#22 - Jim Lippman, Bobby Lee, Danny Lippman: JRK, Multifamily and Hotels

25:30We're going to look at the number of work orders a property has, what those specific work orders are. We're going to look at how long it takes them to paint a unit versus contracting to paint that unit. We're going to look at how many traffic phone calls they're getting, how long it takes to answer that phone, how long it takes to tour it. And it's all those differences which then get tied into even looking at how most management companies use an LRO system to set their rents. JRK again turned around and we looked at both an LRO system as well as our setting our rents ourselves. And we took properties in the same geographic location.

26:09We gave some to a company, to multiple different LRO systems, and some for ourselves. And we clearly in every instance outperformed them. So we set all of our own rents. Every Tuesday and Friday, rents get fully adjusted. One person is fully responsible for that, and each asset manager is intimately involved in that. Every quarter, we do a deep dive into every single asset. These are things that no company that I know of does the same thing. So it's those kind of different attributes in a very highly management-intensive business, which is what multifamily is and hotels are, that allow J.R.K. to generate these significant outsized returns.

26:52And before we dig into more details, is that a discovery you had early in your career where when you look at the landscape that Bobby just described, did you zoom in on the operations is where the value add comes from? Is that something you discovered early and just refined through time? Yes, actually, it was actually how I fell in up with this business. So when I moved out to California, the first assets that I took over were two assets. I won't say the names, but in Atlanta, Georgia, and they were struggling assets. And I looked at this and this was, we had taken them over and our own company had done nothing different than the prior company.

27:29And I looked at these assets and was able to see the significant mismanagement and opportunities to reposition these assets during, as you probably recall, in the early 90s, a very weak market. And so by implementing those and seeing the amazing difference in generation that they did to the NOI of those properties and the revenues and expenses, I said, wow, this is the right business. I'd like to touch on one thing going back to, you know, an earlier part where you said investing in multifamily, Alex, I view it as part, it's the real estate and part is the business. And I think where most folks gravitate to is they spend 95 % of the time is analyzing the real estate, doing forecasting trends on population growth in markets and sub markets and where they think demographics are going to shift.

28:15Look, it's not that we don't place bearing on that. We very much believe that you got to invest in the right markets. But we've also realized over three and a half decades, 30 % of the time you're going to get those demographic predictions wrong. So where we spend is we may spend 20 % of the time on the real estate and obviously doing the best we can to forecast the future. We're spending 80 % of our time analyzing the businesses of each of the deals. So it's a numbers game. We're looking at 3 ,200 to 3 ,500 investments a year. We're going to focus on the 15 to 20 very best investments where we like the real estate, we like the locations, we like the physical assets, but that we're going to stack the deck in our hand where the businesses are so under managed or that they're so physically under capitalized that we know that we can deliver alpha over the first three to four years instantly to take a lot of the risk out of the deal and to generate outsized returns.

29:04That's where we spend our energy. I'm curious if you were to assign a grade to operators, because I think we want to zoom into that area. What grade would you give the average operator? Are they decent? Are they not very good? We're talking about two different kind of, we'll distinguish as operators. You're talking about one being the accumulators, the people that are the general partner in it. And most of them are not going to be really the operators of the property. So there's a break between the two of them. They're buyers of assets. And again, I say that has worked very well for those people.

29:39And some of them have done, if there was a complaint about JRK, it's our lack of putting the money out as quick as it can, because we're conservative. Because I always say, you can make a performer say anything you want it to say. So we're going to, again, look at significantly a trend analysis. We obviously are very focused on locations and those opportunities. But I would say that most accumulator of assets, I would give a D as to operations because that's not what they end up doing. And if you would look at most of those accumulators after they buy the asset, many of them have never visited their asset again a decade later.

30:17They have lower level people that are visiting them. The other ones are the operators themselves, which are generally the third party operators. And there's a problem with that as well, because again, as I already have pointed out, they're in the business of making money to manage them. So by their very nature, they're overstaffing on those properties versus the other. And again, as a management company versus a JRK, where we make our money with our investors based on the multiples and the returns to our investors, that's not how a management company or anyone who works there is incentivized. So I truly believe that I, again, there are very few, it's why groups that I would end up giving very high grades to.

31:00Now, I did tell you I'm a perfectionist. We are perfectionists, but it does speak. So when we go out to raise money, which is something that Bobby and Danny, we don't do it that often, but do it more frequently than I will now. When we're going to go out to raise money, the first question we get asked is how do we generate these outsized returns? And that's exactly why we generate these outsized returns. As an allocator, that seat that I sit in, I think about there are returns that come from just market cycles. So real estate goes through good and bad periods. And as Bobby referenced, it's not always easy to predict when those cycles turn.

31:35And then there are returns that come from operational efficiencies and closing those gaps, particularly if you're able to find assets that are not well operated, there's more gap to close there. That is a more predictable return generator through time. And it's in many ways, it's cycle independent. So you can think of it as what JRK offers is you get some exposure to the ups and downs of the market cycle, but a lot of the alpha and returns come from operational advantages that you have. Those two returns are effectively uncorrelated to one another. And therefore, in total, you can generate something that's a lot more consistent through time.

32:15And that's potentially one of the reasons you've been able to avoid losses on any property in over 30 years, which is pretty rare. Does that sum it up reasonably? That sums it up really reasonably well. Okay. So why don't we dig in a little bit into how you operate more efficiently? Obviously, you don't want to divulge proprietary information and insight, but are there major operational inefficiencies that you've seen other operators miss that you find have added a lot of value over time? Yeah, I think you hit the nail on the head, Alex. We're probably not going to divulge our secret sauce, if you will.

32:49But I think it comes down to something Jim said in an earlier question, which is this business is difficult. Operating multifamily, period, is difficult. Operating it as efficiently as you can and optimizing the cash flows year in and year out and compounding success and success becomes even more difficult. So, you know, it takes looking at every single part of our supply and vendor chain, whether we can bring things in-house versus outsource them. You know, what is the efficiency of the maintenance team and the efficacy of the maintenance team and the leasing team, et cetera. Also, on the revenue side, just as much active management, which is looking at where can you optimize the rents and the occupancy on a weekly basis, looking at different demand streams, et cetera, and other sources of revenue.

33:33And then looking at things that are maybe taken for granted, things like fixed expenses, utilities, for example, property taxes, insurance that we spend a lot of time. They're actually called fixed expenses in our industry because folks don't look at them. It's just a given. we spend a lot of time to make sure that those are made as efficient as possible, as well as things below the line, whether it's interior capital or other operational capital that folks tend to just underwrite at$250 a unit on a blanket and never analyze what it's actually costing them and what kind of return on investment.

34:04So for us, we've set up all of our analytics so that we can look at things on a daily, weekly, and monthly basis. Like I said, our business, I look at the series of low risk decisions that we are making, but you have to constantly make sure that you correct each week and each month if you miss. And if you do that disciplined over time, you find a lot of efficiency in this business. In addition, the arbitrage that we talked about early on, we're in 26 states. We're looking at properties in all 50 states. And the advantage of that is we're able to see the disequilibriums between one location and another.

34:39So as an example, a number of years ago, you would see properties in Florida trading 150 to 200 basis points tighter than you would see properties in Ohio. All of a sudden, as the market compressed and more money went into the market, you watched cap rates across the nation flatten. So what would JRK do as an arbitrageer in that? We sold all of our assets, which was six or seven assets in Ohio, to buy more assets in states that would generally have tighter cap rates than the others. So we became a seller. Today, you're seeing that change back a little bit. And so we are looking in different ways to do that.

35:19So it's also those arbitrage differentials between both age of project, location within different states, and the geographic reach of what JRK has has allowed us to arbitrage those situations as well. And how do you think about risk and limiting downside? I know that's a big focus of yours and not having lost money on a single property in over 30 years. Obviously, there's a heavy component of risk management. How do you think about that? We've always taken the approach that we'll give up upside in exchange for downside risk. And as my dad's mentioned, being a cash flow focused value investor, it definitely limits the number of investments that we have open to us.

36:00But it's also helped us avoid bad investments throughout the firm's existence. One thing that we do is we exclusively use long-term fixed rate debt on our assets as opposed to shorter duration or floating term debt. It limits our flexibility, but what it also does is it gives us certainty of cash flow and longer optionality on refinance and sale decisions. You can appreciate that over the past couple of years, that's allowed JRK to not have the same balance sheet issues that a lot of other operators are contending with. And then similarly, in reviewing new acquisitions, a lot of the times we see opportunities to buy deals where there's a large value add component and you have the opportunity to buy the deal at a very tight cap rate with the expectation that after a renovation, you'll stabilize to north of a market cap rate.

36:49There's other deals where there might not be the same value-add component, but you're buying the deal stabilized at relatively close to where you'd ultimately be stabilizing that value-add deal. So for us, from a risk standpoint, we'd much rather buy that deal without taking the risk on execution of the renovation. And the same applies for markets with growth expectations. And so a lot during COVID, there was a lot of operators that bought properties in these markets where there was high expectations of growth. And we saw the opportunity where there was markets that are pricing historically wide from a spread to the market and those high growth markets where we didn't need the growth in order to achieve very similar returns.

37:34And there's also less risk of cap rate expansion on those deals. And so we've always taken the approach of taking the risk averse deal and having this certainty of cash flow with fixed rate financing to drive our returns. And ultimately, we're trying to buy cash flowing real estate that can appreciate over time. And we're not trying to generate our returns through financial engineering. There's a very clear theme here, which is you want to emphasize the things you can control and de-emphasize the things that are largely beyond your control. You use 10-year fixed rates because you don't know what interest rates are going to do, and you have no control over what interest rates are going to do.

38:14You're focused on operational efficiencies because those are things you can't control. And the better you're able to do that, the more return you can generate for investors. And the more you can do there, the less exposure you want to all the other risks that you can't manage. I'll actually give you an example that I think sums it up. We can't control the market, what investments are available in the market. our first fund that Jim and I raised at the end of 06 had a traditional fund management fee. And I remember we would get calls from investors upset after six months or nine months. Why am I paying this fee every quarter?

38:45You guys aren't finding investments. And Jim and I would say, look, we don't think it's the right time. We don't like some of the pricing nuances we're seeing in the market. We're trying to be good stewards of your capital, be fiduciaries. But that we realized that there was a misalignment with having this fund management fee and a J curve. So what we do in our second fund and on, we got rid of the fund management fee. It allows us to be able to buy when the market, because we realize we don't control the market, buy when we think it's the right time to buy. When it's not the right time to buy, and we've gone through nine-month dry spells, 10-month dry spells, Alex, we'll be frustrated.

39:12We will sit on our hands if we don't see the right value out there. And I think we think about things all the time, which is even the things that are outside of control, what can we do to mitigate around that risk? And in the past, we always basically, as an example, we had always built-in cap rate expansion into all of our models, expecting these compressed cap rates to see some expansions. And that ranged from 10 % to 30 % cap rate expansion that we were looking at. Today is actually one of the first times that we are no longer building in cap rate expansion. That doesn't mean we're building in cap rate compression.

39:45We're saying there's an equal likelihood of cap rates going down, the 10-year going down, as there is the 10-year going up over the next few years. So for the first time when we're buying, we don't have to basically build in cap rate expansion into our models. And how do you think about multifamily versus hospitality or hotels in what we just talked about? I had some people on Squawk on the Street, which I watch religiously every morning. And they asked somebody about what he would invest in if he was an investor, a famous real estate investor. And he said, multifamily, multifamily, multifamily.

40:23I would argue that multifamily is and has been an exceptional, unbelievable asset class and will continue to be that. Hotels are very different animal. Hotels aren't even taxed the same way as the rest of real estate. It's taxed as an operating business because it is an operating business. So as I told you, we've generated almost four-time multiples on all of our multifamily deals. We've generated north of seven-time multiples on all of our hotels that we've ever acquired. And we've acquired hotels all over the country. We're very, as we are with everything, opportunistic acquirers of real estate, and particularly when it comes to hotels.

41:00So we're looking for hotels that are both mismanaged or in need of capital, where the operators don't have that capital to put in. We're just now buying a very significant couple of hundred million dollar opportunity in an incredible location here in California on the water, where again, the asset is in dire need of significant capital repositioning. And JRK was able to buy that at a significant discount. So my answer is, I think because they're both management intensive, they're probably the two areas that I would be looking to invest in. I would also add that with multifamily and especially the types of assets that we buy, where they're cash flowing and we're using a fixed rate liability structure, we're able to make money on multifamily investments regardless of when we buy it in the cycle, especially because we take this long-term approach.

41:50So even if there's a recession or some sort of disruption at the property, we ultimately will make money on that investment. I think hotels, the income is a lot more volatile and it's a lot more tied to macroeconomic factors. And so it's critically important what point in the cycle you're buying the hotel, as opposed to multifamily, you can generate those returns over a long period of time regardless. And so I think we're much more careful on timing of when we're buying these hotels. And something that we do that's unique in that industry is most groups are using floating rate debt to kind of tie their income stream to where interest rates are since it's very correlated on the hotel side.

42:31We take the same approach as multifamily where we fix our liability structure over the long term. And it just gives us a lot more predictable income streams on the hotel side. Yeah, I think big picture, Alex, how this results in our business, we generally see consistency in the volume of multifamily investments that we're able to source because we're able to source through all cycles. And big picture, I sort of look at multifamily is a steady, slow, steady, positive IRR for the industry, likely in the high single digits of an industry. And we're able to alpha generate much better returns, but able to do it through all cycles.

43:05In the hospitality sector overall, if you probably average the returns, it's probably close to zero or low single digits. with wide losers and wide winners. And so what we see with our own returns, we actually have outsized returns in our hospitality business. So we see higher IRRs, higher multiples, but with just a much less frequency of the volume of deals that we're doing because we are always on the hospitality side. We have to make sure we're coming out as a winner, you know, when we're making those investments. Which ties to what you said, Danny. So thank you for amplifying on that because it is the timing of cycles, which is the only one a little bit more important, a lot more important in the hotel sector.

43:41Okay. Why don't we shift to your outlook? I think our listeners are always curious what you foresee. We talked about it being difficult, but just your perspectives would be helpful. Why don't we just start with your high level outlook? Bobby, you talked about how multifamily has this, I guess, long-term secular tailwind. Maybe talk about that a little bit. And then also if you want to talk about hospitality outlook currently. Why don't I start with the hospitality, Alex, and I'll let Danny chime in on the multifamily. In both of our businesses, we're seeing that with where new construction prices have gone and with what's happened with interest rates, we're seeing that the construction pipelines are drying up post-25.

44:20So from 26 on, we don't think that there will be much new supply that's going to hit either one of the two markets. And you're able to buy assets below replacement costs, which is good. And it's healthy for us as an investor. I think when I look at the hospitality, the outlook becomes very much more market specific. So I think we are saying a tale of, depending on who your end consumer is. So we see a strong leisure market in the hotel industry right now. We're not seeing signs of weakness there. We are seeing that the group market continues to return back. So these large scale conventions and meetings, and people have a desire to do that.

44:53I think where we're seeing softness and probably we'll continue to see softness and we're not going to be as bullish leaning in as business travel. The everyday routine meeting, somebody has to go on the road. We're seeing that the workplace is adapting to doing these things virtually. And T &E departments, unfortunately, are probably getting used to having these lower spending levels that I don't think that they're going to want to see them go up. So I think as we look at that, we're very cognizant of that. I mean, clearly we're not going to lean into markets that have gotten overheated from a leisure perspective and may pull back, but it's a mixed view.

45:24But I think generally overall, we are seeing a healthy hospitality business. And like I said, we expect the construction pipeline to really dwindle in a couple of years. And we're also looking in the hotel side at some distressed operators based on what's happened. And what that allows us is with some of these distressed operators, and these are large operators and they become undercapitalized, allowing us, which is one of the things that really can help on the hotel side is the repositioning of that asset. I'll tell you one quick story before I let Danny do. I know we jump into this. So as an example, though, of an operations on the hotel side, because we've spoken much more about the multifamily side.

46:02On the hotel side, we took an asset over that didn't need in Nashville a number of years ago, a large holiday and the largest holiday express in the country at the time. And when we bought this asset, what we identified from ownership of other assets that we had up in Santa Barbara and elsewhere was the difference between weekday and weekend occupancies and the ability to drive rent during compression periods on weekends. And looking at their revenue management that was going on with this operator, we determined that they were running it where their compression was next to nothing. And we felt we could generate a 40 % compression differential in rates between weekdays and weekend.

46:44We were able to do that. the revenue growth, as you can imagine, was astounding on that. And it again, turned out to be a great opportunity. And there's an example without a physical repositioning, that was an operational mismanagement from the revenue side that JRK was identifying. So we, again, feel that right now, the real opportunity though is on the hotel side is to buy these assets at slightly wider caps than we have seen for a number of years from operators that are capitally constrained. On the multifamily side, we really started to see rent growth temper in the middle part of last year.

47:22So that's continued into this year. And our expectation is that will continue through 2025 until we see this influx of new supply taper off, which we know is going to happen because when you look at construction starts today, they're basically at zero. So we know that 26, really the early mid part of 26 through 2028, 2029, there's going to be very little supply in the market. Our new rent growth has definitely slowed to standard seasonality of leasing slightly above in the spring, summer months and flat generally during the winter. We are still getting good renewal growth, although we expect that's going to slow down a bit in the latter part of this year and into 2025.

48:06But fundamentals in multifamily are still really strong. So our primary renter cohort, which is the bottom 50 % of earners, are still seeing north of 5 % wage growth. It's a tight labor market. And when you look at the alternative of buying a home, homeownership, which used to kind of price right around one-to-one with renting, has now ballooned to basically being 50 % more expensive. And so there really isn't any alternative option for housing. We think that long term, as you see the supply dry up, multifamily rents will accelerate in that latter part of 2026. And we're able to buy these products at below replacement cost and at cap rates that have limited risk of expansion.

48:51And if we end up with a recession at some point, and I think many economists predicted a recession last year, and some are saying this year, and some are saying next year, but there will be a recession at some point. I would suspect that the demand for multifamily wouldn't go down as much, or if at all, versus other housing. Does that sound right? If you're looking at it and generally say that probably you could look at a potential recession next year, and I always say if you could predict recessions, you'd be the richest man in the world, but there's a lot of them. But regardless, there will be a recession over time.

49:24if that timing is in the next year or so when you're looking at it, which is the fortunate thing in the multifamily, coalesce with the lack of product that's going to be delivered. So there's going to be that demand. Occupancies continue to remain strong in most areas. And I don't see wage growth, which is really enhanced, being a problem right now. So when we buy properties, one of the things we look at is the ratio of what someone's earning to what they have to pay in rent. And we're seeing it at pretty high levels right now. I suspect that through a recession, that multifamily would hold up very well.

50:02That effectively gives you a cushion. Yes. Are there any long-term trends that you've seen that you think may reverse or have already reversed in either of these areas? I can think of three, you know, right off the top of my head, Alex. One is, you know, over the last 15 years, we saw this push by institutional investors to invest in the urban core versus the suburbs. You know, with the thesis being you have a walkable lifestyle that you can walk to bars and restaurants, you can walk to work. And COVID completely disrupted that. With remote work, you've seen office vacancies fall. People don't want to be in the metropolitan cores.

50:35You've seen rising homelessness. And now, you know, people can work from their homes. So now how do people pick their apartments? They pick where do they want to live? Where is it going to have the best quality of life? Where are the best school districts? So we actually saw suburban properties outperformed pretty significantly post-COVID. But the strange thing is we were always overweighted towards suburban because we could clip a premium yield at the time. And suburban properties didn't underperform pre-COVID. They kind of performed in line and you got premium yield. The other trend that we have seen, you know, is this coastal versus non-coastal.

51:06That was a very big theme. And so folks went overweight and whether it's San Francisco or Los Angeles or New York City and these other places. And you're quickly seeing some of those have started to reverse. I mean, the theme du jour right now that you hear in our industry is blue states versus red states. What JRK, like I said before, has tried to avoid is we don't spend too much time or put too much weight, even though we have some convictions on where we'd like to be overweighted. We try to stay opportunistic because at some price, you'll go to whatever's the out of favor asset class or sector.

51:37And that's where we've made a lot of our money over time. So I suspect, look, if urban core becomes really attractively priced, we may go long in the urban core. I think we are seeing that there have been some blue states and blue metropolitan areas in the country that are some of the hottest markets that are actually fundamentally very strong. For us, philosophically, we believe in kind of a reversion to the mean to some degree and taking advantage of those arbitrage opportunities. Bigger picture, what you could see in our industry, the long-term trend over the last eight to 10 years has been going from that sharpshooter investor to now more of a AUM allocation-based investing in real estate, that I think that model could come under question over the next five years as folks realize it's not so easy to allocate money to real estate in one of these vehicles and then try to redeem ahead of everybody else that you are locked in in an illiquid asset class.

52:33So I think what will happen is I then think track record, meaning IRR, multiple become more important and not deployment plays. So I do think that is something that could shrink the amount of capital chasing deals, leave it to folks that are more the sharpshooters in the industry, which again, I think, Alex, is a healthy correction for the multifamily industry and for investors. One trend that looks like it may have reversed is the trend of falling interest rates or low interest rates. So since you started the company, Jim, in 1991, one, interest rates have either been falling or near zero for 30 plus years.

53:07And potentially, that inflection point has been reached and rates are maybe higher for longer. Who knows where they go? It feels like things have changed. How does that reversal impact the industry? So it's twofold there. You're looking at what you've seen, which is what we're talking about, which is cap rate expansion. It'll be mitigated to some extent because there has to be, as you look at the demographics and the demand for housing, they have to build. And right now, JRK is able to buy all of our assets at below replacement cost. So at some point, that has to change anyway. But the other part is the amount of money that's gone into this industry and the acceptance of real estate as a class of assets that you want to own is going to compress long-term the spread between real estate and other assets.

53:59As I saw with, when I started in this business a long time ago, and I was doing options arbitrage, we would make a point and two points on conversions and reverses. And today it's as tight and as perfect as it can be. That tightening is occurring and will continue to occur in the multifamily, which will be an offset to potentially rising interest rates. Although So we're not betting on rising interest rates or falling interest rates, and we understand all the arguments pro and con. So now we're looking and saying, this is where it is. Where do you generate returns based on those interest rates that you're buying at today?

54:35That's why we still lock in today fixed rate financing to do that. Yeah, I think the thing you could see, Alex, in this new normal, as Jim mentioned, we're not going to bet any of our firms' investment returns on that. So we're still locking in 10-year fixed rate debt. But I think what you could see is some of the other folks that are relying on floating rates dropping or seeing a lower 10-year and lower cap rate, these folks that have floating rate debt or short-term debt right now, I mean, you are seeing whether it's a wall of maturities or just a wall of floating rate debt out there that folks are going to have limited options.

55:04We made sure over the last couple of years to have dry powder available to take advantage of what we expect will be a pretty opportunistic time to buy assets over the next couple of years. Yeah. It seems that a lot of investors were surprised by the sudden movement. I think most people were surprised by the sudden move in interest rates. We got so used to rates being near zero for a long period of time, and all of a sudden they jumped pretty significantly. The fastest rate of increase in 40 plus years. You could see a lot would be caught off guard. And it seems that sometimes the immediate impact isn't felt and it's just there's a lag response.

55:41So is your sense that there's something down the line that may create distress and you're getting ready to potentially take advantage of those opportunities? So we've been waiting for that distress since this occurred, actually. And some of the private REITs have significant capital, so they were able to withstand it and use the Harry Helmsley philosophy that if you hold it long enough, it's going to come back because interest rates have risen, cap rates have therefore risen. So the values of the underlying assets have gone down, but rents are still increasing. And so with rents increasing, they're still growing the NOI.

56:15So many of them that have the financial wherewithal will grow into it. Some of the developers and some of the weaker hands, that's not the case. And we are absolutely looking at those opportunities. It seems like the industry from a high level has taken a few punches. You got COVID hits that kind of took out retail and office. Then you had the rising interest rates that kind of took out the highly levered players. and maybe the next punch is some bad recession or maybe rates stay higher for longer. It's like you're taking out the various players one by one. But if rates stay higher for longer, as Danny had pointed out earlier, you're looking at probably outsized wage growth.

56:57And our cohort group is not the high-end people. So our cohort group, those people are getting increases that far exceed what they were getting a few years ago. And so they're able to, and their choice is, everyone needs shelter. So their choice is basically renting or buying, and those opportunities are better in renting, and you're going to have a scarcity of product. I would tell you I'm more bullish on the multifamily over the next five years than I've been in a long time. I would think that the biggest headwinds that we see is the dynamic that occurred, as you alluded to, based on COVID, which is the change in some of the sentiment in some states and localities in terms of rent control and different controls on evictions, et cetera.

57:42Those have impacts on different properties. And again, tighter and more focused property management really enhances addressing those issues. But that is, I would think, the single biggest issue we would potentially have. I think in some ways, Alex, the silver lining of what's happened over the last couple of years, I mean, interest rates rising are painful for everybody. But I think the silver lining, it actually de-risked in a lot of ways making new investments. Look at what's happening with supply now. There's no development capital. There's no debt financing. You've seen because of inflation, construction costs have rise, which is tempered debt.

58:15And you're seeing more discipline. And you've seen rents come back down the earth. So you're not worried as much about cap rate expansion. Whereas two years ago, you wonder what happens if you go to a normal tenure. There's always in the back of your mind. So I think we have lighter headwinds. But as Jim mentioned, I think the headwinds in front of us are much more acute and specific to markets because I think the regulatory environment for those that own multifamily properties is very different than it was five years ago. Do you have any closing thoughts that you'd like to share with our audience?

58:43Any words of wisdom or any unique insights that you think would be particularly helpful? Well, as for JRK, I would say that one of the best compliments I ever had from an institutional investor one time was when they said to me, we're actually reallocating where we assign you and putting you into our fixed income bucket. The reason for that was obviously with outsized returns, but it's because of the regularity. And I still believe that in the multifamily sector in particular, the opportunity to have outsized risk-adjusted returns today are more exceptional than at most times, because I don't believe you're going to see significant cap rate expansion.

59:22And when you're looking at a potential slowing of the economy. If there's a slowing in economy, you are going to see interest rates drop. If interest rates don't drop or they rise, the economy is staying strong. And right now we're buying it well below replacement costs. So at some point, the rental growth will have to exceed that so that they will be able to continue to build apartments or you're going to have everybody full. And we're running pretty full now. Well, gentlemen, thank you for taking the time sharing your wisdom and insights with us and our audience. Well, thank you, Alex. Thank you, Alex.

59:55Thanks, Alex. Thanks for listening. We hope you enjoyed this episode. Please visit our website at insightfulinvestor.org to access past shows and learn more about our podcast. If you have questions, feel free to email us at info at insightfulinvestor.org. And if you enjoyed the discussion, please subscribe to this podcast to ensure you don't miss future episodes. And don't forget to forward today's conversation to others you think would enjoy listening. This podcast is provided for informational purposes only and should not be relied upon as legal, business, investment, or tax advice. All opinions expressed by podcast participants are solely their own opinions and do not necessarily reflect the opinions of Evoque advisors, their affiliates, or companies featured.

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