Beyond the building with Rob Finlay, founder and CEO of Thirty Capital
Willy Walker: Good afternoon, everybody. It is a real pleasure to have my friend Rob Finlay join me today, to talk about his book, “Beyond the Building,” the commercial real estate industry, data technology and a whole lot of other things. Rob, let me do a quick intro and then we will dive into our discussion.
Rob Finlay grew up in a commercial real estate family. His father and grandfather were both in the business and as it happens in many small family businesses, he, his brother and his mom all gravitated towards commercial real estate. By the time Rob was 25, he'd held nearly every job in commercial real estate. He'd leased it, he'd sold it, he'd managed it, he'd developed it. He'd been an onsite superintendent pouring concrete. He'd financed it, there aren’t a lot of things in the industry that Rob hasn't done at some point.
Rob has spent more than two decades bridging the gap between innovation and technology to push the boundaries of commercial real estate. And we'll get into some details about those moves in his career in a moment. He has a unique and long standing position in the industry that allows him to observe the best CRE operators and entrepreneurs and understands what makes them successful and also what doesn't work.
Rob formed Thirty Capital in 2019, which is a proptech incubator and accelerator which currently is invested in ten technology platforms.
Rob, you start “Beyond the Building” stating that the book is for commercial real estate operators and investors, and you state, “If you don't look beyond the building, you're going to get left behind.” How and why?
Rob Finlay: Well, first, Willy, I've known you for a while and we've always had fun skiing and enjoying time with each other. But I'll tell you, I'm really humbled and honored to be here today. So this is, for me, such a big deal. First of all, thank you very much for having me.
As we talk about “Beyond the Building,” and if you're not paying attention to what's going on, you're going to be left behind. It really is all about focusing and being aware, taking the inputs around you and making sure that you can process and be open to those inputs so that you aren't left behind, that you're not going to be out of business. I think you look at everybody right now, they're struggling with either something that's going on in the real estate market and they're focused on it, and they've got to be so micro focused that sometimes they forget some of the opportunities around them.
Willy Walker: So let's take that and back up a little bit to when you were at Deutsche Bank (DB), and you're at Deutsche Bank you've originated a loan when you were at Credit Suisse. It was a loan that needed to be defeased. Your client from Credit Suisse calls you at DB and is super frustrated and says, I don't understand how to defease it. How the process works and there's no transparency to actual defeasance. And because of that call and because of the frustration you sensed with your customer, you said there's a business to be built around defeasance.
For a moment, a lot of us have ideas about things we see in the marketplace that said, oh, if I had all the time in the world and all the money in the world, I'd jump out and go solve that problem. It's the kind of entrepreneur that sits to some degree in everybody. But very few people actually have the wherewithal to say, I'm going to drop a good job at Deutsche Bank and jump out and go do it. Take us back to that moment when you're sitting at your second job on Wall Street. You've been successful. You know you've got a good career in front of you if you just sit where you are. What was it that said to you, I've got to jump out of an investment bank and go follow this opportunity?
Rob Finlay: Well, first of all, just for clarification, was my third. You know, I started with Lehman Brothers, went to a Credit Suisse, and then I was with Deutsche Bank. And quite frankly, you and I have talked about this before, in part of the book, I don't have a graduate degree. I didn't go to Harvard or Yale. I had an undergraduate degree. And I realized that, the growth prospects for me in that kind of work environment just wasn't there. And quite frankly, not being in a family with commercial real estate owners and operators as well as sort of entrepreneurs, it's really hard to work for somebody. And so picture this in ‘99, 29 years old, I think I'm the smartest guy in the world. I shouldn't be working for anybody. And I get this call and yeah, there's a time where you say, hey, am I going to go and do this? And I think sometimes being young, maybe a little naive, maybe not thinking about all the risks – it's the time to do it. And that's what happened. I felt like at this point I needed to do it. It was something that was just so in me that I had to do it. I had to just say, forget it, I'm going to risk everything. I'm going to put my family's life in jeopardy. I mortgaged the house, mortgaged the cars. Got rid of my 401K. I did all of this stuff just so I can try to start this business. And, yeah, very fortunate, it worked out.
Willy Walker: Well. Yeah, it worked out. Where did the slogan “Defease With Ease” come from Rob?
Rob Finlay: We wanted to have some fun, and there's some debate on who takes credit for it. So, I go from everybody from my brother who's also in commercial real estate. Some of the people that I was working with, but we were trying to have some fun with this. Because it's defeasance. Nobody knows what it is, but everybody knows it's this complex process. So this was in 2000.
So we were throwing around slogans like “we make it defeasy!” like that. And then finally somebody came up in the room and there's probably a few beers involved in this, but it was basically just said, why not just make it simple? “Defease With Ease” and that was it. And it sort of stuck.
The hard part about it, though, was we actually to this day, people know us “Defease With Ease” or Commercial Defeasance, because the actual legal name of the company is actually Commercial Defeasance, because I didn't think I could go and sell defeasance services on Wall Street to these big shops with the companies called the “Defease With Ease.” So it became our slogan.
But I've been to a conference and people are like, oh, you’re Commercial Defeasance. And, you know what? Actually, we really like using those “Defease With Ease” guys. And so we just turn around and say, yeah, well, you should, they're really good. You should keep on using them.
Willy Walker: So you sold Commercial Defeasance to Summit Partners. I find it interesting that you sold it to a late stage venture capital firm, and not, if you will, an industry player who could leverage off of the client base that you had on using the technology. As you were thinking about either recapitalizing the company, continuing to grow the company on your own or selling it, why did you end up selling it to a venture capital firm rather than an industry player?
Rob Finlay: First thing's first, right? Think about this now at this point. I've been in this business, 35, 36 years old, every bit of money, every bit of my life, my being, everything I had was that business. And I traveled 400 hours a year on planes, I was constantly involved. When your sole asset is this one thing, you start to get nervous.
Now, I've also been very fortunate that I do look at other things and other signs. I'm not just focused on the defeasance world but starting to just see this business ramp and ramp and ramp, seeing some trends in the market where lending might be a little bit more open. Some deals might be getting done that are a little more aggressive. You start to look back and say, this is sort of reminiscent of an overblown market. Maybe I should put some chips off the table, maybe I should take some off. So I went out and once again and just not knowing I was one step up from a business broker. So yeah, you go to these guys and I didn't even think about going to Goldman Sachs or one of these big shops.
I went to this business broker and said, hey, can you help me sell my business? He basically pitched it out to a bunch of people. Ultimately, there were private equity firms. And I think Summit looked at this as an opportunity to take a foundation business that was rapid growth because Summit was into rapid growth and perhaps build off on it, use their financial infrastructure and their ability to create alpha and take this business and grow it to the next level.
Willy Walker: And interestingly, your timing was impeccable as it relates to having done that sale in 2006. And you turn around and after the GFC, go back and invest back in Commercial Defeasance, buy 50% of it. And then that really is sort of the cornerstone investment that then last led to Thirty Capital. In that interim period, Rob, you went sort of back to hard assets. You did a bunch in the tax credit space and created tax credit asset management. You invested in a bunch of multifamily assets, after the GFC where values had come down significantly. If you hadn't been able to buy Commercial Defeasance back for the discount it was, from summit, do you think you would have gone back to the technology side or stayed on the hard asset side?
Rob Finlay: Probably both. I mean, quite frankly, Willy, I think the ultimate is combining the two, right? I mean, that's really the way we are in our business right now. I think one of the reasons why we've been successful is we are real estate practitioners. We understand hard assets. And so the technology that we develop and the technology that we invest in, supports commercial real estate owners and is used quickly.
In 2008 when I started TCAM Tax Credit Asset Management, it was because the market there was fractured. If you remember, back in that time, the syndicator market where they would buy these tax credits, these low income housing tax credits, at a certain point, aggregate them and sell them off. Well, that market was fractured because they get paid upfront and then rely on asset management over a period of time. So when that market, when the tax credits were being sold for much less than a dollar and these, these syndicators were starting to be fractured, that's where I saw it as an opportunity to do some financial engineering, to not only get into the position to acquire large portfolios of these structured products, but also the hard assets. And that's what started that and that became part of the foundation.
But buying those types of assets, along with what we were buying in 2009, 2010, the hard asset is just a great place to be, right? Everybody loves hard assets. And it's always quite frankly, it's always a lot easier to be the owner and to be selling to the owner. So back to that question, I probably would like to be sort of in the same boat, both hard in and technology.
Willy Walker: So in that as you in the book, you talk about differentiation, and one of the areas that you talk about differentiation is on data. But it feels like in our industry, a lot of people either say, I'm going to differentiate at the asset level. So that's going to be either it's going to be better amenities, it's going to be better management, it's going to be better unit layout, whatever the case might be. But they try to differentiate at the asset level. And then there are also people who differentiate on the data side of things of why they are buying a certain asset. It's sort of a data driven investment thesis, if you will.
I guess the core question I have for you is a) which is more challenging or difficult, and then b) which has greater returns because you've done both?
Rob Finlay: So the first thing first is I believe strongly and this is really what the book is about, is that in many cases, the real estate owner and operator takes it from a bottom up approach, right? We look at our properties, and every year we do our budgets and we look at each individual thing. We look at occupancy, and we don't think about the company as a whole, the operating company.
In the book, I'm challenging people and I'm giving them a framework to take a top down approach, because I think by taking a top down approach is really the only way that you're going to create alpha in the entire organization, because it's the things that you have to do at an organizational level that is going to provide real impact to the property and to all of your investments.
So, for example, we talk about leadership and we talk about data, and we talk about innovation, employees and OKRs and all these things. These are corporate levels. In order for you to really maximize and create alpha at the asset and entity level. So back to your question. So which ones are harder?
Willy Walker: Which one is harder than which one has better returns?
Rob Finlay: I think clearly having it at an organizational level will have clearer returns, because you're solving the problem and you're flowing it down, as opposed to looking at individual assets and trying to build them up. It's a very hard way to operate a business. And if you look at a lot of the organizations and a lot of businesses, you and I have been very blessed these last years where part of our job is to go out and meet customers. We get to meet people. We get to advise people, but we get to listen to them and we get to listen to their stories and really understand their organizations. And if you look at some of these organizations -- we can walk into them and we know that's really smart, that's creative, that's different. And by doing that, I think you can look at those ones that do it at an organizational level. They're creating the OKRs at an organizational level. They're data forward. They're innovative forward. Their leadership is there. Those are the companies that quite frankly, I want to invest with. And quite frankly, you can see they are outperforming the market.
Willy Walker: Talk about data a little bit further though, because in the book you talk about a PWC study that says that those companies that are, if you will, data informed, use data, are three times better at decision making than those that don't. I think a lot of people get tripped up a little bit in am I using data. Like a lot of people think that they make really good decisions. So they can't sit there and say, I'm going to get 3X better decisions by investing in this data strategy. Whereas I think a lot of people also look at data of unless it's going to make money for me, unless I can go sell that data, unless it creates some new revenue stream for me. Why am I going to invest in it?
Help for a moment Rob, talk about like if you will, baby steps before you go to big leaps because you've gone all in on data. You've created companies around data and commercialized data, but very few people who are on the operating side of the business are sitting there saying, I own assets, and I'm going to create some offshoot data company that I'm going to monetize. And without that as a prospect, they then may not invest in a data strategy.
Rob Finlay: Sure. Well, let's separate it. First, let's talk about data and then let's talk about innovation. Because I think we use them sort of interchangeably. And I probably incorrectly so do that in the book, because I believe they're separate.
Think about data. Everybody has data. And I use this analogy and especially for you because everybody who knows you knows that you're this tremendous athlete, you're riding and running. Think about data like oxygen. Think about the way that we consume data as your lungs. Your lungs are very trained. They're powerful. You can ingest oxygen and use it better than somebody like me who doesn't do the biking and the running and all the stuff that you do. And I think that's the way that people need to look at these organizations, that they have data all around them. They do make decisions off of data, but to effectively have a strategy around data doesn't necessarily involve a huge undertaking, a huge investment in a data strategy.
So to be clear on that point, you make decisions that are based upon either artificial intelligence, business intelligence, or human intelligence. You're using some component of data to make those decisions. It's where on the spectrum do you want to be to make those decisions? How comfortable do you want to be making those decisions? Why do you think back to when I first wanted to go on Wall Street back in the 80s and you watched early programs where the Bloomberg terminal hadn't quite existed yet, right? So you still had runners. I was applying for jobs where I wanted to be a trader, and guys were on the phone, and they would sit there and they'd be calling down to their desk and they'd be these runners doing this stuff. Nowadays you go to a trading floor and there's guys with 35 screens up in front of them because it's data. Could you imagine if you wanted to go into an investment with somebody and said, hey, you know what? This guy's using his red marker and doesn't use any data sources whatsoever, versus, oh, I want to go to somebody who actually uses data and looks at stuff.
Even Peter Linneman, he was on your show a little while ago. He's like, why didn't people see this happening? People weren't looking at data, right? I mean, the data is around us. It's critical. You can consume it, you can use the data for the way you want it, but be advised if you're not using data, you're going to be out of business. I don't care. Blockbuster. It's like, look at data. People want streaming now. People want to come to the store. These people want to guess if the video is there. You can go through all these examples. So to your earlier question like, hey, be left behind. Now in particular, is a true and absolute visualization of those who know what they're doing and those who don't know what they're doing, because the market is the way it is.
Willy Walker: So go back to when you were building Trader Tool and the opportunity to buy Tableau, because I think that in the book you describe why you didn't buy Tableau. And I think it's very applicable, if you will, to what you just said as it relates to the use of data.
Rob Finlay: Yeah. Well, so that once again, it comes down to the usage of data. Data is this anomaly. I think and unfortunately, we all get trapped in it. And I did that story about Tableau. And for those who haven't read the book yet, it was basically, we had this big data warehouse. I wanted to take this data and apply it to other things that I had. And so I bought this business intelligence tool, which is going to synthesize all this data and give me great decision making capabilities. Unfortunately, data, if it's not organized, is useless. It's just scrambled stuff.
And no matter what kind of technology you have, AI, BI – whatever without having structured data, you won't be able to enjoy the benefits of having these data driven decisions. And that's why I come back in the book. I'm like, look, don't want to have a huge data warehouse? That's fine. Don't worry about it. But you need to start somewhere. And understanding the data that you have that you've created is an asset, because you're going to be comparing yourself to people who are using data, who are making decisions off of data.
Willy Walker: Let’s just say that somebody hasn't read the book and doesn't really have a data strategy in place today. Talk for a moment about the operating data, OKRs, KPIs, things of that nature which make people better at running their business and making decisions versus, I'm going to use this data to be a more savvy investor. I'm going to find value where others can't find value or go to the ultimate, which is I'm going to commercialize this data and actually make money off of it. But talk about if you're sitting there right now saying, I've got to create a data strategy, which one of those three, if you will, areas would you first invest in and how does somebody kind of frame it to get moving on it?
Rob Finlay: I think the first most important thing is this all starts at the top. An organization's decision to become more innovative and data centric has to start at the top. Let's get the third one out of the way. If you have this idea that you are going to create a data platform and you're going to be able to monetize that data platform, go, spend your time. Go do something else. I promise you, you are better off. Go buy a big boat, go buy a big plane, quite frankly because that's what you're going to spend in order to go do that. So you figure out what you want.
So look at the two in between then. The first one was, hey, do I start this data strategy or how do I start this data strategy, and then what do I do with it? And I think that comes down to the first part. Leadership – understanding and the direction. And that comes down to these OKRs. What do you really want to do in your organization? Where do you set your North Star? Where do you set your goals and where do you want to be as a company? And where is the leader going to take you to that company? And the data strategy is around that direction. So to me, a company without a data plan or without OKRs, without strategy is basically leaderless. And really is going to be out of business or not going to create alpha.
Willy Walker: And is there any size or scale, Rob that one has to be to create a data strategy? One of the things I thought was really interesting in one of the suggestions in the book, was that you suggest that in senior management of any firm, you have two sort of new people in that senior executive ranks, which is one is someone who is managing data or a data manager, and the other one is a client engagement leader. Talk about those two adds that a lot of org charts, quite honestly, don't have today?
Rob Finlay: Yeah. Well, you can go through almost any commercial real estate organization. You go look at their org chart, you’ve got your head guy, and then you've got your acquisitions, you've got your operations, and you've got your finance. The two positions that we talk about adding are really data for data strategy. And somebody who's engagement, and really understanding your customer. Because that's just as important for the organization for long term value.
If you get to the data side, having somebody there who's focused and it doesn't need to be their full time job, right? So if you're a smaller organization, focus on what you can achieve with the dollars that you have.
So yeah, I have a sidebar in the book. You don't need a data scientist. Somebody says, I need a data scientist. You don't. You need somebody who's going to be able to collect. And maybe you're early on and you collect data and you visualize it through Excel. You collect data but understanding that there's value there as you go along the spectrum, as your company size grows and as the return that you want to have, your investment will have to be picked. Ultimately, you're going to need to have a database. You're going to need to have a centralized place for data. You're going to need to have tools to be able to visualize and analyze that data. And you're going to have tools that are going to be able to make sure that that data stays fresh and current. Those are investments – absolutely.
But I guarantee you that those investments will pale in comparison to the return that you're going to get and increase in value and increase in not only value of the assets but increase in the enterprise value and the way that your investors and other people are going to see you.
Willy Walker: AI is obviously a big issue today. I listened to an interview with Marc Benioff last night on CNBC talking about Salesforce and what Salesforce is doing to compete with Microsoft and others and AI. There are a lot of people who sort of say, I don't really know what to do there. Do I have to invest? I mean, if you want to build your own AI tools, good luck competing against Microsoft. At the same time to sit around and wait for an off the shelf tool from a Microsoft that allows you to actually manipulate your data and use AI is something that a lot of people are sort of saying, do I jump in? Do I stay out? What do I do? So at this point where the technology is still being developed, and where there is so much focus on it and people sort of feel like if I'm not doing something there, I'm getting left behind. But at the same time, the dollars to actually play in that space are so big. What do you suggest people do at this point in time as it relates to AI?
Rob Finlay: AI is a buzzword. Just like years ago, there was BI, right? And so it's interesting. To put this to an analogy, I'm a local developer here in Charlotte. I bought a couple of single family homes that I rent. You know what? I think I'm going to go compete against Greystar, and I'm going to go start buying, I'm going to raise a $5 billion fund, and I'm just going to go and buy and operate 300 unit Class-A multis in the urban core. Well, that's a big jump, right? You've missed the steps along the way. So I've gone from a couple single family home rentals to a big scale. That's sort of what that discussion is, right?
So AI, there's a couple parts of it. One, if you don't understand AI and you don't understand ChatGPT and understand sort of the benefit of it, you should – because it's going to be incredibly impactful and is impactful now. If you think it's going to change, make you smarter, and do better things in your business? That's not going to happen right now. So what you need to think about as an organization, if you think about the data cycle, the way that we believe in data and the way I believe in the data cycle is if you take on a high level, you have artificial intelligence (AI), you have business intelligence (BI), and then you have human intelligence, (HI) right? Each one of those platforms makes a data and intelligence strategy capable.
Right now, there's the availability for people to have BI and HI. But it comes back to the same thing you need to have at first, you need to have the data in order for you to make any decision before you can even have BI or even HI, you still need to have the data. And that's sort of the biggest part. That's the biggest challenge that I've had in my job in the last few years, as we've started to talk more about data strategy to organizations. We sell data warehouses and we make a commercial real estate data warehouse and we go to people that are like, why do I need this? I don't need this, I don't need this.
It reminds me a lot of 2015 when I started a company called IMS - Investor Management Services. This was when the JOBS Act just came out and people were like, hey, now retail investors can get into syndicating and people can now syndicate to retail investors and have these retail investors. So we started this software to help real estate owners manage retail investors. I went around the country talking about this to our clients, and the majority of them said, why would I want retail investors? They're a pain in the ass. They're a pain. Why do I want them? They always want data. They always want this stuff and all that. And all of those companies now have turned around seven years later, and are like, how do I get retail investors? They have gone and say now they really want these retail investors because the institutional investors have dried up or if they've gone after different things or it's too competitive or their deal structures. It's the same approach now. You need to be thinking to be innovative, you need to be forward looking. If you want to create alpha in your organization, you need to look beyond the building, around the corner, and you need to look at data as a true asset, as one of the biggest assets that you have.
Willy Walker: So you mentioned just two amazing firms, Greystar and Cortland, as you were talking about going from owning a couple single family rental properties to actually owning a big apartment building. Without saying, you said sort of good luck competing with those two behemoths because they got more data and more scale than someone who's just converting from being a small player.
One of the things, Rob, that I think a lot of our clients struggle with is that the BI the business intelligence data set is somewhat ubiquitous and somewhat, well, everyone can access it. Everyone can go buy CoStar data. Everyone can go buy Trepp data. Everyone can go, and I'm leaving some people out of there, but they can go buy. They can use Yardi to manage their rent. It's the competitive landscape as it relates to business intelligence of third party data, which those data providers obviously have access to more data streams than anybody else, maybe the BREIT and Greystar have as much access to data as CoStar or Trepp does. But the point being is that most people are using the same business intelligence feeds to make those business decisions. And therefore, how do you create Alpha when everyone's getting data from essentially the same sources?
Rob Finlay: So first of all, I would challenge you, I think the sources that you mentioned, I think if you look at the customer base of those organizations, probably the majority of them are on the acquisition or origination side. How many of those organizations actually take their own operating data and compare and benchmark their own operating data, trend and forecast triage and work with inside their own data. I think you would find that that number is much smaller, because it's not as easy to take your own data and organize it, standardize it on a daily, monthly basis. It's a lot easier to go and have your analysts do a CoStar report or do a Yardi matrix reporting and give you these ten properties in this market. And that's where the challenge is: it’s not easy to create your own data strategy. It's not the hardest thing in the world, but it is critical.
And so I come back to that a lot of these organizations, with the exception of the two that we just mentioned, Greystar and Cortland, I know for a fact take their own data and manage their own data first, then make decisions based upon other data sources. Because once you start getting and you talked about CoStar and that's just real estate data. What about census data? What about traffic? What about Wi-Fi data? What about cell phone data? All the other stuff that comes into it. It's going to create incredibly powerful analysis.
But quite frankly, we're still in the dark ages where we say, hey, you know what? I've got an analyst, I get my weekly traffic reports coming in. Okay, so I get it in from this report, in this report, in this report. So I'm going to make my analyst will go down and cut and paste from my property management reports. I'm going to cut, paste, and put them together. And I'm going to look at them – well that's what we're doing right now.
We're not taking advantage of the technology to take that data in one place, be able to visualize it, be able to forecast it, and quite frankly, be able to use it in different scenarios. And so being able to benchmark your properties next to other properties, will tell you right off the bat, to thine own self be true. Is it me or the market? A lot of people are coming in. Florida. Oh geez, Florida is horrible because my insurance is this and this and I can't do it. Well, wait a second, have you really benchmarked your property next to the five other properties in your market and realize that actually, not only is your insurance maybe the same as theirs, but maybe your repairs and maintenance is a lot higher than theirs? Maybe your payroll cost is double theirs, maybe your management fees? That's being able to really try and drill and find value in the data.
Willy Walker: So I hear that. And as someone who's scaled a small family owned company with the concept of ever competing against the CBRE or JLL was just a pipe dream 20 years ago to now competing with them every single day – I know what it's like to sit there and sort of say, well, they've got big brands and they've got lots of people and they've got access to data and they have the ability to invest in marketing in ways that we never, ever would.
I guess my question to you, Rob, is we've talked about these big companies that have lots of data flow. They have lots of assets to pull that data from. If I own five assets in Southern California, and I'm thinking about either moving to Northern California and buying some assets there or jumping over to Arizona and acquire there, how do you make that bridge without just going and using the commoditized data, which you've very clearly said, If you just have your analyst pulling that data from those sources, everyone else is. So how do you create alpha there? How do you differentiate if you don't have the data feeds that a Cortland or a Greystar have?
Rob Finlay: Sure. So let's go back and let's take this a little bit deeper. You're talking about acquisitions And acquisitions we saw in the last few years, hey do I go to this market and do I buy? Well quite frankly, you didn't need data for that. Market was so great and wonderful. What data would you need? Hey, I'm going to go to this market and I know that I'm going to put a couple new sinks in it and fix it up, put some paint and I'm going to be able to make my money.
Well, guess what? When the market is like it is right now where interest rates are driving. And by the way, hoping and waiting for interest rates to drop is not a legitimate strategy. That is not a good strategy. That will be a strategy which is going to put you out of business very quickly. So I look at this as creating alpha is not hoping that the interest rate market is. Creating alpha is being able to look at markets and look at financial markets and knowing that I'm properly optimizing my debt. But hoping that rates are going to change is not it. Looking at your operations: Am I as a company, are we set up to succeed? Do we have the right leadership in place? Do we have the right direction in place? Do we believe in the same thing? Do we believe in data and innovation? Do we have the right people on the bus? Do we understand our customers? That's where this is all about. Forget buying and selling. That's an acquisition thing. I want people to own properties who can't sell them right now because they're underwater, or people who don't want to buy because they can't understand the market. I want those people to look and say, wait a second, I've got a business here. This is for anybody who's an operations or asset manager, this is our time to rejoice. We are now the darling child of the real estate shop, not the acquisition people. And it's up to the decisions and the operations within an organization which are going to either save or crush the organizations that have bought properties in the last few years.
Willy Walker: So you mentioned leadership there, Rob. And chapter two in your book is all about leadership. Talk for a moment to leaders as it relates to how to either build the business strategy or all of those operating, there's both metrics as it relates to OKRs and KPIs and all that kind of stuff. There's vision. You go into quite some detail as it relates to the leadership to get you to exactly what you just talked about.
Rob Finlay: So it always starts with leadership, right? I mean, especially in these organizations. I think if you look at most organizations, most real estate shops, quite frankly, it's the head guy, right? It's the CEO there, the name on the door. They're the one. And maybe it's their partner where they are really the direction and they set the pulse for the entire organization. That direction needs to resonate, understanding, what that direction is needs to resonate through the whole entire organization. And so to me, without starting at leadership, everything else is a waste of time, right? If I just wanted to be in this business for, you know what? I just want to be here for a year and I want to be done. I want to do a couple deals and that's it. That's fine. That's your direction and that's your organization.
But If you, as a leader, want to build a business to create enterprise value, to build and scale, and do all these other things, then you need to have the organization understand exactly what the goal and the direction is. And that's why leadership is, quite frankly, so important. And it's the leader that is honestly is responsible, especially in these organizations. They're responsible for the make-or-break of it.
Willy Walker: So in the book you quote Sandeep Mathrani who went in to try and turn around WeWork, ended up leading. But the quote you used is: “Resistance to change is caused by arrogance and a lack of properly placed fear.” As I read that quote, Rob, which is a I think a very good quote, I sat there and said, yeah, but Sandeep was in a company that was literally faced with the fear of going out of business and still couldn't get the adoption of the people into a new way of thinking. Forget about his power of persuasion to turn the people around. The actual company was faced with the prospect of bankruptcy, and he still couldn't get that resistance to change out of someone like WeWork. So help me for a moment as someone sitting there saying, okay, I run an organization, I run a group right now. I've just heard what Rob has said, I've got to lead it. I got to set a data strategy. I got to figure out who my customer is and how we're going to satisfy that customer in ways that nobody else does, either at an asset level or even in your acquisition strategy level, or investor level. What's the impetus to change?
Rob Finlay: That really comes out. So first of all, when you think about WeWork for example, we're talking about innovation, right? They took a business model that's been around for a while and they changed the dynamics. So and quite frankly, if you look at the office market right now, I'd probably much rather be in temporary space than owning a big office building. It was probably the right direction.
But to go back to him facing change, every organization and as they get larger, the resistance to change becomes harder. And I think with these organizations and in particular setting the change, it's easy to do the things you've done before. It's always easy, right? I get my stuff. This is what I do. I use this system, I do this, I do this. It's absolutely hard to change. Understand that. As an entrepreneurial business, we're changing all the time. And we have to embrace that change. Without having set clear direction and without having buy-in, and that's what a lot of these OKRs do. And, you know, sort of that process of getting everybody bought in and aligned, that helps with that change. And you're not going to help change. You're not going to change everybody. And those people, unfortunately, you have to decide, is it worth the business or is it worth that person. And you have to make those changes. And that's hard. That's really hard to do because you might have the person who helped you get to this point, it could be that director of operations, who's been with you for 15 years, and they know exactly how to run that property, but they won't think outside the box. And that, unfortunately, is a very hard decision.
Do you want to change your organization, go to the next level, or do you want to keep on doing the things that you've done in the past? And I think you just have to look and say, hey, do I want to be like Kodak? Do I want to be like all these other groups? You don't have to look at it. You know, it's interesting though Willy, you mentioned something, it's about Walker & Dunlop, right? You started out at a certain point. You started when it was admittedly a smaller business, right? It was a regional player, great job, but nothing to where you are right now. If you look at the things that we're suggesting, like data and innovation, do you use data and innovation in your organization?
Willy Walker: A lot.
Rob Finlay: Do you use OKRs?
Willy Walker: Yep.
Rob Finlay: And leadership, we've already talked about it. I'm already on here, so I don't need to say it anymore. But you're a great leader, and you are mentioned in the book as being a great leader. Employees, do you train, embrace your employees? Do you motivate them and educate them? And do you have people in positions that maybe other shops don't?
Willy Walker: Yeah.
Rob Finlay: And then finally, customers. Do you know who all your customers are? Now, I'm not talking about individuals. Your customers, right? You have stockholders, you have boards, you have this group, and you have this group and this group. So know your customers. And these are the pinnacles of companies that go from here to here because they apply this framework. It's not rocket science. It's just executing on a plan.
Willy Walker: One of the things in the customer focus, because you just talked about me knowing our customers and really satisfying our customers, understanding what our customer needs are and having a data strategy that fits into that. You talk in the book about customer segmentation and creating customer personas. What do you mean by creating a customer persona?
Rob Finlay: So the first thing I do on all of this is who is your customer, right? I go to these companies all the time. Who's your customer? And you might hear, oh my tenants are my customers from this person. Or you might hear, my investors are my customers from this person. The bottom line is they are all your customers.
And in fact, the value of all your customers, I equate to that is your enterprise value, because that is the company value. Your customers are actually anybody and everyone that touches your organization, from your employees to your tenants, your residents, your advisors, your investors, your lenders, your attorneys, all of these people have an impact on the way that you do your business or more importantly, succeed.
So what we suggest is that you take a strong look at who is your customer, and then specifically understand the persona of who this customer is. So you’re an investor and you might have multiple personas, right? If you're a commercial real estate shop, you're a syndicator, a private equity firm. You have different personas, right? I have a family office that I have to go after. I go after doctors, I go after lawyers, I go after institutional investors. Whatever it is, you can build a persona. Who is that person that you're dealing with? And most importantly, what are their wants, their needs, and their fears? And if you can understand their wants, their needs, their fears, and you can provide the solution to those needs and wants and fears, and that will just make your life a heck of a lot easier. So if you know that you’re a family office investor, right, what do they want? They want great reporting transparency, all that other stuff. What are their wants? They want decent returns, but they want these other stuff. What are their fears? They don't want their money stolen, right? They don't want Bernie Madoff. They don't want that. So what do you do when you pitch? This is you know, we talked about this with what I thought was a typical pitch for, for investors, which was, hey, here are all these great pictures, here's all this great stuff, here's all this great narrative in this, this offering memorandum that, by the way, most investors don't read. But I'm going to put in really nice pictures and a really nice crest. But in reality, you're not speaking to that investor. You're not speaking to them. What's your fear? Your fear is losing money. Well let's talk about our transparency. Let's talk about the way that we are completely open. Look about our reporting. Look about our this and this, and here's our references. So it's all about just understanding who your customer is and being able to message to them and engage them appropriately.
Willy Walker: One of the things I thought was interesting, there, Rob, is you take that about creating personas and then you say, and then roll that into your brand messaging, your brand strategy. The challenge I see in that is, just as you said, there are different brand messages for different customers. So if I say one thing as it relates to let's just say hypothetically, I said it's all about shareholder returns at Walker & Dunlop. Well, I know that there's some mutual fund that owns W&D stock that is thrilled by hearing that, it's all about shareholder returns. I also may have an employee at Walker & Dunlop who says hang on a second. I want it to be about me. I want it to be about me as an employee of Walker & Dunlop. And so how do you consult companies to make sure that the brand messages that come out of the customer personas keep you, if you will, headed towards true North, which is what the company actually stands for overall?
Rob Finlay: Yeah. And that's obviously a skill set, right? That's a brand person who is well outside my skill set. But it does help these companies do this. I mean if you look at hotels have done a great job, right. They might have multiple brands because they have different segments. You have retail right, consumer goods. You have all of these different examples of this. But ultimately you can frame an organization.
Back to that point. Yes. Shareholder return. Well, guess what a good way to shareholder return is, happy employees. Low turnover. High employee scores. High employee promoter scores. Best Places to Work. People want to work here – that drives value. So if I invested in a company and they said, geez, I want to create shareholder value by creating the best place to work and the best customer service or whatever it is. That makes sense because smart enough to realize that they all have to work together. Back to my original point. Your enterprise value is your customer value, and your customers are everybody in the organization.
Willy Walker: You wrote an article recently for Entrepreneur Magazine titled, “Every Business Owner Needs an Exit Plan — It's Time You Develop Yours.” Talk for a moment about why every business owner needs to have an exit plan today, rather than when they turn 65?
Rob Finlay: Yeah, because they might not retire at 65, right? They want to stay on.
Willy Walker: Unfortunately, our politics in America don't have a forced retirement age at 65. But that's another commentary.
Rob Finlay: But I think in this case, Willy a lot of times, just understanding the psyche. You and I get to spend a lot of time with these CEOs, these people who run these real estate organizations and you think about what they're looking for, right? There's a point where, what am I doing this for? Am I doing this for my current lifestyle? Or am I doing this to really create something that I want to pass on to generations? And I think by understanding your exit plan sort of helps you set that direction of long term planning and long term goals. And I think by doing that, it sort of gives you first, it gives you an idea of where you want to go, but also it helps the organization know where you want to go and it helps you pick people. If I had a person where I said, you know what, I want to retire in five years and I'm going to be done. Well, the people I hire are probably going to be ones that want to take that role after I retire. It's not I'm not going to hire the people that want long term, stable jobs. They don't want to be in the top spot. So it's about finding the right people then to help you with that mission of exit.
Willy Walker: You also recently wrote an article as it relates to back-to-office and how to both get people back into the office and then retain employees. Talk for a moment about that. And I want to take that into office, because there was a big article in 60 Minutes last week that was talking all about the New York office and whether it ever comes back. I want to get into the specifics of that in a second, but for a moment, talk about the four, if you will, themes that you put into that article as it relates to what it is to create a vibrant work environment that makes it so people want to come back into the office.
Rob Finlay: Well, let's go right back to knowing your customers, right? Knowing your employees. And I think that the first thing is knowing your employees and what are they looking for? What makes them engaged? I think we're also going through this transformational shift of this hybrid, which I think is going to become the new norm. I think a lot of the employees want to have a place to work. They want to have some interactions, but then they also want to have the flexibility and freedom to go to do whatever they want to do and have their side hustle and do all that kind of stuff. So I think there's setting the level of one, to make it flexible for them. Make it engaging and exciting for them. Make it accessible to them. And then in some cases, reward them for being there and following through.
I think there's more of a challenge for us as an organization to manage dispersed reps. That's where the challenges really come. Because in the old days when I started Commercial Defeasance, it was guys in a room. Woke up, told them exactly what to do. I could hear all their phone calls. I could do all this stuff and that's the way we operated. Nowadays, I have people in Brazil. I have people in California, people all over the country like you do. And being able to manage them through technology and through innovation and products that help you sort of manage that business – that's what it's all about. And by the way, that does not keep on coming back and belaboring this data strategy, without consistent data flowing through the organization, you're never going to be successful if you all are working on the same sheet of paper, same data, same information – you might as well forget about it as well. Keep everybody in that little room.
Willy Walker: When you think about back to office, Scott Rechler of RXR did that 60 Minutes piece and sat there and said things are challenging and I can't remember what the number was of how much square footage RXR has in New York, but it's big. And then this week it comes out that Scott, RXR are raising a fund with Ares to go buy office in New York. So a little bit of, if you will, a countercyclical play.
What's your take on office today and whether that's a place to be poking around for opportunity or to stay away because the data tells you that we're not getting back to the office and leases aren't going to be signed?
Rob Finlay: Yeah. Office is a challenge, right? I think a lot of people could have forecasted interest rate movements. And I think that if people did do that, not everybody, obviously, but those are things that you can sort of understand and forecast. Covid, I don't think that's one of those anomalies. How does that happen? And so for office players in this dynamic shift, office I think, once again, I can't make generalities. I can't make general statements. I think there are opportunities in every asset class, every structure, every situation, there are always opportunities if you have the foundation to execute on them. If you can execute with it, you can survive. And as long as you have that execution plan in place.
Office is a big one. That it scares me, right? I like certain suburban office. I like certain suburban markets. But I'd be petrified to start buying a class B office building in New York. Then again, I probably would have never bought class B or class A office buildings in New York. But we owned a bunch of office. At one point, we had almost 1,000,000 sq ft of office in the northeast and a little bit of the southeast. Fortunately, we sold it, some before Covid, some after Covid, or repositioned some of it afterwards. But it's a very different animal. So I think for office, I think in certain markets, absolutely. But that's a tough one. Looking at those buildings behind you, I can almost see through them, right?
Willy Walker: Not quite, I think actually those two buildings behind me might actually be full but there's plenty of distress in the downtown Denver office space. But I mean, interestingly, a very big law firm just re-signed a lease at a building here in Denver called the Cash Register Building. And it sort of defies because it's sort of a B building and it defies what everyone's saying that big law firms need Class-A space. That article in 60 Minutes had One Vanderbilt as sort of everyone's going for that AAA plus building. And fortunately Walker & Dunlop’s New York headquarters are in One Vanderbilt and everyone on our team loves being there. There's very much of that play of a more Class-A space.
But to your point, the B's and the C's are the real question mark. And what do you do with it? And do you convert it, or do we get job growth that makes it so that people can't afford to pay what you would pay to be in One Vanderbilt and therefore they're forced to go to B or C class building. TBD.
On data, Rob, we're almost out of time here. As you look at the data today on multi, what's it telling you as it relates to the opportunities? And I asked that question with a very clear understanding and I am completely in agreement with you. People make these big broad brash statements as it relates to either population isn't growing fast enough to keep up with the amount of supply or whatever, and those big macro trends aren't would tell you whether buying an asset at the corner of Main and Main in Columbus, Ohio, is a smart investment or a bad investment, and so staying at the macro and not at the micro is very dangerous.
But as you sit there today and look at the dynamics in multi, what's telling you is this sort of the opportunity as it relates to either region, asset class, deals that are coming out of lease up and are going to be caught with a construction loan that they can't get out of because it's only leased 60% and they can't get permanent financing. What's that opportunity set you're looking at right now?
Rob Finlay: So I think the first thing first is, go back to that saying: “To thine own self be true.” Am I a really good operator? And I think without understanding that – the acquisition is the acquisition. I mean, acquisition horizons are acquisition horizons. Right? I can think I'm the smartest guy in the world because I bought a bunch of multis in 2009, 2010, 2011 and 2012. I'm the smartest guy around. But that's not the case. You have to understand, can you operate these properties proficiently and create value? Do you understand debt strategies in order to put the appropriate leverage based upon the perceived cash flows going forward? Are those the things that you're good at? And if you can answer that first, then you start the next step, which is okay, what markets do I look at and what strategies? I mean, quite frankly, I think the weather, the insurance I think there's so many headwinds that are coming into this market. But I think that makes it just even more exciting. I think that's where if you can answer the first question, are you a really good operator and really prove it – and there's ways to prove it, you can benchmark yourself against other properties in the market in terms of actual performance and figure out if you are better. If you are better, then go and look at these markets that are showing some job growth where people want to live, where it's affordable, right? I mean, that's our biggest problem quite frankly in multi, it's the affordability. You can't afford to live in these major metropolitan areas. You can't. So that's why kids are staying at home or they're living with each other. They're not moving out. So there are plenty of opportunities I think if you're structured you want to do preferred equity, like these rescue capital. There's a lot of ways to make money in this market. Just be smart about it and having a plan and an infrastructure in order to execute on it. Otherwise, it's a waste because if you're just dreaming like you were the last five years or so, you're in the wrong business.
Willy Walker: I have to tell you, I've loved every minute of this conversation. I think as I just asked you that question, I think one of the reasons that you are so successful is that a lot of people, it reminds me of business school Rob, where nobody really wanted to go to the HR class. Like we had classes on human resources and how to manage people, and everyone's like, oh God, I'm going to go snooze through that because they want to go to the finance class or the M&A class because it's sexy and it's big. And as long as the model says buy it, you go buy it, right? And you keep going back to if your strategy is to wait for interest rates to come down, you're going to miss this window of actually creating value long term. Peter Linneman said it when we were together three weeks ago. He said, you know, look, that's not an investment strategy. And by the way, on a seven year or a ten year hold or a 30 year hold, you're clearly not going to look back and say, I wish I'd waited for 25 more basis points of cuts in the ten year before I went and put long term fixed rate financing on it.
I'm super appreciative of as I give you something to sort of say, talk to me about some big macro trend. You like southeast job growth or this or that, that you go back to the nuts and bolts of actually operating a business every single day. And if you're good at doing that on an asset basis, you have the platform upon which to scale.
Rob Finlay: Yes. As long as you have the plan. So back to that point. Yes. As long as you have the infrastructure in place, the company, I want people to start thinking top down. If my organization is data driven strategy, innovative, has good leadership, good planning, and has good people – all of that stuff, then I can take on any challenge. I can see the opportunity. If we believe in the opportunity and we run through our models and we look at the information, we can make a lot of these strategies, even if the odds are in our favor. If you just go out and say, oh, guys are unloading properties in LA. Oh, I'm going to go over to LA and start buying stuff. I'll lose my money. Go buy something else. Have a good strategy, make sure that you know what you're doing, have the infrastructure in place. Then you can go and develop the strategy of what you're good at.
Willy Walker: Rob, the book is “Beyond the Building.” Thank you, everyone, for joining me today. Rob, thank you. You're fantastic. Congrats on all your success and congrats on the book, because it's an incredibly well-written book, and I would strongly recommend it to anyone who thinks that our conversation today has been any way impactful on the way they think about their business, their career, or the overall commercial real estate market. Thanks, Rob.
Rob Finlay: Great. Thanks, Willy.
Willy Walker: Have a great day.
Rob Finlay: You too. Bye.
