Webcast transcript
Alex Rodriguez: Welcome, Willy, to our kind of our family office here. We've probably seen this group here for about 15 years, some a little bit longer. So, we've had Barry Sternlicht, we've had some great speakers. And obviously your Harvard Business School compadre.
Willy Walker: Barry was well ahead of me at Harvard Business School. Let's just make sure, he was ten years ahead of me. Let's make sure we make that clear.
Alex Rodriguez: One quick story about Stuart, because he's too humble. I am so proud. Hello, Chris Knight. I'm so proud to have what I call my…and today's a Jewish holiday, right, Stuart? Right. Because we had some of our partners that could not make it here today. But Jerry Reinsdorf, who's been a longtime friend and mentor, and my rabbi, as I call him, one of the great men, he is 87 years old. He has the energy of a 17-year-old and one of the wisest people that I've ever met. He just became a first-time investor in Monument, and he could not believe that Stuart and Jeanine are working with us because I'm going to date you, Stuart. Although Jeanine is 30 years younger than you, in the late seventies, they both worked for Jerry Reinsdorf. Talk about coming full circle. Both Stuart and his wife Jeanine, and. And he had nothing but amazing things to say about Stuart. So, I think that gave him the nod to come in and invest with us.
But Willy, obviously, you heard Aaron, all the headlines. You have more information, more pattern recognition. You know what the smartest people in the world are doing, like Jon Gray of Blackstone and Barry Sternlicht at Starwood. And you also see what some of the amateurs are doing, some of the mistakes. What should this group be thinking about? What are the really smart people doing and what are some of the mistakes that you see that we should try to avoid?
Willy Walker: So, first of all, it's a real pleasure to be here with you, Alex, and with all of you. I would also say that having seen the presentation, Erin sent it to me ahead of time, the returns on your funds are absolutely fantastic. And many congratulations to you and your team for all of that.
I would differ with Stuart in that we are seeing positive leverage on multifamily today given the presence of the agencies in the market. And so, while it is hard to find just today on my way down from Fort Lauderdale to Miami, we locked rate on two Fannie Mae, seven-year fixed rate loans. They had a 5.30 interest rate on them, and the acquirer bought the assets for six caps. So, they had 70 basis points of positive leverage on those deals, they’re deeply affordable deals. And so, as a result of that, the rate on the agency financing was probably a little bit better than a conventional deal. And buying at a six cap, you're typically the property that Stuart was showing up here. They're going to be trading in high fours, low fives, not a six cap. So, this was somewhat of a unique deal, but we are seeing the agencies play their role. And I think that the headlines that Erin put up as it relates to Brookfield's defaulting on office properties. Well, Bloomberg's run that headline in every article they've written for the last six weeks. Literally, I wrote the author yesterday and I said, “John, it's time for you to move off of the three defaults that Brookfield has in LA.” I talked to the Pac West CEO yesterday. “Is Pac West going to survive?” I mean, their stock was down 5% today. It was up 25% last Friday when they sold the portfolio. There's no doubt that we have real stress in the banking system. It's just no doubt. Is Signature or First Republic into JP Morgan the last shoe to drop? I doubt it. I don't think it's going to come from another bank being upside down, but something's going to take another piece of the financial services industry kind of ecosystem down I think.
What's going to make the Fed turn course? I keep hearing these people say, look at the forward curve, it's going to go to 413 is right now where the four curve says it's going. What has to happen to get the Fed to cut? So, back up. SVB and Signature Bank, they fail. There's the potential for cotangent throughout the entire banking system. And the Fed next week raises about 25 basis points. They didn't know we'd be where we are today and that we weren't going to have contagion. At that time, the issue was if we raise 25 basis points next week, the entire banking system might melt down on us. They went ahead and raised 25 basis points. So, you think about that, if they've got that much conviction that they have to keep raising after SVB and Signature failed, it takes a lot more than just, oh, we think we've got inflation under control for them to turn around and start cutting. So, what Stuart said as it relates to your financing strategy of putting long term fixed rate debt on stuff. Boy, oh boy, was that the right thing to have done. And to be able to get the yields that you've gotten with that fixed rate debt? There were plenty of people who were competing with you all for the assets who said, look, I can put floating rate debt on this. I can pay a higher price and I'm going to bid higher and win it. You all want it? Why were you in the Blackstone deal? Well, you're competing with everyone else in the market and you got to call Jon Gray. That's the difference between Monument and a lot of other platforms that don't have the ability to do that. The other thing I think that's really important, Alex, is, you know, one of the things that I've looked at you and watched what you did in your baseball career is that you like to practice more than you like to play games. Honestly, what professional athlete likes to practice more than they like to play games? Nobody except him.
Alex Rodriguez: Not Allen Iverson. He doesn't like practice.
Willy Walker: Right, right, exactly. But there's a sense of that sort of, you know, the tenacity of staying with it. You think about the fact that when someone raises the fact that you won three MVP awards, and you also were the youngest person ever to get 600 home runs. I've watched interviews with you where as soon as someone says that about it, you say, oh, by the way, I'm also number five on the strikeout list. That humility to you is what makes Monument so smart – in the sense of we're not too big for ourselves, we're not too big for our britches. We stick with it and stay with it. The other thing, if you look at those assets, I was thinking about where you played. You literally went from tertiary markets to major markets going from Seattle to New York and you focused on these tertiary and secondary markets where there's real value.
To be honest with you, the Blackstone team isn't doing a whole lot of Louisville, Kentucky, even though it sounded like Stuart, that's not been the greatest investment ever. But they're not going there and ferreting out that deal. So, I just think there's a lot that you all are doing that's exactly right at this time. One of the things I would turn back to you on is I saw your interview with David Rubenstein on Bloomberg. And one of the things he asked you was, “If I gave you $100,000 today, what would you do with it?” And your response was, “I'd buy Treasuries.” That was, I think, about six weeks ago. And do you still buy in Treasuries or are you buying something else?
Alex Rodriguez (A-Rod): I'm starting to shift a little bit. One quick story before I answer that. So, I was playing Sunday night baseball. We had Sunday night baseball in Houston. And Stuart says, we're looking at this property. I said, send me the address. I had Erin fly in. So, she flew in, and we went to see this property. It was called Trail Point. And I got to tell you, for all of us who've been in Coral Gables, I walked in there and I said, Oh my God, it was about 16 acres. It looked like Coral Gables. And I turned to Erin. I said, “I would live here.” If my daughter was renting a two-bedroom apartment. I would live here. And I said, you can't really say that about all our properties because they usually have some hair, and we have to fix them up. But this property was immaculate. And he immediately said, I got to call Jon on. So, I called Jon Gray. And, you know, they get all nervous because they have to bid it out and all that. I said, okay, I'm going to sell it to my team. Team called Stuart. Jon said, Can you close it? And I said, We'll close it. That's what we do. And boom, we got it done. And I'm so proud of that property. Stuart, if we own that property in ten years, I would be so proud to own it because I think it's going to get better with age. And you see all the oil on the Exxon, those schools kind of close to minute made over there. So that was incredible. Back to your question, which was?
Willy Walker: Ha. If I gave you $100,000, you're going to put it into T-bills.
Alex Rodriguez (A-Rod): Yeah. So, this is what's really happening now. I think, you know, kind of piggybacking on what Stuart said. So, what's happened and what I have is I have a lot of pattern recognition because I talk to everybody from around the globe all the time. And the way I've kind of set my career is you've pointed out something that no one's ever pointed out in my career.
Willy Walker: Now I feel really good about that.
Alex Rodriguez (A-Rod): No, but this is incredible. I mean, this is what makes me guess you learned that at Harvard. So, my third at bat in my career, Pepe has never heard this - third at bat. It's been by far my best at bat in my career, right? So, I'm a 295 career hitter. I bet you my third at bat, I'm probably about 330 or something like that. And he's like, Why? He wanted to know why. I said, Because what I'm really good at is pattern recognition. I'm not the smartest guy, but I am really hard working. But when I see something once and I see it twice, I get it. So, if I faced Ray Corona in 1994 and I faced them in Appleton, Wisconsin, when I was in A-ball when I was 18 years old, I will tell you what he threw, what pitch, what was the velocity? And I still remember to this day. So, my memory has been a gift and a curse, right? Because then you have others that like Jeter that he doesn't remember facing Corona yesterday. And Ray Carona comes back, and we face them yesterday and he comes back today and Jeter being the on-deck circle saying, have we ever seen this guy? I said, Jeter, you faced him yesterday. You had a double. What inning? Right. So, I mean, those are two opposites and forever. He was so great in October. And I think part of it was he just saw basketball. He didn't think about it. I was analytical. I had to think about it, and I had to prepare. And it was two different styles.
Willy Walker: But on that, Alex, I mean, let me just jump in there for a second, because every time I've been with you and I talk about anything to do with any game, you remember almost down to like it was 78 degrees. So, like I've heard you sit there and say it was Rivera pitching, it was a ground ball to Cano that went two to Deshero and the Yankees won the 27th World Series that they've won in the franchise. I'm sure there are a couple of people in the room who could say that. But like, I can pull out some random game you played in Seattle, and you'll be like, Oh yeah, it was kind of a dreary day, and we were down to three in the third and yeah, we hit it. And how? why? I mean, I've had a week of meetings. I've met 100 people this week, I might remember ten of them.
Alex Rodriguez (A-Rod): I'm just driven with process. I love the process. Now I got to bring Jorge and Ray Corona back because the entire Corona family was my good luck charm in ‘09 because they were at every game with Kurt Russell. We had a great crew. Then we got to bring them to Minnesota so we can bring that championship magic back. But I'll tell you what I did, Willy, when I would play; say if we're playing in New York and the game ended in the Bronx around ten 10:30-11, I would drive home, I would have my dinner and then I would have like five TVs at home. And Pepe, you've been there with me many times. I'm a big recap guy. Willy, if you came to the game, we would come home. And not only would we watch the game again, but then we had to recap it. What did we learn and why did you lay out the two one pitch and how did you take that one two pitch? Because you laid off that one two pitches. You got to 2 to 2 and boom, then you hit a homerun. But people are just going for the home run. They don't know that you had the discipline to lay off that sucker pitch to get that pitch for a home run. And that's what Stuart's talking about today having the patience of Ted Williams, right. As Warren Buffett says, that circle of confidence. And so, I would go home, I would watch all the West Coast games, because if I'm facing Pepe, Jose and Havy, because they play for the Angels and I'm facing them next week, I wanted to go out and I have all my binders with all my notes with every team. And then I would just literally not want to see scouting reports. I wanted to scout myself and I wanted to do it about a week out because then I can formulate my plan and my kind of secondary thinking. So, I already see Pepe, I see Jose and I see Havy. So, when I'm already going there, I already know exactly what they're going to do, what they're going to do with the money and what's on the line.
And at the end of the day, we have Yankee Stadium, and you have 55,000 people. You know what he's going to do before he does it. That, to me, is a competitive advantage. So that's the way I've always looked at business. When I think about my partners, I'm out there in the world thinking, how can we bring value to our partners in the process? The practice has always been more fun than the game because I used to talk to Kobe Bryant about this all the time. You have to be obsessed with the process, the pain of it, and retrying to reach perfection, even though perfection is not going to be there. But ultimately is how we reach our potential, whatever that potential may be. That's what I'm looking for.
Willy Walker: But so, on that, and forgive me for focusing on…
Alex Rodriguez (A-Rod): I think they want to listen to you, not to me. They’re tired of me. hahaha!
Willy Walker: I want to stay on this for a second, though, because nobody in the room can understand what this is like. But you hold the grand slam title. Hitting a grand slam. Bases are loaded. And I've watched a bunch of your tape of like the walk offs you've done. And I can't imagine anything being greater in this entire world than hitting a walk off home run. I mean, that feeling I've watched you come in and it's super cool. But in that moment when most people buckle under pressure, most people don't like that moment. Do you get an intense focus at that moment? Like, is there something where you can sit there and just dial it in and say, “This is where I'm going to a different level.” I mean, did you feel yourself actually mentally go to a different space when the chips were down, and you had to perform?
Alex Rodriguez (A-Rod): Yeah, I mean, that's the fun part. And I think the fun starts with being prepared. I mean, I see Reigns, who's a great young man down. He's going to do an internship with the U.S. network, then he's going to come to Minnesota. But the key is being prepared, Willy. See, any time I wasn't prepared, I would feel off balance like a boat at sea. But because I know Pepe, Jose, and Havy better than they know them and in other tendencies, I remember having a conversation for an hour and a half with Albert Pujols because I was facing a guy that I hadn't faced before, and I don't know if it was my brother. He was, Are you on crack? You're going to face this guy two times. Those at bats are going to last probably three minutes total, if you're lucky. I want half of those. I said, Yeah, because it's that important. I got to figure this thing out. Right. So, when you then take it to bases loaded. First of all, you have to have the mindset to be present and quiet. Game slows down. And then here's the key. All the pressure's on him, not on me. Because if he walks me, that's a run, right? So, all these things kind of come into play.
Willy Walker: And is your 40/40 one of your most proud accomplishments? Because there are only four baseball players who've ever gone 40/40.
Alex Rodriguez (A-Rod): Yeah, I think so.
Willy Walker: 40/40 for those who don't know - 40 home runs and 40 stolen bases in the same season. And there are only three other players in Major League Baseball history who have done it, which to me is sort of like the triple double in basketball. It's like when someone likes what we're seeing right now with the Denver Nuggets and him going out there night after night after night getting triple doubles. The 40/40 to me is without a doubt the equivalent of a triple double.
Alex Rodriguez (A-Rod): Yeah, probably better.
Willy Walker: Probably better? Hahaha!
Alex Rodriguez (A-Rod): Yeah, yeah.
Willy Walker: I love it. The season you stole 40 bases and hit over 40 home runs. I mean that's incredible to have that much power and then also the speed to get do it.
Alex Rodriguez (A-Rod): Yeah. You know, it's interesting what's happening. I mean, this turned into a baseball clinic, but you guys can walk out at any point - we won't get mad.
Willy Walker: It's a hell of a lot more interesting than cap rates, I guarantee you.
Alex Rodriguez (A-Rod): But something interesting happens in the game of baseball and I think is happening in business. There’s so many smart kids out there, you know, doing models and this and that. And you can make numbers, say whatever they want. Right. And what's happening in sports is we've attracted the hedge fund and the private equity minds like yourself, Barry's and Jon Gray's, and now you're running front offices, which is great. But you need a balance of really smart people like you and then people like Pepe. Like Havey, people that have been in it, people that understand what it feels to put cleats in that dirt, how it feels to get booed, how it feels to struggle. Right?
And I think there's a big problem. So, what when people like Raines. You're 17, right? When scouts are out there looking, they don't even go see them anymore. They just look at data. Here's what they don't know is he has got great parents. They don't know he has a great school, that he's a courageous kid, that he's an honest kid, that he has work ethic. He believed in the American old-fashioned way. He respects law and order. All these things come into play when we're going to give a kid like Raines millions of dollars that can play for the Timberwolves or the Yankees. Right? So, all these things are important and what's happening is they just want people to throw fast. I call them “rock throwers” or they want people to hit the ball country mile, horrible hitters. What I like is I like good pitchers that can throw fast. Good hitters that have power. If not, they'll develop power. But they got it all wrong.
And I think the real hack in baseball today, Billy Beane, introduced analytics 20 years ago with Moneyball. We all saw that movie. Then what happened is we live in a copycat world. So, you had 29 teams copy Billy Beane. I think today if you're a contrarian, you get paid off tremendously. And what I mean by that is if you're the one person that goes back into old school baseball, the coaching staffs, they're all younger than Raines. Like, nothing against Raines. Raines, what are you going to teach me about hitting Grand Slams or going through struggles? Not now, but I can learn a lot from Chris.
And here's what's happening. Chris is one of the great lawyers here in Miami. He's a partner here. People like Chris, people like you are exited. You're pushed out of the room, and they want people like Johnnie, and they want people like Morgan, and they want the young people. But all I'm saying is Warren Buffet is 94 and the big guy’s 99 Charlie Munger and they're better than ever today. And I'm saying there's people like Ray Carona, who I call when I get in a jam. We need mentors, we need advisors. It's not just smart people that are going to run models. So, I think once the game and we're trying to do this now with the Timberwolves because we think the real arbitrage is getting quality human beings, they're going to treat people with respect, are going to show up on time and they're going to do the right things. And that's exactly what Pat Riley brought here 28 years ago with the Miami Heat.
Willy Walker: So, Warren Buffett insured your first contract when you went to Texas, and you met him through him being the insurer of your contract. What did you learn from Warren over the years?
Alex Rodriguez (A-Rod): I think simplicity. I think Warren has been a great friend and a mentor to me for over 20 years. And Warren just keeps things simple. Number one, he says, be a gentleman, right? Always be a gentleman. Character is most important. He goes buy great businesses at a fair price, not a fair business at a great price. And then he just says, invest like if you want to own this for years and years and years to come. I mean, he really keeps it pretty simple. He says, I want to make two or three big decisions a year, sometimes every couple of years, and you don't have to swing. I mean, he sounds a lot like Stuart, right? You don't have to swing at every pitch. You just wait for your pitch.
Willy Walker: One of the interesting things about that, when you mentioned that you were your number five on the all-time strikeout list, it reminds me of Michael Jordan, who said, I've missed 9,000 shots, I've lost 300 basketball games, and I was given the ball on 26 times to shoot the last shot to win the game and I missed. And so, you have to have the ability to go and lose. But Warren Buffett did also say to you, rule one is don't lose money. And rule two is, remember rule one?
Alex Rodriguez (A-Rod): That's right. Well, Stuart knows that. He hears that from me all the time.
Willy Walker: So, when we're in this world right now that is so confused, Alex, how do you keep the discipline to stay to what you all do so well and not get diverted into riskier opportunities? I mean, one of the things that I was amazed with in looking at the slides is just the basis at which you're buying these assets. You're building in that insurance plan that Warren Buffett put behind your contract. If you buy at a good basis and you put fixed rate debt on it, it's going to work. Unless you have a water sprinkler system that ends up turning into whatever water feature or anything. But sorry to pick on that, Stuart. But other than that, you're good, right?
Alex Rodriguez (A-Rod): Yeah. I mean, here's what's happening, and I think Stuart was probably more accurate, but from my point of view and all the conversations I'm having around the country is that the sellers still think that property is worth ten bucks. The buyer thinks it's worth three bucks, right? And back in the day, it was seven bucks compared to ten bucks. So, there's still a big disconnect. So, I'll give you one example of an opportunity that if you guys like, we want to present to this group. There's a property in Homestead 2004 construction, $50 million, 30% debt, 20% equity. They need $2 million. Now, the one thing they don't want to do because they have ten properties is go for $2 million in each property. So, they come to us, we give them the 2%, we do it at 16%.
But here's the key for this deal, right? And this is what I'm talking about, pattern recognition. We have been recognized by the lender as the first position. So, if they default, we love the property. We know the property; we now own the property. You wipe out the $20 million of equity, which we don't hope for, but we'll take over that property and own it and think about it. Now the basis is $30 million, right? We'll take on the debt. And we think that in the next five or ten years it could be worth $60 million. Right. And then we went back to where it was parked. And in the meantime, we are collecting an 8% profit. We accrue the rest 60%. And if we put a little leverage on that, we can get north of 20%. But it is a short-term duration opportunity for two or three years, it won't be for a long time, and we can provide that as a Monument and create a little bit of a pref-mezz situation. The key is we have a relationship with the lender, and the lender recognizes us as their partner. So, we're coming in from the front. We have the lender on the back end. We love the property. Tails, you win. Heads you win more.
Willy Walker: One thing I would just add as a comment as it relates to the lender likes Monument, the local and regional banking crisis that is going on right now is going to pull banks back from lending on commercial real estate. That's already been seen. And I had an Investor Day yesterday with a bunch of investors in Walker & Dunlop, and I was asked many, many times, why do you have so much conviction that after the crisis ends and we get rate stabilization, that banks are going to come back and continue to lend to commercial real estate the way they have in the past? And I say it's really easy. I'll give you two acronyms: FDIC and OCC. So, all you need to know is FDIC and OCC, because back during the Great Financial Crisis, when we put in place TARP and we raised the insurance limit from $100,000 per deposit account to $250,000 per deposit account, the FDIC did that. They did it in 2008 in the depths of the crisis.
In 2010, when Dodd-Frank was passed, they codified the 250. But Congress also said to change the insurance limit in the future, you got to come back to us. So, the FDIC no longer has the ability to change the insurance level. So, you've heard a lot of people out there saying, just raise the insurance level, can't do it. Congress has to do it. And with the Republicans holding the House, there's no way they raise the insurance level. So, what's the regulator going to do? The regulator is going to say, okay, we can't raise the insurance level. Let's make sure that the banking system doesn't have another run on it like SVB did. The only way they're going to do that is to regulate for liquidity. So, what they're going to do is they're going to come in and require banks to both lower their leverage levels and also make sure that they are in liquid investments.
Commercial real estate and commercial real estate construction loans are not liquid. They're the most illiquid lending a bank can possibly do. And so, it's our bet that banks continue to stay out. They're not going to get out of the market. There's no doubt they're going to stay in. But if you think about a borrower of First Republic who's now part of JP Morgan, there were a lot of commercial real estate borrowers who had a great relationship with some banker at First Republic - that's not there anymore. They got to go to Jamie, right? Jamie lends to you and not someone who needs a $20 million construction loan in Southern California like First Republic met. So, we think that there's a kind of tectonic plate shifting in the lending market. There's a huge amount of capital being raised in the private credit, private debt space right now. The problem with that for today is that it's overpriced. So back to the bid, ask to spread that you and Stuart were talking about assets. We're seeing that right now in the lending community. If you're a leveraged lender, you can't play in this space. You cannot.
If you're a life insurance company today and you have long duration assets, you love this market. So, life insurance companies are coming in. They're putting capital to work at a six and a half, seven, seven and a half percent unlevered return. And they're smiling from here to the bank.
So that shift we're very clearly seeing, and we think that that will drive a lot more volume going to the brokerage firms than direct to the banking sector going forward. So just a little bit on that, why the bank loves you and they're supporting you there. I think they'll still be there, but it's a very significant shift in the financing.
Alex Rodriguez (A-Rod): And if you're an investor, how in the world, if you're a Stuart, Erin, as a fiduciary to all of us, all our partners, how can you go to bed thinking, I'm going to put in $50 million for Monument in a small bank, a signature bank, regional bank, why not have all that money go to Citi, JP and Bank of America? Is that what's happening?
Willy Walker: 100%. There's no upside to it.
Alex Rodriguez (A-Rod): Yeah.
Willy Walker: Look, we've got $3.9 billion at Walker & Dunlop deposits in the banking system today that we control - $3.9 billion.
Alex Rodriguez (A-Rod): Where's that money?
Willy Walker: Well, we had some at SBV, we had some at Pac West, we had none at First Republic. But guess where it all is today? JP Morgan, PNC, Bank of America. It's all sitting in the money center banks. I’d love to keep it in those regionals, but what's my upside? Zero.
And so, I mean, unless the feds deal with this - I mean $43 billion was pulled out of SVB in three hours. We didn't build the banking system thinking that that was going to happen. So, unless they do something to restrict that liquidity, I mean, the whole reason that Jon Gray’s B-REIT exists today is because of redemption restrictions. If there were no redemption restrictions the B-REIT does not exist today, you would have happened to the B-REIT what happened to SVB like that. They had much more redemptions in Q4, but they have restrictions on how much capital can come out of the B-REIT. So, it still exists today. They went out and got the California system to invest $5 billion. They then went out and raised $30 billion in the largest commercial real estate private equity fund ever. And everyone goes there goes Blackstone again. They're going to be fine.
Alex Rodriguez (A-Rod): So, I want to add something because, I mean, I think over the years and Stuart, you know this, we've been approached by so many people saying, why don't you go get into malls 10-15 years ago, remember? Warehouses. And Stuart says, look, here's what we do. We do apartments. We do it better than anybody. And that’s the only thing we do.
And I think in a world where everyone's trying to scale and trying to diversify, being a master of one thing and doing it like Stuart’s been doing it for over 40 years is our greatest asset in this company. And Roy and Erin and our leadership group I think is really, really important. And you notice the focus and the discipline in times like this. Now, I have to tell you, I've had a handful of friends that are multi, multi billionaires who have very, very, very much invested in tech and they were flying high for eight or nine years. It's been an incredible ride. I mean, think about Amazon, Google, Facebook, Netflix. It's been incredible. And then they looked up - I had a friend that had like $400 million in Peloton, and I begged them to put some puts to protect this position. He came back to me. I connected with my person at JPMorgan. The puts were going to cost about, I don't know, three and a half million bucks. It was fairly expensive. But I said, look, it's worth it. I said, if not, sell it. Well, long story short, that $400M today is about 40 bucks. 40 million bucks. Right. And then you have others, Facebook down 80% at the bottom. And then it obviously is back up now. But you had Amazon. In this crazy environment. You look at those numbers and you say, you know what, we're happy we didn't get greedy, and we didn't want to go for the big, you know, Grand Slam - doubles and singles are just fine. And that's what you see here.
Willy Walker: So, on this yesterday when I was doing our Investor Day, they had a panel of CEOs of real estate services companies. So, I was on a panel with CBRE, JLL and Newmark, so that all the other executives go, and they say what their view of the world is. And at the end of it all, I got to sit there and say, “See, look, all my competitor firms are global. I'm not global. All my competitive firms lend and broker in all asset classes, we’re 80% multifamily.” Do I ever feel good right now? Now, there have been plenty of times, plenty of times, as we've grown Walker & Dunlop, where people I'm like, Oh, you're not as diversified as CBRE. You don't have as many tentacles as the client. You're not pumping 15 different services through one channel. I get it. Guilty as charged. Boy, do I ever feel good in our position today, sticking to our knitting. So, I think similarly to you having the discipline to do that. I know that. Let's switch for two seconds to the Timberwolves.
First of all, I'm surprised the people in Minneapolis actually gave you a nice welcome, because I went back to when I was looking at your baseball career, one of your last games against the Twins. You hit three home runs. You single handedly scored every run for the New York Yankees in that game. Single handedly, you beat the Twins. So, I was surprised that they actually welcomed you back into Minneapolis. But on that, just back to time horizon and investments, you clearly bought it well, the market we've had a trade of the Milwaukee Bucks subsequently. You've had offers to turn around and just flip it and make a huge amount of money. Why don't you take them?
Alex Rodriguez (A-Rod): I'm actually having a lot of fun. And it's funny because we've had a couple offers unsolicited by our buddy Jamie and I brought in Erin and some of the senior partners at the firm. And I think Erin was the only one that said sell. Erin’s like, “We can buy a lot of multis with this.” She's a 20 plus year banker and she's very conservative. And also, Jose and Pepe said sell because they're old school Cubans. They were like, But you know what? I think the NBA is an incredible league. I've learned so much in about two and a half years. I think we have one of the greatest leaders in the world, Adam Silver and Mark Tatum. The NBA's fascinating and it's a global sport. There are 400 people playing basketball today 400 million in China. You have 300 million in India. We just launched the Africa NBA with Barack Obama and Michelle. They're partners. And you just have this incredible growth, the TV contracts are just enormous. And it just gives you a little kind of snapshot of what the NBA is.
NBA Inc, when you own 30 teams, think about the NBA and you own three and a half percent of the league, basically. Right. Minnesota and Lakers, we're all in the same piece. When you look at it, NBA Inc, the revenues are shared 60%. So, you have tremendous protection. So, 60% of the revenues that come in, let's say we made $11 billion. 60% of that goes pro-rata to all 30 teams. And then the 40% is when you get into the merchandise and the tickets and all of that regional sports deals and all that TV deals. It’s a wonderful business that is growing 16-17% compounded year in and year out. And here's the opportunity. Are you guys ready for this? This is less than a one-minute story. because I think of being ready for the opportunity. Right. So, this was really a covid deal. So, I met with Glen Taylor on a Wednesday. On a Monday he had a meeting and he said to an investor who wanted to buy the team who's 20 times richer than Mark and me. He said, now, remember, we just came eight months from trying to buy the Mets. Right. And we fell on our face. Thank God to Steve Cohen, who loves the Mets and is doing an incredible job with them. Right. Phenomenal. And because of that door shut, we were kind of bummed out for five or six months. Then the phone rang because they knew that we had raised $2.4 billion. Okay. Now, Steve Cohen, he can just write a check, right? And he wrote a check for $2.45 billion. So, 50 million bucks, Thank God. Thank God.
So, we end up in Glen Taylor, one of the greatest men around, in his mid-eighties, Harvard Business School as well. And he had an envelope and in the envelope he passed it over, is in his house in Naples. And he said the number is $1.5 billion. That's not negotiable. We got to listen right? $1.5 billion. Non-negotiable. The terms are. I'm a real estate guy and I know terms. Right. So, I said, Okay. He had given the same deal to a guy on Monday. That guy on Monday came back on Thursday and said, I'll give you $1.4B as is. At the meeting we call him back and we say we'll take 1.5. I said, would you give me four years to pay it off? And he goes, “Well, you listen to instructions.” Yes. I said, Would you do 2%? He said, No, I do it at 5%. I said, we should do it at 4%. And we shook hands. And the point is that that person that was going to buy the team for $1.5B ended up paying $3.5 billion. Just a few months later for another team. Right. So why were we able to acquire that deal? Because if you think about the previous 12, you had the NBA. I don't know if you guys remember the bubble in Disney where you had empty arenas everywhere in the middle of COVID. And I was in the last three months or three years, and we struck a deal. We shook hands. And, you know, so far so good.
Willy Walker: So, I know that your friend Jerry Jones, as well as Bob Kraft, said to you, if you're going to be a major sports team owner, you can't treat it as a hobby. So, to your Monument investors, how are they secure that Alex Rodriguez's attention is going to stay on Monument and not just on the Timberwolves?
Alex Rodriguez (A-Rod): Yeah, because when I'm out there, I'm out there representing all of us, right? I mean, when I go out and find great deals when I travel, we've got a beautiful portfolio in Minnesota. Obviously, Stuart has a big background in Minnesota. I'm out there always hunting for opportunities for all of us. Like what I just told you about this deal in Homestead right. 2004 for construction. That's a wonderful deal. We're going to get that deal done. And we think we can put $50 million of equity pretty quickly to work. But it's only going to be here for two years, right? Because then you guys come back and play, and they don't need us as much. So, I think I'm always looking for opportunities. I look into the world and I'm saying, how can we add value to this proposition? And I think the Timberwolves enhance the opportunity for everyone here. Because when you own these franchises, you get to connect with so many people. So much information. I sit there in the NBA board meetings, and I look to my left and I see Steve Ballmer. He's worth over $100 billion. You see Mark Cuban. You see Jim Dolan. You see Jeanie Buss, daughter of the great Dr. Buss. And I'm saying like, what the hell am I doing in this room?
Willy Walker: We know why you're in that room.
Alex Rodriguez (A-Rod): No, I'm still the kid that has food stamps in Miami. Right here in Kendall. Right.
Willy Walker: So, to that one of the things that I find to be really interesting as it relates to your overall outlook on the way that you run Monument is - your first duplex you invested in when you were in Major League Baseball. I think the down payment was 46,000 or 48,000 bucks. And instead of going into your savings account to put that money down, you took the watch off your wrist, and you basically sold the watch and took that money to do the down payment.
Alex Rodriguez (A-Rod): Yeah.
Willy Walker: You had it. You had a banking account that had $46,000 times many multiples in it. Why don't you just go on the account and do that rather than sell the watch?
Alex Rodriguez (A-Rod): I didn’t want to go into my savings. But my boy, Pepe, you know, Miami, First thing I did when I signed a contract, I did three things. I'm 17 years old. I got drafted by the Seattle Mariners. Furthest place away from Miami. I'm like, Ah, you gotta be kidding me. Obviously, I buy my mom a house.
Willy Walker: Which she's been in for 26 years.
Alex Rodriguez (A-Rod): She's still there. Yeah. I got to buy myself a car. I bought myself a Jeep Cherokee, and we're from Miami, so I had to buy a Rolex. Right. So, when I found this investment, I called my boy Pepe, and he said, Oh, I can move that in the market quickly, you know, so. So, Pepe sold it then. Then I did a little car show, car signing, and I raised a little capital. That was my way of raising capital. My whole piece was my signature.
Willy Walker: I wonder whether the person who bought that Rolex, Pepe, knows that it was his first Rolex because it's got a lot more value today than it did.
Alex Rodriguez (A-Rod): He probably didn't sell it. He probably still owns it. Knowing Pepe the way we do.
But I know we're closing. But I do want to close with one thing. You know, I think he talked about distractions and then I'll give you the final word and maybe ask a couple of questions. If you guys, as you get ready for the Miami Heat game. I want to get a little serious with something that I think we all have a responsibility as people. And I see Nellie here. She has so many great people that I grew up with here, and I thank you all for your support. But there's so much noise in the world today, Willy. When I travel the world, I hear so much nonsense with blue and red, and I think we have to remember that we live in the greatest country in the world, thank God. I mean, I think about my mom. I collected food stamps, and it changed my life and I love it. And I said, Oh, crap, I got it. I better get going because mom needs my help.
And this is all about red, white, and blue, right? We have to wear that United States jersey all the time. We have to have pride. We have to listen to each other. We have to be respectful. The biggest problem this country has today, it starts with our children and the social media nonsense. It has a self-esteem problem. And if we can think about how we help our children and how we help our team, if you're a leader of your company, you have yours, I have mine. We can go out and turbocharge and help the self-esteem of our team and make them feel better about themselves. And then they believe in what we believe in is our vision or cap. And our people sign up to it. I think the company would do things for our children that they didn't even believe in.
At 15 years old, Rich Hoffman said to me after I was cut from Columbus High School where Pepe and my nephew Nic went, and I was just a torn little six foot one, 155 lbs. That's when I met Erin at Westminster Christian. And Rich Hoffman said to me (and I'll never forget this) Havy, you know, where the pool is, left field at Westminster. I'm sitting there and I'm nervous about meeting like John Wooden and Rich Hoffman is like, bigger than life. He's been there 35 years. He's got all the championships, He's got the great tan, the great hair. And he says, Alex, here's what's going to happen. You're going to come in your sophomore year. You're going to be okay this year because I was playing more basketball, right? And I was just kind of getting my feet back under me. Then I was playing baseball full time. In your sophomore year, you're going to be okay. You're going to be okay. Then you're going to go to the junior Olympic team and you're going to be one of the best uprising juniors. I said, okay, I'm still with you. And then he said, And then your senior year, because you play football, you get really strong and then you're going to be the number one pick in the country. And I said: “Coach, you're talking to me or you're talking to someone in the pool behind me?” He was serious, he said that’s what’s gonna happen to you. And I went home that day, remembering my dad left when I was ten. At 15, the most important man in my life was Coach Hoffman. And I had to get his approval. I was on a scholarship, and I went home that day and I said. I believe I can do this. My self-esteem all of a sudden rose and I said, Here's a powerful man that believes in me. And every day from that day to today. My goal was never to let Coach Hoffman down.
So, my point is, when you're out there in the world, there's a lot of positivity. Think of ways you can enhance people's day. People committed suicide all the time. Positivity is important. We can always find negativity. That's the easy thing to do. But how can you enhance it? How can you bring Raines your young man, you know this. How can you make people's lives better? And I just wanted to share that because it was important. (Applause)
Time for maybe one or two. Any questions from anybody?
Guest: The cost of credit in real estate, how big of a contributing factor, it's not so much the leverage of the rate, the volatility in the rate. And are you concerned that when interest rates hit the ___ or stabilizes that the volatility of the rates, because it's a very volatile environment, is able to reduce the cost or reduce the availability of credit, increase the cost of credit and even outpace inflation and outpace the wage increases we've seen and ultimately leading to the ability to raise rates?
Willy Walker: So, the first thing we need is stability. So, what we've seen in 2023 is that in February, when the ten year went down to about 350, cap rates hadn't really adjusted that much, but we still saw people from a refi standpoint of the 350 Treasury who wanted to go do an agency loan in multifamily in the low fives. And so, we had quite a bit of activity. And then all of a sudden at the beginning of March before SVB and Signature went under, the ten year, as you may recall, floated up, it went from 350 up to about 410. Well, in that environment, whether you're just refi-ing an asset or whether you're going to buy an asset, you're doing it with like a 6% all in interest rate on it and your asset is at a 475 cap rate either on a buy or on a refi. And you say, I don't really like that. So, the only people who were in the market were forced to do it. There was no one putting properties on the market, what have you. And then all of a sudden SVB and Signature fail, ten years comes crashing back down. It got down to 335 two weeks ago, and the amount of business we did over the last month is enormous. Enormous. Because of exactly that. The bid/ask spread on acquisitions came in, cap rates had moved up and financing stayed stable.
And then in the last week and a half, two weeks, we've seen the ten-year float back up. So exactly to your point, what I would call it is a tenuous market. It's a tenuous market. But I would also underscore the fact that Fannie and Freddie have the authority to put $150 billion of debt capital into this market gives every - I was giving a speech in Chicago on Monday, to a big, diverse group of people who all owned all sorts of asset classes, office, retail and multifamily. And I asked the crowd, how many of you who own non-multi wish you had the agencies lending in your market? Everyone's like arm up. So, the role of the agency is to provide liquidity to multifamily is just such a huge benefit, such a huge benefit because they're going to be there. So, you sit there, and you sort of say to yourself, okay, let's just say you have the Fed wants to get to five and a half percent unemployment. We're at 3.4 today. That's 3.4 million jobs. So, the Fed wants us to shed 3.4 million jobs. First of all, I think that's ridiculous. Like, why would we ever want to have people lose their jobs? But beyond just the theory of we need to get to one in unemployment levels, if you did that, okay, that says that you're going to have declining fundamentals in multifamily, not a great acquisition market to go put an asset onto the market, but you are going to have declining interest rates at that point. So, the refi of the loans that they have in place can all happen. It can flow because of the role of the agencies in every single other commercial real estate asset class, spreads will gap out and you won't be able to have it work.
So, I would just underscore thats exactly what you said is going to happen to non-multi if you get into a recessionary economy, it's declining fundamentals. It might be a lower interest rate, but spreads are going to gap. The role the agencies play, keep those spreads in. Right now, we're 200 to 300 basis points inside of any other commercial real estate asset class on cap rates and on financing cost. That's a massive tailwind to multifamily.
The one other thing I would say as far as long term, 40% to 50% of American homeowners refi their home loan between 2021-2023, and they locked in an interest rate of somewhere between 2-3%. Okay. They are not going to sell that house, period. End of statement. So, they put a 30-year fixed rate mortgage between 2-3% on the house. On the average home in America, which is a $350,000 home, that's somewhere between $5,000 and $7,000 a year of disposable income that that owner now has that will go away like that and actually go down if they sell the house and have to go buy somewhere else and refi at a 7% mortgage, they will never put that. Not ever. They will not put that house on the market.
So, the existing stock isn't going to be put on the market to be bought, which means that the only thing that's going to be supplying new houses to the market is new builds and Toll Brothers that was up today by 3% and Lennar Homes it's based here in Miami. They're all building homes between $450,000 and $650,000. Why? Because it's hard to entitle land, because construction costs have gone up and because there's a huge market to $400,000 to $600,000 homes, which means the entry level market of single-family homes is not going to be supplied with either new or existing stock, which means that renters in their properties can't move. And what does that mean? Occupancy stays high and rents can move.
So, all of the movements that the Fed's trying to do right now to get inflation under pressure - to anyone in this room who rents, I hate to tell you, but they're going to repeat the exact problem that we have today two years from now, because there's going to be no new supply. There's going to be no inventory of single-family homes for people to get out of multifamily to move in there. And there are no shovels going in the ground because of the banking crisis. So there's not going to be new inventory of multi, which is why a lot of our clients today are buying assets with negative leverage because they see that opportunity two years from now and they're like, I'm happy to have 50 basis points of negative leverage today because I know if I buy that asset today, I'm going to be able to push rents two years from now.
Alex Rodriguez (A-Rod): How much equity do you need in a negative like that? 30, 40%?
Willy Walker: Well, I mean, like we did a five-year fixed rate loan last week at 53% LTV. But the two that I talked about today, Alex, were 65% LTV. The whole issue on the agencies is because of the financial crisis. They learned that you shouldn't be an LTV lender, you should be a debt service cover lender. So, the only thing that matters is you've got a 1 to 5 debt service cover.
Alex Rodriguez (A-Rod): And as a strategy, in two years, when things get settled to refi, some of that equity out?
Willy Walker: Well, so there you can clearly do that, and you can put supplementals onto it. Once you have inflated up your rent rolls and then you go put a supplement on it and take it back. As Stuart talked about you guys doing a lot of your deals where you did a refi and pulled out the capital and returned it to your investors. So, I just think that the long-term outlook for multi is just so solid. And I would start with the fact that it's going to maintain liquidity throughout however long this quote unquote, if you want to call this a crisis, tightening cycle, whatever you want to call it, the presence of the agencies is such a tailwind to multi.
Guest: I think as an equity focused investor, I've underestimated the importance and the impact.
Willy Walker: It's super important. We have a lot of clients who own both multi as well as non-multi, either refi-ing or selling multi to create liquidity for their other assets. So, I'll give you one quick anecdote on it. We have a client in the greater DC area. They built a class A multi building for $280 million. They asked us to refinance them out of their construction loan. In the process of us underwriting at a 280 value. They hired one of our competitor firms to go out and get a broker's opinion of value on the asset. They came back and said it was 260. So, we're sitting there going, Well, they're never going to sell it for 260 because they built it for 280. So, we're going to get this refi. They call us up and say we're selling it for 250. Okay. We're like, why would you do that? Well, because they've got a big office portfolio and they need 100 cent dollars on a 250 sale rather than 60 cent dollars on a 280 refi. Now, fortunately for us, we're financing the buy. So, we'll still put up the capital on the buy. But the bottom line is that someone who has office exposure harvesting out of their multi that has liquidity and put it in there, which is one of the reasons we're seeing deal flow in the multi space today, whether it's the B-REIT and S-REIT that are selling because of redemptions or someone who has a diverse portfolio that needs to sell a refi on the multi to shore up things on the other side.
Alex Rodriguez (A-Rod): Willy, I want to say thank you. We're going to go upstairs, have a couple of drinks, but just want to give a nice round of applause for Willy Walker. Thank you, guys.
