of it. So here we are 10-12 years later, we're in the midst of a completely sort of different crisis and at the same time lots of people are out there looking for opportunities and trying to either gain conviction or stay safe, if you will. Any parallels between now and then that you are kind of working through?

MF: I think there are parallels through all these cycles. Certainly, one of the things is real estate is a volatile business, it's a very capital intensive business, and because it's so capital intensive at the margin changes in cash flow, changes in capital allocations can make a big value difference and big opportunities. Public markets reacted very quickly in 2008 and 2009 as you pointed out Willy with stocks really getting hammered very quickly. Private markets did not react that quickly, it was very tough to buy assets in 2009 and 2010 even if you had the guts to do it and the money to do it because there wasn't that much available, people didn't change so you see the same thing now - velocity goes way down, pricing doesn't adjust immediately and then you see the opportunity. This actually has more pressure on cash flow this particular cycle than it was in that cycle because you have hotels and retail and some of the other things have been hit really hard so I do see some analysis but also some differences in this cycle. Even going back to the 90’s when we built the company there were lots of similarities in that cycle too but there are differences. You want to pick the similarities and you want to learn what the differences are before you make these investments.

WW: I heard Colin Powell speak once Mike where he said that when making decisions in the military world that if you don't have 40 percent of the needed knowledge you don't have enough information to make a decision but if you wait for over 70 percent of the needed information you’ve waited too long and you haven't really made a decision you've just been kind of forced into your plan of action.

As you think about where we are today with COVID - Goldman's earnings today, JP Morgan's earnings yesterday, the loan loss reserves people are taking, where the markets are going - do you feel like we're in that zone right now of do we have 40 percent of the needed knowledge or is it too early? Because Moderna comes out with news today that everybody they tested on their vaccine came back with antibody development. Are we over 70 percent, should people actually be jumping in and starting to make decisions immediately?

MF: It doesn't feel like we're over 70 percent from where I sit but that’s what makes a market. I do think that this is a really tough one to analyze because it's a big unknown, we were living and going along and the virus was a shock, it decimated certain businesses and obviously had a big hit on real estate so I personally don't think we're at the 70 percent point in your analogy. I think we have to be respectful, we don't know and I think being patient here but being ready to pounce is probably the right strategy. I think there's going to be some fallout from this. I think the stock market seems to be betting on a V shaped recovery and I think that's a very narrow stock market with 10, 12,15 companies driving that, it’s not a broad thing. So if you look beyond that, if you look at what's really happening in main street and out there, I don't think we're at the 40 percent yet to be where we're going to start pulling the triggers unless you start shooting blindly and hitting people and I think you’ve got to be careful how you aim to get somebody.

WW: To your point as it relates to the markets I just this morning was looking at JP Morgan and Goldman Sachs both trading at about 11 times earnings after both just crushing their quarter and clearly showing how strong both franchises are. And then I was like I wonder where Tesla is in comparison to JP Morgan's market cap and I go over to Tesla and they're still right around JP Morgan's market cap and then I went to their PE and obviously it's a line sideways, there's nothing there. It made me think back to that company that you and I both probably remember from 2001 or 2002 that had some outrageous market cap and ended up turning into ether. I'm not trying to say Tesla is going to go to ether but at the same time it does seem, to your point Mike, that there's just a very small number of companies that are just getting an incredible amount of inflows right now on this kind of bet that there's some absolute change to the underlying fundamentals of the market and how we as an economy are going to function going forward. Do you think that's overblown?

MF: Well I'm not a stock market guru but I've been perplexed. The market seems to have been ahead of itself which it normally is, the public markets tend to be predictive. Real estate markets have gotten hit harder than obviously there’s certain sectors like travel, it's gotten hit, hotels we talked about, leisure, airlines, so I think that one of the questions you raised early on in your introduction is what will happen when the government, if and when the government uses the stimulus that it's put into individuals or the economy, what will happen to collections and rent? That's an open question in my mind - if that $600 went away or, as you pointed out, even went down to $400. Some of the things I think we haven't been through is, we've been I don't want to see propping up the economy but we've been giving it some stimulus and rightfully so, the Fed stepped in as a backstop, there was stimulus, the people spending and the affordability. It's going to be when can we get back to self-sustaining. I think we're going to go through a further contraction and dip before we get to that point is my view. I think the stocks predicted we're going to probably be back fourth quarter, first quarter of next year maybe, and I think that's an aggressive prediction and I wouldn't want to underwrite stuff on that basis.

WW: When you joined Vornado you owned a bunch of malls, you continued to buy malls through the early 2000’s and then divested from the malls in the sort of 2012 to 2014 timeframe and were completely out of malls after 2014 - right now that looks like an incredibly smart move. Talk for a moment about retail and the mall business which you all were in and out of. And I also understand that you’re still on the Board of Vornado so not looking for anything in this discussion as it relates to Vornado but trying to look at that from a standpoint as it relates to being heavily invested in malls and getting out in the early 2000s which now looks incredibly prescient and then at the same time Vornado also owns a lot of what I call street retail, a lot on Fifth Avenue and things of that nature. What's your general thoughts as it relates to the retail world?

MF: Steve and I really saw that retail was saturated, there was so much retail development. We invested in it when retail square feet per person was relatively low. That was always a measure we looked at very closely and that just exploded over time. We thought retail and some of the retailers and product was very undifferentiated and we felt it was in a secular decline and we said let's get out. We also felt like we weren't strong enough and the mall business was going through a big consolidation so people like Simon, who’s a terrific operative, Taubman, Macerich, all these people were growing and we didn't feel we could compete with them with three or four or five malls. We were very focused geographically, but we felt like that was something we wanted, to get ahead of that curve, and I think both of those were really, really, good moves.

We didn't move very heavily into street retail which was an unbelievably great business until recently. We have seen that softening a lot because you don't have tourism, rents went too far too fast. That business really was a spectacular business for 10-15 years, but that business is going through a change right now, again, there’s going to be less of it. There’s a fixed amount you can manufacturer on Fifth Avenue and on Madison Avenue so if that business comes back, and that will be a factor of rents resetting, people resetting and people being there to spend the dollars, I think that might be more vindicated over the long term but certainly that's taking a hit in the short term. And we did think that retail, street retail, high street retail was a better retail format for us than a mall for sure. I think that has been proven out, but we still have to finish the chapter on the retail, the street retail.

WW: Talk for a moment about Toys R Us while we're talking about retail because when the deal was announced for you and KKR and Bain Capital to buy Toys R Us I think everyone out there sort of sat there and said, wow, two big PE firms with an incredible real estate operating firm, that is a recipe for a massive success, you're going to get the best of all worlds - you’re going to get great operations from the people at Bain and KKR, you're going to get the on the street knowledge of the retail market from the Vornado crew. Not so much. Talk for a moment about the Toys R Us investment and how that unfolded.

MF: You know Willy I look back at my Vornado days and I think we did $18 billion of acquisitions when I was there and I think for the vast majority of them like 90 plus percent except for four or five deals worked out really, really well, and we picked one that did not, but it worked out really well initially. Like most things Bain and KKK are incredibly good at what they did and we just switched managements, ran a new management, we got the EBIDTA up from $750 million and we took it down to $650, all the way up to over a billion dollars so at one point I think that we thought we had maybe a triple on our investment.

We went into it thinking that the stores were worth more than the business at that point. In retail, we used to play around with retailers where the real estate assets of retailers were worth more than the actual retailer potentially or gave you a floor that was an option, a very low, there was an option floor in case the retail business didn't work, you could liquidate the stores, reposition, etcetera. That was the original start of Vornado. That's what Steve had done with the two guys from Harrison chain. That's what we did with the Alexandria department store which I also was President of so we had worked this before successfully. The problem was we held on so long in toys by the time the toys business started to tail off we didn't monetize it, we didn't monetize those stores and the values of those stores for the first time kind of in retail history, which was happening in retail, started to go down not up in value even without if Toys R Us might have been the best tenant for them or you weren't necessarily better off if Toys R Us wasn't able to pay that rent. So, we ended up with an, unfortunately it was a very leveraged situation, we had a lot of leverage on it, we ended up having a diminution of value that I think came on from holding it too long and really not monetizing those stores early enough, which were a really good deal. If we had done that in the first few years, we would have made a lot of money I think in toys.

WW: Let's shift for a moment to office. The office portfolio that you put together for Vornado is obviously extensive, incredibly well-located properties. What's your thought as it relates to office and the future of office? Everyone seems to be kind of scratching their heads right now of well it's going to change completely, no one's going to go back to the office. Some other people say, no, people will keep going in and out. Jeff Blau, our mutual friend, was on the webcast about a month ago talking about getting people back into offices. What's your take on, what's your outlook as far as the office environment, are people still going to need to come together to exchange ideas and be creative? Is what you and I are doing right now sort of here forever and we can stay in this dispersed model and office is going to be under pressure a year or two years from now. What’s you're thinking about office?

MF: I think it's too early to take the data points we have and make predictions. I think people make big mistakes thinking that these things are total changes. I personally think there is a real need to be together in an office environment to create a culture and onboard people, to build a company, the success of that company. It doesn't mean we can't do more virtually with technology. This would not have been as easy to do years ago and I do think at the margin that people are scared to get up to go to work and be at work, that's a problem. But if you come up with a vaccine for this thing, I think you might see a more rapid recovery of the office business than you might think so I wouldn't pronounce it dead.

I do think in the short term there’s going to be short term negative pressures on it because I think people will go into open - if you think of the office model, people going to open office space, high density, low per foot numbers per person, there are open floor plates. Then you have the WeWork model which is that squared on steroids and I think people will be visiting that and will have to do that through the COVID crisis but I'm not sure where we're going to end up, I think it's going to take some patience to see where that ends up. I personally think that could get oversold and be a great buying opportunity for office because I think the public markets are pricing this or some of the office companies at a very low price per foot and I don't think it's going to be cheaper to build products. So assuming people go into an office eventually after this things done or go back for more of the way they used to conduct business that could get over sold. I do think at the margin people might be working more from home, might be working more virtually, might be taken advantage of technology, but I don't think it will be like no office. I think people seeing a moment in time projecting that may be making a mistake.

WW: When I was looking at your office holdings at Vornado, I noticed the refinancing of 1290 Avenue of the Americas back in 2013 where you put a $950 million loan on that at a 334 coupon. I can only imagine you turning to Franco and just being like, man, we really timed this market perfectly, who would have thought we'd have financing costs below that right now. Talk for a moment about – 2013, that debt’s still on there, I mean you’ve got to be able to make money on an asset like that at 334 debt, don't you?

MF: Yes, well, I thought that but no, you didn't tell me that that debt could probably be refinanced today under three and I'm not sure we’d get $950 million on it or not. Look, I've done a lot of financing in my career and was pretty good at it. When the money’s there, you take the money. When we could get 10-year money for close to 3 percent, 3.23, 3.24, and you have an asset which you're earning 5-6 percent cash flow pretty reliably on or more and you hope that spreads going to increase over that 10 years, that's usually been a recipe to make a lot of money. And that’s simple math, you don't have to go to Harvard Business School for this math, even University of Rhode Island people can handle that one. So, when we got that thing, I was thrilled with that and I've never looked back. I think that was unbelievable financing for that asset or for any asset at the time. Now subsequently to that rates have continued to go down and spreads have increased a little bit but in the course of that asset it would be less than that today. But I personally think, that's why if you could buy good assets with yield on them and the financing costs while you might not see as much of a diminution in value in the real estate market because the cost of money is one of the biggest costs of an asset for real estate, that's headed down so that might offset some of the cash flow diminutions you’re seeing during this period.

WW: So that was a fixed rate loan I'm assuming back in 2013 at 334?

MF: Yes.

WW: So you're sitting here today and I say to you we can do, on a multi property, we’ll do a 240, 250 coupon and on an office property we can do 3 percent, 3.25. Are you fixing today or are you floating today giving your outlook on rates going forward? 

MF: I think the mistake is - certainly since 2008, 2009 a lot of research came on interest rates - Ken Rogoff’s book “This Time is Different” and I think we saw rates stay steadily low for longer than anybody predicted. You remember at our conference this summer some of our economic friends and their forecasts and I keep those forecasts, and the key to economic forecasting is forecasting offered to a different group of people because those forecasts have never come close to being true to the rates getting back into the fours. We're in a kind of deflationary environment, rates could stay low for a very long time. I still personally think if I could fix an asset in real estate which is very capital intensive, if I can fix my costs in the 2’s for assets that should be yielding 5-6 percent, that's a recipe for making lots of money and you also hedge against inflation because I do think what we're doing has got some inflationary pressure somewhere down the line. Now we haven't seen that come but real estate tends to work very well in an inflationary environment. So I would still take the money Willy. I might be wrong looking back 10 years but I'm still going to have the money, until they change the percent I’m still going to take the money.

WW: Your comment talking about Ken and his predictions that rates were going to go up, I love Ken Rosen and he's an incredibly insightful economist.

MF: I didn't say, Ken, I said some economics.

WW: Yeah, well, I'm just saying every year they're going to go up and every year they don't go up and I keep waiting for, you know, a broken clock is correct twice a day, I'm waiting for the clock to be correct at some point.

MF: I think one of the things you learn over the years of investing is knowing what you don't know. The known unknowns. We don't know what's going to happen with COVID next year so how do you underwrite that Colin Powell question, where are we in that cycle, what are interest rates going to be doing? As you know that's a big part of the course of our business, rates and money and putting 60-70 percent leverage on a property, so I think we just don't know the answers to those questions and we don't want to fool ourselves to think that we've got a magic crystal ball because you have to underwrite things that you can get through if you're right or wrong on some of those predictions you're making.

WW: So on that, back the clock up to 2014 and you and I are sitting around a conference room in Chicago and there's some very, very insightful people in the commercial real estate space who were sitting there trashing the single family rental space. And I'm sitting in the back with David Neithercut and the two of us are talking about SFR and a lot of naysayers in the room and you and I can remember somebody said nobody ever washes a rental car, it's going to be a nightmare trying to manage those homes. You didn't listen to all of those negative commentaries on the SFR space and have actually played a very significant role in Invitation Homes and the growth of the SFR space. And there is right now is a huge amount of focus on single family rental as people sort of can't afford to own a single-family home yet they want the space and the amenities that a single-family home provides. First of all tell me what gave you the conviction to go down that route to begin with when there were lots of naysayers and then obviously you've got to be feeling pretty good about that asset class right now.

MF: Yeah, well give some kudos to Barry Sternlicht who you mentioned earlier in the show. Barry and I are really dear friends, we’ve known each other since we did some deals in the 80’s together. When everyone said that was just a trade not a business Barry and Blackstone, those two and some others too but led by Barry’s vision and John Gray and the Blackstone people, they plunged really heavily as you know into the single family home business for rent. Recognizing they might have been buying it, also getting home price appreciation was going to be a factor in those returns, maybe outsized returns then, they thought there was a long term business and renting goes at a good enough yield like multifamily product that you do so much of and it would be a very attractive long term investment not just a flip or a trade.

And I think after five years of doubt, six years of skepticism, the jury's in on that. Invitation Homes is a multi, one of the largest REITS out there and performed exceptionally well during any of these cycles. It has built itself into a behemoth and compares favorably to any of the multifamily companies thinking in terms of rental growth, rental achievement on rents, rentals spreads, margins which people didn't think you could rent, you could manage these 200 houses. I think the jury's in, there’s enough data to suggest it’s an ongoing strong business and I was fortunate enough to invest early in it and, as I said, I give Barry Sternlicht a lot of credit, he called that early and then Blackstone, and they had a lot of conviction, they plowed billions of dollars into that sector. I was lucky to be with Barry on the Boards and we merged into Starwood Waypoint and that was SWAY, and then we moved into Colony and then that merged into Invitation Homes and we’re now all part of this giant company. We've achieved great scale in putting those businesses together and great results so that's been a good story and a good investment, and I think will continue to be a terrific investment going forward.

WW: So you were master of the universe at Goldman Sachs and at Vornado and then you leave and you’re now Chairman, President, Founder, Owner, Principal, I mean you’ve got more titles now Mike than anybody that I know. And you're in lots of stuff – you’ve got your family office, you've got Imperial, you've got Cadre. Talk for a moment about where are you spending your time and what's got you really excited right now as it relates to not only where you're putting your dollars but what to you is gaining your attention and where's Mike Fascitelli actually spending his time? 

MF: Well, first of all, I'm not big on titles. I think I came in as a street kid and never really cared about that stuff. Big titles with really no big assets to back you is easy. Obviously, this is much smaller scale what I’ve been doing compared to running a Vornado or being head of real estate at Goldman Sachs or some of those things. But clearly when I retired from Goldman I wanted to do things like be with fun people like Barry and I invested in single family rental and that was a great run, and do stuff you can make some money on and then have some fun by the same time token and I managed to do a lot of that until recently. We invested in the Milwaukee Bucks which looked good on paper and still I think it's an unbelievable investment. We obviously can talk about that a little later but that was something I put a big amount of money in and a big effort in and I was lucky enough to have Wes Edens and Mark Lasry as the lead partners in that deal and Jamie Dinan and great people to work with. I did that, I did some individual deals, I got involved in multifamily in New York and did really well. We’re building a hotel in Miami, that's going to be a challenge with retail on the bottom. So, we've had our share of things that were kind off timing but, like I said, if we can create assets that would be for the long term, create wealth, I thought that was a good way. I'm 63 years old, I've done really well, I thought if we can really build these companies and I can help some other people grow their businesses as an advisor or as an investor and then actually with my company and my people build other assets that were forever assets, I thought that was a good mix for this generation.

I have thought this may be another great opportunity in real estate depending on what happens with the COVID crisis and what happens with real estate. There’s plenty of capital out there right now but I think you can see this would be a great opportunity in real estate principaling again so maybe I've got one more rodeo in me before we're done in terms of going with more scale because it wasn't an easy place to invest in 2014 on. Pricing was very high as you pointed out, stocks, it just was a very tough investor market and I invested very defensively during that period of time thinking that, not that COVID would come, that we were at the tail end of a cycle and that you could have some corrections in value. So I personally think this might be a flip in that and it might be a really good opportunity depending on really what happens over the next six to nine months, twelve months.

WW: Talking about potentially having another rodeo in you, I don't think there's any doubt that getting on a bull and riding a bull in the commercial real estate space for you is - you've got an incredible track record in that stuff you've always done. Cadre is a little bit different in my mind, it's sort of like you getting on an electric bull and then putting it up to like 11, it's a totally different play. Talk for a moment about Fintech and what you've been able to see at Cadre and has Cadre evolved, if you will, as quickly as you thought it would? Because we've all been, I mean when you were at Vornado and like I at Walker & Dunlop, I get an email every other day from somebody with some great new Fintech or Proptech idea and would Walker & Dunlop like to do this or do that and I'm sure you see a lot of that. When Cadre was put together, I will tell you there were many of us who sat there and said, man, that is one heck of an investor base and they're going to put together an incredible platform. How has Cadre evolved and what's your view on sort of Fintech at this point as it relates to commercial real estate? 

MF: I think it was all of those things. It was sponsored by great people. I'm a big fan of the young CEO in Calgary, Ryan Williams, who's young 30’s, African American CEO, really terrifically talented guy and the investors, it’s like a who's who in venture capital and real estate so it had all the ingredients. It brought a lot of technology, an ease and transparency to investors on a deal by deal basis, not the fund model, and then it augmented that with manager comp when people wanted to have allocation across the deals and satisfying both kind of a single each individual deal investor as well as a more programmatic investor. I think it lived up to that promise, it probably was a little slower to ramp up than everyone thought it was going to be.

My role at Calgary is to chair the investment committee which I think we've done a very good job of underwriting defensively during this period. We focused mostly on multifamily, mostly unprotected assets in case there was a downturn. We weren't trying to make, I always thought the thing is that people who invest in these areas are already wealthy, they don't want to become not wealthy so the first thing is don't lose the money, don't lose the principal and make some money on top of that. That's a very simple rule. I come from Providence, Rhode Island, don't lose the money, make money on top of that. And I think that, we've seen that happen and we've done a really good job at Cadre. I think the COVID thing set us back a little bit too because deal flow stop and it’s very hard to do deals and we have a machine that puts through a certain amount of deals and manages and monitors the deals so hopefully we'll kind of ramp back up and be able to buy deals once we can travel and underwrite effectively. So I’m still very optimistic on Cadre’s future. I would say it's not been exactly the ride I thought it was going to be but for the most part it's been the right direction with a few bumps in the road.

WW: You mentioned previously Mike, the Bucks. We've got the NBA pulling everyone together down in Florida to try and get to a season. Here you guys were with an incredible franchise and a new stadium out in Milwaukee, the Fiserv Forum. You have a lot of retail on the bottom floors. Everything was lining up for sort of 2020-2021 to be just a windfall as it relates to the Milwaukee Bucks and the franchise you invested in and, boom, we got COVID. First of all, do you think the NBA is going to be able to pull off the season and, second of all, just sort of your outlook as it relates to if the season fails as it relates to them trying to get it done and having to send everybody home, what's that say about getting the 2020-2021 season sort of back on track? 

MF: Well, I sure hope we play basketball again. Obviously, we're still dealing with cases of COVID in the league and certain teams, people are certainly still feeling concerned about playing. I think Adam Silver who is the Commissioner of the NBA has done a fantastic job navigating through a very uncertain, unpredictable situation. The owners have been united and trying to do the right thing. We’re represented by Mark Lasry and Wes Edens as the two primary governors and Jamie Dinan. We were having a magical year. We were top five NBA, all-time NBA records, the new arena was crushing it, stuff around it was full and the thing is we never underwrote COVID and it all came to a screeching halt, we haven't had an event since March 11 in the arena. We have no idea when we're going to return. Even if this is successful in Atlanta, which I am knocking on wood hoping it’s successful, because I think people are starved for sports, their starved for contact. I think the ratings are going to be super high. I think there's a lot of interest. It's going to be, if we can get it done and I hope it does fly, I think it's going to be great. But it's certainly not from a local Milwaukee perspective, it's better than not doing it but it's not great because we don't have a full arena, we don't have the ancillary benefits for that so hopefully we get that going and I'm certainly hoping by the 2021 season. By the way, even if COVID persists there will be another season of basketball. Even if we play this year it might get delayed a little bit, but we'll figure that out. Everyone's committed to playing. How we play and what kind of precautions we're putting in place and what kind of event is still, you know, kind of real live TV and I think we’ll be very cognizant of learning on the ground. But I'm hoping that the Milwaukee stuff in the arena and around it gets back to its full potential by the 2021 season.

WW: You've invested in a lot of real estate, you've invested in a lot of private equity, is investing in the Bucks the most fun sort of “work” that you've ever done?

MF: Yeah, I think it's been great. It's been a great partnership as I said. Wes Eden's really put the deal together and then Mark Lasry and Jamie Dinan and I came in. We’ve got a bunch of local owners who've been terrific. We have a great group of people. We've turned around a franchise that was in almost every category in the bottom few of the league to have a contender for the championship, one of the MVP on the team, and we have a brand new state of the art arena that we built on time, at a reasonable cost, below budget and stuff around it that was excelling and doing great. We've had a great five year run and we did it to make money, but we really didn't do it for that only. We figured if you could have something that was that special and kind of bulletproof, we thought, and then you did really well on the team side and made money besides, we achieved all those things and then we ran into COVID. Hopefully COVID is a temporary disruption but it's been one of the more fun things I've been involved in. It was very - if you look at the valuation, we bought the team at $540 million and valuations, we almost tripled that last year, so I’m still optimistic the valuation will come true.

WW: But by the way, what's the Greek Freak like, good guy?

MF: Great guy. Works his butt off. Super guy, super dedicated. He’s a great kid, great guy. 

WW: So to close because I’ve only got another minute before we're out of time - you and your wife Beth have been wildly philanthropic and have given back in many different areas, both from an education standpoint – you’ve given a bunch to the University of Rhode Island, Beth’s on the board of Dartmouth. What's the focus from a giving back standpoint right now, Mike, given the diverse interests you both have and where you're trying to invest as far as the future and giving back to society?

MF: My wife’s father was a pediatrician so she grew up I think upper middle class I guess in those days, but she came from Lowell, Massachusetts, a pretty impoverished area so we both talked about giving back to education, which we were both benefactors. She was different, she had a much more expensive education – Andover, Dartmouth, Harvard Business. I did North Providence High School, University of Rhode Island, Harvard Business School - much cheaper. But the truth is that we both believe in education, we believe in mental wellness, children, so we support things around those initiatives, put our time and resources where we can make a difference in communities which need help. We’re very involved - I’m on the Board of The Rockefeller University, she's involved with Mount Sinai and others. So we’re trying to give back where we can make a real difference with our capital and our time over long periods of time. And going back to my mom, she did say if you're successful be really nice to people because when you're not you want them to reach down and give you a helping hand and you also want to help them up if you can, if you're fortunate enough to have those attributes, help them out. My mother wasn't educated but she was smart, and I think those words are something we try to embody in us and try to teach our kids that as well.

WW: I greatly appreciate you taking the time to share your insights on the markets, talk about your career. Thank you, Mike, very much. To everybody who joined us today, thanks for taking the time. We'll be back next week with Dr. Larry Sabato. Mike, I wish you great health and continued success and we'll talk soon.

MF: Thank you, Willy, thanks a lot. Appreciate it. Bye, bye.

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