From Chicago Board of Trade to The Salt Shed. Meet Chicago's Most Creative Developers: R2

Show Notes

Matt Garrison and Zach Cupkovic, co-founders of R2 Companies, sit down with host Joe Smazal for a rare and wide-ranging conversation about how they built one of Chicago's most iconic real estate portfolios: from student housing at Purdue during the financial crisis to the Salt Shed, the Chicago Board of Trade, and a growing loft office empire acquired at reset basis while everyone else was running.

They break down their two core strategies - Chicago Loft and Urban Flex - and explain why 30% vacancy is actually a lagging indicator, how they leased 850,000 square feet of office in 2025, and why owning buildings within three miles of your office beats the Wall Street institutional playbook every time.

This episode covers: Matt's origin story: from Coldwell Banker desk-hopper to #1 Coldwell Banker agent worldwide in 2006 How buying distressed student housing in 2008 set the template for everything that followed

The TILC meat grinder problem in office - and how R2 is engineering around it

The West Loop portfolio: losing a deal, buying back the note for $18.5M, and why 50%+ of original investors came back in

The full Salt Shed origin story - bats, flashlights, and a German private equity company that loved their brand

Why Urban Flex is the asset class nobody has named yet

What Ralph Lauren taught Matt about real estate

If you're in Chicago real estate - or just want to understand how the best operators actually think - this one's worth your full attention.

Subscribe for more conversations with Chicago's most influential voices in real estate, development, and investment.

Real Estate Chicago Style with Joe Smazal

Episode Transcript

[00:00:00] Speaker A: Foreign. [00:00:05] Speaker B: Welcome to the Real Estate Chicago style podcast. I'm your host, Joe Smozzle. Matt Garrison. Zach Kopkovic from R2. I'm excited to have you guys here. Founder and partner at R2. Many people in Chicago real estate would see R2 as a household name, but I'm going to give a little bit of background. Founded 20 years ago, 40 properties in the portfolio. Currently about 6 million square feet of space and asset value. In aggregate, about a billion dollars. Close rounding, I'm a broker, might have rounded up a little bit. In the portfolio currently are some of Chicago's most iconic assets, including the Salt Shed Board of Trade building, the diamond building at 150 North Michigan Avenue, and many more. In my opinion, R2 has established themselves as one of the true leaders in the Chicago real estate space, doing things differently, contrarian and with enough conviction to really benefit the city and effect change here, which I really admire about you guys and always excited to see your projects. Always excited to see your name in cranes on a project because I know it'll be to the benefit of the city. So thanks for. Thanks for joining me. [00:01:16] Speaker A: Yeah, happy to be here. Thanks, man. [00:01:18] Speaker B: Matt, I know you're a little reclusive. [00:01:20] Speaker A: A little bit. [00:01:21] Speaker B: I know you do some very. These, these. The real estate is very on the radar. You've been a little under the radar. Why, why did you agree to chat with me today? [00:01:30] Speaker A: You know, I liked your podcast and I think you're one of the guys doing it the right way. So I do a lot of no's, but you got me to. [00:01:38] Speaker B: Thanks for making the exception, man. [00:01:41] Speaker C: So, you know my joke is he's a 5000 year old vampire, sends me, [00:01:46] Speaker B: you sleep in like a hyperbaric chamber or something like that. Taking the peptide, doing the whole thing. [00:01:51] Speaker A: Yeah, a little bit. [00:01:52] Speaker B: Yeah, Love it. [00:01:54] Speaker C: One of the inverters in his office. You know what I'm talking about? [00:01:56] Speaker B: Hell yeah. Doing calls like upside down, like taking the pressure off his spine and stuff. You know, the most successful people that I know in this business are a little weird and everybody's a little weird and that's what makes it fun. So I appreciate all that. [00:02:10] Speaker C: Is that why both of you guys have a zen in your mouth right now? [00:02:16] Speaker B: Low sleep, longer story just got outed there. I think it's easy for people to see the scale of your business today, the prominence of some of the real estate and find it to be a little bit unrelatable if you're starting in real estate. So why don't you guys take Us back to kind of the beginning of your careers, whether that's, you know, pre R2 or the early days in R2. Tell us a little about the history of the business. [00:02:41] Speaker A: Yeah, I started off as a broker, as a residential broker. I was in the Lakeview office of Coldwell Banker. I showed up on the first day. I didn't have a desk, or it was landlines. I didn't have a landline. And when people weren't there, I would sit in their desks and I would just hang out and eventually get phone calls and stuff like that. I would be there for 12 hours a day. And a residential developer use that office to sell property. He used a big agent in that office to sell property. And I got to know him. [00:03:13] Speaker C: Was that Mosky? [00:03:14] Speaker A: It was Bob Mosky from rdm, and he had a little satellite sales office. He was like, come over to my office. I went over to his office, and I would just be there 12 hours a day. And like, eight or nine months in, something happened with the change of who was running it, and he was like, okay, you're in charge of all my sales. [00:03:38] Speaker B: What did he. What do you think he saw in you at that time? [00:03:39] Speaker A: Was it just that, you know, it's the same thing that I. It's like the same thing that I, like with young guys that work with me is where they're just, you know, show up, you know, be there all the time. If someone asks you to figure something out. Figure it out. [00:03:56] Speaker B: Yeah. [00:03:57] Speaker A: Ask a question, but figure it out and just make things happen. [00:04:00] Speaker B: Yeah. [00:04:01] Speaker A: And like, a sense of urgency is kind of like the number one skill. And it's something that a lot of people are kind of scared to do and to take risk and to have a sense of urgency. But it doesn't always pay off, but it pays off. And I think, fortunately for me, he recognized that. [00:04:18] Speaker C: Well, I think we call it high potential, low experience. We like to hire young guys that just want to run through. [00:04:23] Speaker A: Yeah, we just need people that are good at getting things done. [00:04:27] Speaker B: But so when you're working, when you're looking for somebody on your team, or when you're looking for a service provider, broker, whatever it is, like, I think that something switched at the beginning of my career, where at the beginning I had. I don't know if it's called imposter syndrome, but I was, like, trying to use bigger words than I knew. I was trying to know more than I knew. And what clicked was when I just embraced that I was going to be the young, hungry guy that it meant more to me. I was going to work harder. I'd figure it out. I didn't. You know, at the time, I lived, like, a simpler life. I didn't have the same level of, like, distractions, personally and otherwise. And. And I think it can be a great quality when you embrace it and when you surround yourself with people that do know what they're doing. And then if you're just hustling. [00:05:09] Speaker C: Well, also, real estate's not rocket science. It's making a thousand good little decisions and keeping them all in your head at the same time. So we found that just. It's as simple as. We try to go to every property at least once a week, and a partner at the company is going to every property at least once a week. And when you do that, you catch all these tiny little things, and if you do them right, they add up to. To a bigger picture where you win leases. [00:05:32] Speaker B: Yeah. And so fast forward a little bit there. [00:05:36] Speaker A: Yeah. So. [00:05:37] Speaker B: So you got some trash. [00:05:38] Speaker A: Yeah. I was at the office. You know, they were doing a lot of condo deals. I didn't know how to underwrite condo deals, but to do 1400 Lakeshore Drive, that was one of them. Yeah. [00:05:46] Speaker B: Yeah. [00:05:47] Speaker A: And to do condo deals, basically, you have to find big buildings. So I was kind of like, doing [00:05:52] Speaker B: commercial, like bird dog in the. [00:05:53] Speaker A: Not different than what you do. Yeah, finding. Finding big buildings, learning how to underwrite them, and then I would sell the units in the building. It was a great experience. I got up to the point where, I think in 2006, which was the peak of the market, we sold 761 condos that year. [00:06:08] Speaker B: Oh, my God. [00:06:09] Speaker A: So over two a day. And. And then I saw the way down. Right. Like, hold on. [00:06:15] Speaker C: So Matt will be a little humble about. But he was the number one agent worldwide in units sold for Caldwell Banker in 2006. [00:06:21] Speaker B: Yeah, dang. [00:06:22] Speaker A: In 2006, I had a lot of people helping me. [00:06:24] Speaker B: Dang. [00:06:25] Speaker A: But it was a little trophy. [00:06:26] Speaker C: It's like an eagle. [00:06:27] Speaker A: We saw. We saw the market start to slow down. [00:06:28] Speaker B: Is that why your license plate still says number one bk? Okay. [00:06:33] Speaker C: Number one agent ajnt. Real term Mac. [00:06:38] Speaker A: Yeah. So we saw the market start to slow down, and I think, like, you know, there's, like, lagging indicators and poor indicators. And, like, I see it right now, like. Right. Like in Cranes, it's like, vacancy is 30%. I'm like, the market's the best it's been in six years. Because that's a lagging indicator. [00:06:53] Speaker B: Yeah. [00:06:53] Speaker A: The leading indicator is what you see on the front lines. I started to just see sales slow down and I'd be like, we need to cut prices. And they'd be like, no, no, no, we can't cut prices. And like, I mean ultimately the condo market kind of collapsed. And you know, I saw Bob was fortunately okay, but I saw big developers get in trouble and it was really eye opening. Team went from 20 to five. People were grinding it out. And right around that time, like a little before things got bad, Bob would not let me do my own projects. All the Chris Fuhrer and like, you know, Scott Graden and these guys, they were doing their own condo conversions. And I was jealous. And he was like, if you do a condo conversion, I'm gonna fire you. You're not competing with me. It actually saved me. Yeah, like I like to tell people like that I was like, oh, I know it's overpriced, I'm not gonna do it. But like, you know, I got a little lucky there. I didn't do it. But what I did do is we started buying two plex and fourplex student housing in West Lafayette. I had a partner at the time who was from West Lafayette and we started buying deals in West Lafayette. And as the market got slow, we just started doing more and more of them. [00:08:09] Speaker B: Is that where Purdue is? Is that. [00:08:10] Speaker A: Yeah, sorry, Purdue. And you know, I had a great partner on it who's still down there. Who's who? Like the biggest landlord at Purdue. Now we're not partners anymore, but we started buying them. And then every student housing market has like three big owners. And there was a guy down there who decided he was going to build condos in Naples. Okay, well, he started getting in trouble on his project in Naples and he had to sell his good stuff at Purdue in 2008. So look, we actually closed our first big deal and it wasn't a huge deal. It was like a $6 million deal, 50 unit building right on campus. We closed it in December 2008. [00:08:47] Speaker B: Nailed. It [00:08:52] Speaker A: was like, yeah, it was like right after Bear Stearns and Lehman and everything. And it was like it turned out to be countercyclical. And we had the ability to still raise capital and get debt. And we ended up doing a JV with CA Ventures to buy one of his notes and complete the project. And then we had assembled some land across from Mackie arena and we ended up being involved in one of the first big like a 4 or 500 bed project. [00:09:20] Speaker B: So was it kind of natural and that the, the condo for Sale market was like, taper is just slowing down. You didn't have to apply. [00:09:28] Speaker A: Yeah, I was like. [00:09:29] Speaker B: Or was it that you just felt the gravitation towards, like, the principal side of the business? [00:09:33] Speaker A: It was both. Like, I wanted to be an investor from day one, but I had no experience and no money. [00:09:37] Speaker B: Yeah. So. [00:09:38] Speaker A: So the brokerage was a way to facilitate that. And as I learned more and then things slowed down, I was able to spend more. I had two choices. I could literally pick people up and drive them around and go show them houses, or I could try to do deals. I chose trying to do deals. I don't think there's anything wrong with that, but that's just what I wanted [00:09:54] Speaker C: to do at that point. Matt had cash, right? The oldest developers out of the market, Matt had cash. [00:09:58] Speaker A: We had some capital, and we were able to raise some capital. So that went really well. We got up to the point where I think we had 15 or 16 buildings. And in 2011, we called an early top, which wasn't a top. It kept going for 10 more years with student housing or 15 more years now. But we were starting to see. I mean, we watched cap rates go 9, 8, 7, you know, and we were like, let's sell. So we sold all the stuff at Purdue in 2011, and we started to find, like. Like, after the GFC, it took a while, and it never reached the levels that it's at right now. For office, Covid was way worse, but we started to see short sales and cheap office deals, and we bought a loft office building in river north. And that's how. [00:10:49] Speaker B: Was it a trade out of that stuff, or was it just yet? [00:10:52] Speaker A: You know, I've only done a few trades, and neither one of them's really gone great. So at that time, we kind of had a no trade policy that I violated later. And it didn't go great, but we paid the capital gain. Yeah, we paid the capital gain and came back, and we just. So the first office building we bought was in river north in 900 Franklin. [00:11:16] Speaker B: Okay. [00:11:17] Speaker C: Kiki's Bistro is. [00:11:18] Speaker A: Yeah, where Kiki's Bistro is. We did everything ourselves in the building to learn it with, like, two or three people. And that's when Zach came in to the picture. Zach sent me a resume, like, right out of graduation at Wash U. And it was like this beautiful booklet. And he's really good at design. [00:11:33] Speaker B: Typical Wash U guy. [00:11:35] Speaker A: Yeah. And he came in and I hired him on the spot. [00:11:38] Speaker C: What he doesn't know is I sent it to 50 people and like two people responded. [00:11:42] Speaker A: That was 15 years. That was 15 years ago. [00:11:45] Speaker B: I must have graduated around the same time. [00:11:47] Speaker C: Yeah. [00:11:48] Speaker B: Do you think that the, the genesis, like, so when you started investing, it was. It was probably looked at as contrarian at that point in time because a lot of people were playing defense and you were able to play offense. Do you think that that, like, instilled that kind of contrarian mindset that I think of you guys for today? [00:12:04] Speaker A: Yeah, I mean, I think that, you know, I think that you just learn it over time by watching what works and doesn't work. Like, momentum trades are great and you feel stupid when everyone's making money on momentum until they stop working and then it's really bad. [00:12:16] Speaker B: Yeah. [00:12:17] Speaker A: And like, the thing that happened with condos was like, smart people doing things right, but, like, it was so untethered to cash flow that like, there's literally nothing you could do when the market went away. All just like, no move to make, [00:12:26] Speaker B: like musical chairs, hubris or whatever. [00:12:29] Speaker A: What's a little ironic about it is I was like, okay, I'm never gonna get myself in that position. And then with the black swan that happened with in 2020, kind of a similar thing happened to office in terms of where if you were stuck with too high of a basis from before, there's kind of no move to make. And we were super fortunate that we sold like $300 million of deals in 19, 20 and 21. It really didn't start getting bad until rates went up. That's when it really started getting bad. And it's like a great Depression level event in office. And it was definitely, definitely been challenging. It still is challenging. We have some legacy deals, but we've mostly hung onto them or done things like on a couple, bought our own notes and things like that. [00:13:12] Speaker C: I think our best execution on deals were probably deals we broke even on or maybe even lost a little bit of money. But from construction, design, asset management, execution standpoint, like, those were really some of our best deals. The goal post just completely changed. [00:13:27] Speaker B: Well, it's maybe a cheesy thing to say, or it's maybe easier to say in hindsight, but like, I haven't been doing it quite as long as you have. You and I started around the same time, but we've seen a couple changes now, real changes, you know, and when I look at those points in time, like, it's when people that stay active and try to kind of sharpen their sword and like, fight through it, get ahead, it's so much easier to get Ahead in a tough market, and then you come out of it so much better. When the getting's good, it's really hard to stand out as a principal owner or developer or a broker. It's like those are the times that you look at in hindsight and can say, man, we really like, we learned how to do things a lot better during that time. [00:14:07] Speaker A: That's absolutely right. [00:14:09] Speaker C: I think, like, Matt and I talk about this a lot, but I think there's two things that make a good real estate deal. You can just invest into capital flows, which is kind of what Matt's talking about. And a lot of people do it and make a lot of money doing that. You can also lose a lot of money doing that. But I believe that you have to have an edge on the buy. So that comes with experience, right? Having great relationships, could be your attorney, could be a broker getting the first phone call. You have to have an edge on the buy, especially when you buy distressed real estate, which is a lot of what we've done over the last two years. And then you have to have an edge operating. So if you have those two things, you have a pretty damn good chance of making money on a real estate deal. And to your point, though, when you go through a really hard market, you get better at those two things. You gain a lot of experience and a lot of edge. [00:14:50] Speaker B: But if you stay, it's well said. And I think if you stay busy throughout the different cycles, and busy doesn't always mean the same thing, busy is probably the wrong word for it. Active and active, thoughtful, thoughtfully active. Right. Then you're less at the mercy of whatever the phenomenon is in the macroeconomic conditions. So you might have a couple deals in the portfolio that are tough and you have to work out, and you guys did better than most. But then you have a lot of others at that point in time that you bought really, really well, that can kind of offset it. Like, I feel like people that I [00:15:25] Speaker C: look at, there's a reason Kobe Bryant just kept shooting. [00:15:28] Speaker B: Yeah. Yeah. So what was it? Is there a time that you can think of or an event that happened in the early days that you look at as really pivotal, like something clicked [00:15:40] Speaker C: or you probably did a lot of stupid stuff? [00:15:43] Speaker A: I mean, I mean, look. I mean, just even going back to student housing, right? I mean, we. It was early. It was. It was really. It was still in the process of becoming an institutional asset class. [00:15:55] Speaker B: Yeah, that's crazy. [00:15:56] Speaker A: Cap rate compression. And then there wasn't a lot of development in the market. We were in and we were able to like assemble, buy things on cap rates and assemble land prices that people were still selling them on cap rates without a cognizant, you know, without being cognizant really of the, of the land value. And then we, you know, we did a two year entitlement that was very difficult. And it was kind of like the first time like we like made some money. [00:16:23] Speaker B: Well, and you went from, I mean it's kind of like leveling up a little bit too. Like you bought, you went from buying and operating existing to doing a complex multi year entitlement process. It's a different. [00:16:35] Speaker A: So yeah, so we, so we did, you know that that was really pivotal. And then like the first office building we bought, you know, which we may try to buy back soon, you know, which I don't mind saying that if someone wants to come try to buy it, they can buy it. But we're going to try to. But we learned a ton on that building of like hands on operating, which you probably did with your first apartment buildings, right? Like you're doing it yourself. [00:16:59] Speaker C: It's the only way. [00:17:00] Speaker A: And that was really pivotal. And then like our thesis was that these scattered site lo office buildings which were becoming popular were going to institutionalize in the same way that we saw with student housing and we'd see cap rate compression. [00:17:13] Speaker C: And they were, it was institutionalizing in New York, Louisiana, San Francisco. [00:17:16] Speaker A: And we saw it happen like on the High Line in New York and in places like that. And we were able to recap a bunch of our early buys with Goldman Sachs and we did the whole Wall street thing and we did deals like that with others and kind of get some exits in that. So that was really important. But like ultimately we realized that's not what we want to do. [00:17:38] Speaker B: You mean the institutional component of it? [00:17:40] Speaker A: We don't really do it anymore because it blunts your operating edge. And I think over that time period we've gotten better and better at operating. And during that time period there was a point in time we thought, well, we should buy stuff in Nashville and all these other places. And what I've realized is we're good here in Chicago. We have an operating edge here in Chicago. We do our own construction here in Chicago, both at the GC level and at the subline item on a number of subs. We have a team of subs that works 100% for us. And that's our operating edge. And it's funny, instead of just I used to think that the pinnacle was doing Wall street and now I think the pinnacle is having buildings within three miles of my office where I can walk them and have operating edge. [00:18:27] Speaker B: Sometimes you have to have some exposure to it because you have this ambition that drives you in being a real estate entrepreneur. And like, I see it in my business too. Oh, I should, you know, go after bigger deals. And I did. And you know, with different levels of success on them and stuff. And you realize that, like, that's. I've been fortunate the last few years that that's not what I focus on because I've been selling as much. But anyway, the point is just like, that doesn't have to be the way to, like, satisfy the ambition or satisfy. Maybe it's. Maybe it's ego or something like it. Can you. Can you really, like, learn that you want to work with people you want to work with? You want to work on the type of real estate that you can affect change? And also comes down to control. And I don't mean control in a bad way. I mean control and being able to control the destiny and affect a positive outcome and not being at the mercy of institutionals. Sit around a boardroom and make a decision based on a lot of other things. [00:19:21] Speaker C: No, we've seen deals. We've seen loft office deals where we talk to the brokers and there's an institutional owner. [00:19:27] Speaker A: Yeah. [00:19:27] Speaker C: And there's a broken window, and it's like, go get three bids. Go to power construction. Go to Arco Murray. [00:19:31] Speaker B: Yeah. [00:19:32] Speaker C: Like, we call Ishan, our head of construction is incredible guy, and he makes two phone calls and it's fixed in a couple hours. [00:19:38] Speaker B: Yeah. Right. [00:19:39] Speaker C: That's the difference. [00:19:39] Speaker B: Yeah. For a quarter of the price. [00:19:41] Speaker A: Yeah. I mean, all the actors and everyone's acting according to their own incentives. And institutional incentives are different. [00:19:48] Speaker B: Yeah. [00:19:48] Speaker A: They're not. There's nothing wrong with them. They're good. But we. We want to control the real estate and operate the real estate. [00:19:56] Speaker B: Let's talk about then what you're doing today. So as I understand, and correct me if I'm wrong, you have, like, two different buckets, which. Where you're really. I would talk about the first. For the first in the Chicago loft company or loft office company. Whichever. Yeah, right. And so you're just gobbling up these loft office buildings around 100 bucks a foot, which everybody that's reading cranes like me is like, oh, my God, how is that building in that location available at that basis? So talk to us a little bit about the business plan with the loft side of the building. [00:20:30] Speaker A: Jack, why don't you take that one? [00:20:31] Speaker C: I mean we had an awesome loft portfolio for 10 plus years. You know, as Matt said, we, we partnered with great institutions on it. There's a lot of demand for, for those buildings. We saw rents go from literally 22 gross to. [00:20:43] Speaker A: There's there, there are 14, 15 gross on there. [00:20:46] Speaker C: Yeah. And I know Franklin original. I mean literally go from yeah, maybe 20 gross to like 40 gross. Like just a crazy amount of, you know, it went from yoga studios to tech companies to law firms and, and banks that were in our buildings by the end of it. [00:20:59] Speaker B: Was that because you guys were doing cool things with the building? [00:21:02] Speaker C: Yeah, we were doing great build out partially. [00:21:04] Speaker A: But like the, yeah, I mean like the, the in office space. A huge, a huge component of face rate is how much money you invest in the space. But there was also a huge beta with just like, I think like just the product type just got, they kind [00:21:17] Speaker C: of doubled the product type got really popular. We've always like focused on a good product. I think that that's one thing we've gotten a lot better at. We even had a little bit of a bent to do residential style buildings. And sometimes that's not just having a golf simulator and a big jam. It's. It's having an operable window, having a good parking spot. We just focus on things that you like about your house and we've been focused on product for 10 plus years, you know, and it's just gotten better and better. So I think people were attracted to that like the design and what we were doing. But we, yeah, so we had a great portfolio. It was a couple million square feet, something like that in Chicago and then in other markets. But we always felt like in Chicago the untouchable buildings were in a couple of locations. One of them was Old river north where you're basically hugging the brown line from the Merchandise Mart South a hair [00:22:07] Speaker B: further west in River North. [00:22:09] Speaker C: And it's where all the best, it's urban innovations. Al Friedman. It's all those great buildings. Then you had a bunch of one off owners who when they sold in 1819, which were smart sales, they were selling for 250 plus bucks a foot. And they were value add deals too. Right. So those sometimes ran up to 300 plus a foot. And we underwrote all those deals, but they didn't make sense to us at the time. So other people came in and bought them. The other ones were guys who bought them in 1998, held onto it, had a ton of cash flow for years and years. Saw rents go way up, had a lot of success. Maybe over levered it a little bit too much in 2018, 2019. So there's that pocket in river north which we love, and then literally within a block or two of the train station or of the Brown Line. And then in river north, close to the Ogilvy train station, there's a pocket of nice loft office buildings that are within a couple blocks of Fulton Market, the highway, Ogilvy, Gibson's, Italia East Bank. Right. It's a great location. So those little micro pockets, and it might be 20 blocks in Chicago. [00:23:12] Speaker B: So do you call that second one kind of like the East West Loop or like. [00:23:15] Speaker C: Yeah, people kind of call it East [00:23:16] Speaker B: West Loop Gateway or something? [00:23:17] Speaker C: Yeah, yeah, it's that little pocket right between the train station and Fulton Market. Yeah, and it's a great little pocket. So we said, you know, A year ago, 18 months ago, we said, chicago is for sale. The metrics are off. People are throwing the baby out with the bathwater, with office. And we know we can lease these buildings and we know these buildings were untouchable five years ago. Let's go try to buy them. They're all going to be distressed. They're all going to be in weird situations. You know, we've kind of. That original portfolio was a lot of distressed deals in 2012 and 13 coming out of the great financial crisis. So we felt like we were in a good position to go make waves and go buy those buildings. And then the idea was to really build a loft. But really we looked at Urban Innovations and Al Friedman and we said, the smartest guys in real estate find a way to own real estate for a long time. And we said, how do we figure out a way to do that? How do we focus on cash flow? My joke is Matt always says basis and cash flow. I want to get T shirts made. [00:24:10] Speaker A: People are talking about net effective rent. And I'm like, you're assigning no residual value to the space I'm building. If there's no residual value to the space I'm building, I don't want to build it also. [00:24:20] Speaker C: It's just a function of like, inducements, you know. [00:24:23] Speaker B: So you were talking about, like the space we're in right now. You're talking about almost like apartmentalizing the office world, where these spaces can backfill much quicker. So tenant, you know, and I understand that the demand on the tenant side [00:24:36] Speaker C: is a little bit more so the issue in office. And like, it's part of the reason, I think multifamily is so popular for investors is like with office, you have, you have great noi, but then you have all these below the line costs because you always have tilc. [00:24:48] Speaker A: Yeah. [00:24:48] Speaker C: So I call it the TILC meat grinder. And what happens is it looks like a great deal with all this noi, but then once you have all this turnover with spaces and you're blowing up spaces every seven years, you just end up with not a lot of cash [00:25:01] Speaker A: flow, not a lot of free cash flow. [00:25:03] Speaker C: So you take the free cash flow, you take the cash on cash return, you average it over 10 years. You think you're buying something for a 7 cap or an 8 cap, but really it averages out over 5 or 6%. So we always felt like that was a little bit of like, didn't make much sense. And we benefited from it. We sold deals for low cap rates. All good. We did that in the 2000, in the 2010s and stuff. But now we felt like at the reset basis, with a different program where we can control construction costs, keep our basis low, we can get rents that maybe we're not getting the highest face rate, but we don't care because we don't want to put 100 bucks a foot of ti into a building. We don't want to pay like crazy lease commissions and all these bonuses and stuff. So we'd rather build smaller spaces that act more like an apartment building where you have reusable improvements. And you can do that in a loft office building a lot easier than in a tower. [00:25:53] Speaker B: I would also assume that that kind of hedges your risk on. So we're in a 2 or 300,000 square foot building today. Like if you have a 150,000 square foot tenant that goes bk at the wrong time in your the lifecycle of the deal and you have a maturity coming up. Like that can. [00:26:09] Speaker A: Really big tenants are great if they're credit tenants, but like, you know, if they're not, it's a lot of concentration risk where, you know, we talked in the beginning about the GFC and everything. Avoid things that can bring you down. [00:26:22] Speaker B: Yeah. [00:26:23] Speaker A: And if 50% of your rent roll disappears overnight, you got a problem. [00:26:26] Speaker B: What's the sweet spot right now? Like, are there any, is there, is there a size that you kind of like target in terms of like. [00:26:34] Speaker A: Yeah, I think it's, I think it, I mean it depends on the floor plate size of the building. [00:26:37] Speaker B: Yeah. [00:26:37] Speaker A: You know, but I think it's like sub 10,000ft and it's really like 2 to 10,000ft. That's construction going on upstairs. [00:26:44] Speaker B: I love it. [00:26:45] Speaker A: Yeah, those are, it's, it's two, it's two to 10,000ft. And like, you know, I don't know how in the weeds you want to get, but like it's really interesting because the office market is like designed to extract money from landlords rather than department market, which is kind of landlords extracting money from, you know, from tenants because it's so capital intensive. There's tenant reps, we love tenant reps. They're, they're, they're really smart people and stuff, but they're just out there trying to get the best deal for their tenants. And you know, historically Chicago is an amply supplied office market where landlords don't have a ton of leverage. And like, what other business is someone going to come in and say you're going to spend $500,000? I haven't designed anything before, but I'm going to design it and tell you the improvements to. Imagine if you did that in an apartment building, you would never have to rip down that wall. And there's some reasons for it. Right. If it's a 10 year lease and it's a credit tenant or whatever, that's fine. But we want to shift it in the direction of. No, no, no, we're building our program. If there's a good reason to do it, we'll try to accommodate you. But like ultimately we do have to say no sometimes because it's not a sustainable business. If you have to keep blowing up your capex every five to seven years [00:28:01] Speaker B: and you don't have to be everything to everybody. I mean there's like, you don't have to be. If it's not a fit, it's not a fit. And I think that that's a powerful position to be in too. Like here's what we offer. Within reason, we can make some adjustments but like if it doesn't fit, there's other options. [00:28:15] Speaker C: We'd rather play small ball. And the truth is like, I mean anyone can try to replicate what we've done. It's not rocket science but like controlling construction, controlling design, controlling property management, that's the way we're able to do it. Yeah, because other than that you just have too many third places. [00:28:29] Speaker B: I think you're being very humble when you say that though, because you could, you know, other people can compete with you on the acquisition. I think very few can, can execute the business plan the way that you guys are set up to do right now. Because not everybody controls not Everybody is vertically integrated, which is true. You know, I roll my eyes a little bit because so many people say [00:28:50] Speaker A: it's often used, but it's true in this case. [00:28:53] Speaker B: I mean you're referencing like your director of construction, like the leasing guys, you've really like mastered owning and operating this asset class, right? So that's the part of it that I don't think anybody could do. Right? [00:29:06] Speaker C: Yeah, it's a moat for sure. [00:29:08] Speaker A: It's such a capital intensive business on the TI side that we focus a lot there. We have an unbelievable partner who runs construction and then we've curated a group of small subs that only work for us. We do 30 to 55 to 10,000 foot build outs a year. [00:29:25] Speaker B: Jeez. [00:29:26] Speaker A: So we can keep them 100% busy. And we've started to self perform a number of the line items too. So we're just attacking the biggest parts of our cost structure and like not really interested in handing money to a tenant, letting them go do what they want. And like we'll do it if there's a really good reason. But like 95% of the time we need to design. [00:29:44] Speaker C: But, but that's hard work, right? Like the easier thing, like I think, you know, call what it is more of an institutional mindset or like a pure asset management mindset or whatever is to go buy a big tower. It's a lot easier to go buy a million square foot, you know, tower and try to get 100,000 square foot tenants. It's not easy. Okay. It's not easy to raise the money and do all that stuff. But like we'd rather buy ten hundred thousand square foot loft buildings, which is a lot harder because you gotta do 10 transactions. Matt taught me this 15 years ago was you add a 0, 2 zeros, 3 zeros. The deals don't get that much easier sometimes they actually get a lot easier actually. So for us we'd rather go buy 10 loft buildings and go do a bunch of 2 to 5,000 square foot build outs than try to do these big deals where you're just a taker of prices. [00:30:30] Speaker B: Well, okay, so the next thing is you have. So now you have bought, you know, 800,000 square feet or so of this space in the last year, year and a half. Is it getting more crowded? Is it getting more competitive to find starting to compete like on the loft stuff. Especially the loft buildings are the ones that are everybody's favorite candidate from office to resi. Because you have the high ceilings, because the floor plate, because the construction style. So Is that your most common competition? [00:31:02] Speaker A: So on the loft buildings, if it's 80% vacant, the conversion guys are probably going to win. [00:31:09] Speaker B: Yeah. [00:31:09] Speaker A: If it's 80% occupied, we're probably going to win because there's encumbrances and we can pay a little bit more. [00:31:15] Speaker B: Yeah. [00:31:15] Speaker A: And that's really the way it's gone down. Like there's been like a million feet of loft conversions which is 6 million foot market and a million is coming off and I think a million more might come off and you're not building any more of them so. [00:31:26] Speaker C: Well, you can't build another heavy timber. [00:31:28] Speaker B: It's also interesting for the investment thesis too because while you're, you're buying these. Well and then a lot of the stock is coming offline too. Right. So like there's a lot of the competitors that. [00:31:37] Speaker A: Some of that's what we think. And then you know, it's got a much lower cost structure than towers. It doesn't, it doesn't have a definitive union cost structure in the way many of the towers do. It's got lower taxes and operating expenses and you know, we can do a build out for 50 or 60 bucks that might cost 125 in a tower. [00:31:57] Speaker B: So that's pretty powerful math. One of the deals that I think we should just touch on because I think it shows your conviction in the space. I think it also shows like your investors conviction to you and how you guys handle yourselves during a time that's not easy is Westloop Portfolio. I think you referenced it in maybe a little bit of background of the company about how you recapped a deal with an institutional partner you finished in 2018. As I understand you recapped it in 2019 for $72 million. Post 2020 it was nonsensical to invest more capital to the deal given your basis. So as I understand you were able to buy the note deed in lieu and acquire it back for $18,500. [00:32:42] Speaker A: Yeah. [00:32:43] Speaker B: Hang on a sec. Because this is the thing that I think was the most telling was more than half of your original GP investors invested back with you. [00:32:52] Speaker A: A lot of them did. Yeah, a lot of them did. I'll take this one Zach, because I think it's just really important for me to talk about it. Like it's been hard like, like it was like a. What happened in 2020 for people in the office business is a great depression level situation that happened. And I said then I think it's going to take 10 years to emerge from it. We're in year six, you know, and yeah, I mean, we bought that building in 2016 with Walton Street. It was a value add deal. We did great. We filled the entire thing. We recapped it with another institution in 2018, which essentially means we sold it to them. And then we reinvested and you know, Covid hit we lost a 40,000 foot tenant. And you know, it gets to the point when you have whatever a 60 or $70 million basis, you know, it's not worth that. There is no rationale to invest capital in the building. And if the lender doesn't want to do it, you can't do deals. And that's the situation we found ourselves in. We were fortunate to not find ourselves in that, in that same situation on a lot of our stuff, some of it we kept well occupied and a lot of it we were able to to sell. There's a handful of deals that I still spend a lot of time on, my time working on today, and we're going to battle to break even on those deals. And that's a really good outcome from something that spits pre2020 in office. In this case. We thought we were going to work out a deal with the lender and they were going to start providing capital. And then we got a phone call. We're putting the note for sale. [00:34:23] Speaker B: Was it just out of the blue, just like that? [00:34:25] Speaker C: Yeah, yeah. [00:34:26] Speaker A: Like, we were like, we were like maybe two weeks away from having a deal with them to, you know, to fill up the buildings and they were like, nah, like came from above my pay grade and we're selling the note. So like we mobilized really quickly and you have to pay cash for a note and you have to close in like two weeks. [00:34:44] Speaker C: It was a $42 million note, by the way, on the 72 million portfolio. [00:34:47] Speaker A: So like when you buy a note, it's not like buying real estate, as you know. And we were really fortunate to have a partner that set up to buy notes. And they came in as the LP or a lot of our GPs came in back in as the GP and we got up and down in two weeks and closed it. And it's going great. Like, one of the buildings is already full. Like another one's on its way, like, you know, and from that reset basis. Right. [00:35:14] Speaker C: I'll just say this because this is a kind of a testament to Matt. And I think part of the reason I've stuck around so long is like, like we do things that are out of market sometimes. And on that deal, like we Charged like no fee. Right. Like we were like we're on both sides of this deal. It wouldn't be fair to charge a fee to our side. [00:35:30] Speaker A: You can't take an AC fee when you're buying your own note. I'm sorry we gave up part of the gp. [00:35:36] Speaker C: Like we didn't have to do that. We gave up part of the GP to try to incent, devise the situation. But like we're happy to do things. Like we're dealing with family offices and high net worth individuals mostly in that deal and like you gotta look somebody in the eye and. [00:35:49] Speaker B: Yeah, and they become like your friends too. [00:35:52] Speaker C: A lot of the times they are our friends, sometimes they're our family. [00:35:54] Speaker A: Right. [00:35:54] Speaker C: I mean so we just, we try to act the right way with investors and I think we were very focused on that. Coming through a bunch of bad deals and one of the things I take the most pride in is we've had a lot of great feedback from our investors. And to Your point like 50% of the investors in that deal reinvested in that portfolio when that was. [00:36:15] Speaker A: Yeah. And so like the thing with these deals right is like it's a reset basis but like rents are actually not down that much. I just, just going to get this in because I don't want to not mention it. Like the leasing market is better right now than it was in 2019. [00:36:27] Speaker B: We're going to talk about that. [00:36:28] Speaker A: Don't believe the 30% thing in France. It's a lagging. Yeah, that's a lagging indicator. [00:36:33] Speaker C: Well map it to for, for what we do. [00:36:35] Speaker A: For what we do. But I would say like for anyone that has good space online, if you're [00:36:39] Speaker C: a good building and you can pay ti, we'll talk about it. [00:36:41] Speaker A: But buying, buying these deals at a reset basis, you're buying them in like a 90s basis. But with modern rents it gives you the opportunity to, to stabilize it. In a mid teens yield on cost or mid teens cap rate, you're getting a 700 to 900 basis point spread over multifamily. I think that's appropriate. Like I talk to investors and they're like, I don't know if we can do obvious. I go, what spread is appropriate over [00:37:07] Speaker C: stable, over multifamily, 8009001000 basis points. [00:37:13] Speaker B: We're not talking about like fringy real estate either. That's the thing that's funny is when I think about people like chasing a yield, it's oftentimes and like not where you'd want to Be, you know, this is exactly where you'd want to be. And yeah, that was just an example of an extreme example maybe of like it can be great real estate and a bad deal. And the bad deal can be circumstantial and things outside of your control. And then it's like, how do you make it work? [00:37:39] Speaker A: There's no bad deals, just bad prices for the most part. Right. But like, but I did learn after, after 2008, you buy the best locations you can buy. [00:37:47] Speaker C: Yep. [00:37:47] Speaker A: We had to buy around the fringes. Like we couldn't get to the top locations. But yeah, we're trying to buy. Rather pay more in a great location. Yeah. In some sense that's. [00:37:56] Speaker C: Yeah, we've tried to be location snobs in this, in this market. [00:38:00] Speaker B: Well, so the other bucket that I alluded to, as I understand is Urban Flex, which I didn't even know what that meant until you guys taught me. [00:38:07] Speaker C: I think we invented it. [00:38:09] Speaker A: Yeah, it's been around, but we kind [00:38:10] Speaker B: of said it's like office's, you know, cool cousin or something. I don't know what the analogy. [00:38:15] Speaker C: I like to think of it as like, as like pizza and beer. Office is steak and wine. Like we're pizza and beer. [00:38:20] Speaker B: Okay, so what does Urban Flex look like? Where do you buy it? [00:38:24] Speaker A: Yeah, so we're sitting in one right now. We develop, develop this one. But you can find value add deals as well. It's a very fragmented. [00:38:31] Speaker C: Tell the story on this deal. [00:38:32] Speaker A: I will, I will. Yeah. It's a fragmented scattered market where there's cost effective space where you can get product in and out of it. And it could be office space, or it could be someone who's got all their skus for a mail order business. It could be a gym, which we've got downstairs. It could be photographers. [00:38:50] Speaker B: By the way, sweet gym. [00:38:51] Speaker A: It's good gym. Yeah. Check out undefined Fitness at 1001 North Branch listeners. But it could be whatever someone wants it to be. And what's interesting about it is that's what loft office used to be before we started calling it creative office, which I don't like that term. We don't use that term anymore. It was urban class. [00:39:11] Speaker C: It was cool, cheap space that cost effective in a good location where you had creative people that were like, give me the lowest rent. I don't want an architect. I don't want a big engineer. I'm just gonna make it cool myself. [00:39:22] Speaker A: Yeah. Now people are probably saying it sounds like bullshit. That sounds like it's just office Space. Here's the thing. [00:39:29] Speaker B: No, walk in the lobby. If you think it's bullshit, walk in this lobby. [00:39:32] Speaker A: Yeah. Come over and look at it. [00:39:33] Speaker B: I see a lot of real estate walking. Stephen Fullbar's Media Shout Out. Walk in the lobby. And it's like, wow. I mean, immediately cool. [00:39:40] Speaker C: We have a floor here where there's a venture capital firm where they have their own podcast studio. Then on the other side of the hallway is an 8,000 square foot coffee roaster. [00:39:48] Speaker A: Yeah. [00:39:48] Speaker C: Making coffee every day in the building. [00:39:50] Speaker A: And to put it in a term that people might understand a little bit, it's small bay industrial. It's small bay industrial. It's cool. Where you can upgrade it and do something a little officey if you want. But it's essentially urban vertical. In some cases, not all cases, small bay industrial. So the hallways in this building are 12ft wide. Throughout the building, they have connectivity to the freights, they have connectivity to the loading docks. I walked you through the. The guy across the hall. We have a guy across the hall. We're on the fourth floor of the building that has five giant walk in coolers in their building. And they, you know, they do some food processing stuff. Down the hall at the other end we have a tech firm. [00:40:25] Speaker C: Yeah. [00:40:26] Speaker B: So but isn't that, isn't that create this place where people go to work that are different from one another, which I think is a pretty powerful thing. It can be motivating and it's. Well, obviously also the other thing about it as a business for you guys is that one of the beautiful things about Chicago is the diversity in our employment and the different types of industries that we have here. And so you're not exposed to just tech, you're not exposed to just. But here then you also have this experience as a user that you're not just around people that do what you do and that look like you look and they're doing the type of work that you're doing. [00:41:00] Speaker C: Well, I've found when we have tours here with, you know, a big tenant rep and somebody who's the head of real estate in a bigger company, they just don't quite get it because it doesn't check off the right boxes for them. But everyone who's in this building that's an entrepreneur, we have some hog salts. Headquarters are in the building. They have 30,000ft. The entire top floor is beautiful space. Like when we're dealing with entrepreneurs and people who control their own businesses and in some cases pretty big businesses, they gravitate towards what we've built here. And there's a. There's a product market fit thing that we kind of stumbled upon. [00:41:35] Speaker A: What's interesting about it is what we've learned is like, even in a loft building in river, north of the West Loop, like we were talking about Chicago loft, it's never going to get all the way to something in Goose island that's like this. But there's elements of this you can bring into those buildings. We're doing urban flex floors in our buildings where there's wide hallways of the loading dock. We're about to do one at 641 Lake. I think it's going to lease. [00:41:57] Speaker C: We have buildings that had normal 640 foot wide hallways, and we're ripping them out and making them 10 foot wide. [00:42:02] Speaker A: The first thing I see. And you walk, you walk in a building and you see it and you see the old freight with the metal, like, you know. Right. And they put a passenger elevator in. Because that was a conventional wisdom. I'm like, why did they do that? Why did they do that? You know, because you need the freight. [00:42:15] Speaker B: I mean, you showed me the gym and then you're just, you know, you have the. You walk into the gym and it's cool. And then you have this alcove, I don't know what you call it exactly in the middle. And you're where the boiler, this massive boiler I'm sure used to be. And then you left the ceiling. You don't. You didn't paint the ceiling white. You left it raw so that it has that grit still. Yeah, but I think the. [00:42:37] Speaker C: That was the best Visa tour. Like, like Matt had this idea years ago, and for people who don't really understand, there's a boxing studio in the basement. And it was literally the boiler room of the building. And they had little chutes where they would dump coal into it and people with shovels would shovel coal into a coal boiler. 100 years ago, Matt would take bankers, institutional investors of ours that were wearing like perfect, beautiful suits and Hermes ties. He would take them down into the basement of this building, ducking their head and stuff, and be like, here's what we're going to do. And they'd be like, matt, what are you doing? Where are you? [00:43:08] Speaker A: Those people did not end up doing the deal. [00:43:11] Speaker B: But don't you think there's something, like romantic about that in the experience of, like, being in an office and working in Chicago and there being some diversity? There being some. [00:43:19] Speaker A: Yeah, I think it's awesome. I mean, I think it's like, especially In a post 2020 environment, it's about making how people feel when they walk into a building. We call it product market fit, but it's, it's creating a vibe. It's like a comfortable pair of jeans when you do it the right way. And you know, this is. You can't probably see a little space, but this is a residential feeling space. [00:43:41] Speaker B: Be a pretty comfortable place to spend, you know, eight to 12 hours of your life every day. [00:43:45] Speaker A: Exactly. And I think, I think that's what you got to create in this environment. And obviously there's AI and a lot of people are worried about AI. And when you introduce a little bit of Urban Flex into it, you're introducing companies into it by default that are tethered to the physical world and do things and have product and stuff like that. And I just think that's healthy. I like doing it in buildings that are 100% like that, like this. And we're even introducing elements to it in every building that we do. [00:44:09] Speaker C: But what it also allows is we can have, I'll call it a teaser rate. You can have a lower net rent rate. And then if somebody wants an office build out or wants something customized that we're willing to do, we can just go up from the teaser rate. So it creates this kind of like, you have a diversity of types of businesses, which we like. It's a big wide universe of tenants. But also it's a range of like, pricing also. So somebody can just take it as is and put their own money. [00:44:37] Speaker A: It translates to economics to like, this is a 230,000 foot building. We started the project two years ago. We've leased 200,000ft in the building without fanfare. Like, a lot of people don't even know about it. Never had a website, never even had good marketing. 60% of the tenants call us directly, and the average TI in the building is $30. Jeez. So it's got good economics too. And I'm okay telling everyone about it. Like, do Urban Flex because I think it should be an asset class. [00:45:07] Speaker B: How does the, how do the two buckets compare in terms of, like, the deal flow you see and the investor appetite? Like, how do they compare and contrast? Maybe? Do they. Are they. Do you see the same amount of opportunities in both that you'd like to buy? And do your investors have the same appetite for both? [00:45:22] Speaker C: I've seen a lot of competition. Like, there's a handful of really smart people that I think could pull off what we've pulled off. Like, in this Building and could pull off what we've. What we're able to do in the loft portfolio. We've seen a lot of competition from users. I think right now, if you're a user or high net worth, you know, person that wants to own a building, put your own company there, whether you're a single tenant or not. I think those guys have realized this is a generational opportunity to buy real estate. And they're entrepreneurial, and they don't fall to the whims of, like, institutional capital markets. [00:45:51] Speaker B: But they're not doing a 200,000 square foot. [00:45:53] Speaker A: No, no, it's been smaller. [00:45:54] Speaker C: That's more for, like, the loft. [00:45:56] Speaker A: Like, if you look at, like, Kinsey Corridor, that's the biggest urban flex market in Chicago just by default. Like, it's. It's huge. It's millions of square feet, probably, or at least, you know, million five or something. Maybe more, right? [00:46:06] Speaker C: Yeah, it's a big zone. [00:46:07] Speaker A: But we just bought a building there at an auction. 2140 Fulton. It's great. Like, we got it for a good price, and we love the deal. Looking for more deals over there. And, like, people over there are, like, still anchored to the high prices, and they want, like 150, 200 a foot. And I'm like, we bought buildings river north for $80 a foot. [00:46:22] Speaker C: We bought that for, like, 40 a foot, and people still want 50. [00:46:25] Speaker A: Yeah. So, you know, they haven't gotten in as much trouble because it's a good. It's because of the reasons, I'm telling you. And, you know, there's really smart people that have been doing this for a long time, and it's what it used to be in the 80s, because, like, you didn't have everyone throwing the money at it and stuff you couldn't do. You weren't competing. Practical decisions. And, you know, like, my partner on the salt shed, Craig golden, has been doing it for a long time. He does it really well. I walked this building with him, like, five years ago, and it was vacant. And I was like, what should I do? And he's like, just start building space, dude. And I'm like, what about the windows? They're, like, falling apart. He's like, they're fine. I love that replacement. [00:47:04] Speaker B: Like two of the most. Most like, sophisticated, accomplished real estate people in Chicago walking the space. And one of them asked his buddy like, what should I do? And he's like, start building it, man. Like, what the you doing? [00:47:13] Speaker C: I'm like, the best real estate guys in Chicago that we really respect are the Ones that found a way to own real estate for a very long time. [00:47:20] Speaker B: Yeah. [00:47:21] Speaker C: At a low basis. [00:47:22] Speaker A: Yeah. [00:47:23] Speaker C: It's the Mark Realty guys, It's Craig Golden. There's a handful of people. [00:47:26] Speaker B: It's the same thing in apartments. A lot of my good clients I do a lot of business with, you know, they own generationally, you know, and, you know, some of them sell stuff and they prune the portfolio over time, but overall, they're net buyers and they have a very. [00:47:39] Speaker C: Look at the Beal Properties guy. [00:47:41] Speaker B: I mean, he's incredible, Right. He's a great example of it. And a commonality is that, you know, when you speak to him or you speak to these other guys that I'm referencing that are in the same kind of, like, profile that I'm describing. Nothing is. They don't speak to you. Like, they're not. They're not diving into an irr. They're not like, it's not this institutional or it's not this, like, convoluted way of thinking about real estate. It's really thinking about the basics and doing the basics really well and then doing them, not sitting around and debating. You know, it's. [00:48:16] Speaker A: There's common sense, a lot of common sense. [00:48:18] Speaker B: Right, Right. Yeah. [00:48:20] Speaker A: So I have a question. I have a question for you. So I get. We own the four or five apartment buildings, but I get, like, OEMs from people and I look at them and I'm like. And all I care about is basis and yield on cost. Yeah. Like. Like to the point where these guys make fun of me for it. [00:48:33] Speaker B: Yeah. [00:48:33] Speaker A: And I'm like, what's the yield on costs? It's like, IRR is this multiples. This. I'm like, well, I can financially engineer a deal. Like, what is the yield on cost? And like, we can't. Hard to find in people's RMs where [00:48:43] Speaker B: they're smartest people, and I'm not one of them. But even the way that I would buy a small apartment building is like, my spreadsheet would embarrass. It would be so embarrassing to show you. [00:48:54] Speaker A: It's not embarrassing. [00:48:56] Speaker B: It's like the most simple way to look at it. I could call Bill from Beale and say, hey, Bill, I got a deal. I got a deal in Lincoln Park. What's the address? You know, tell them the address. Like, most of the unit makes. Can I meet you there this afternoon? Can I meet there tomorrow? Can we meet there on Monday? And, you know, literally, in some cases, it's like writing a contract on the hood of our car afterwards. You know, there's one that I called him. It was even like a shorter circuit than I just described. It's a very simple way of looking at deals. It's conviction in the bigger business. It's not like diving into somebody's T12 and saying, here's the cap rate that I'm applying to how somebody else ran the building in the last 12 months. It's what are we going to do to it? And not just in the first year. What are we going to do it for the, for the next decade? And is it a fit for our business? How do we feel about the rents? What levers can we pull to add some value along the way? And it's, it's a really. I don't mean it's a basic and it's stupid. It's the opposite. It's a basic. And there's this brilliance to the simplicity of it. And those are the guys that do really well. The people that I send a deal to and then they send me a list of 25 questions and they're like, it's just minutia. [00:50:09] Speaker C: It's the 8020 rule. I mean, you just have to constantly figure out the 20% of things that are actually valuable. [00:50:14] Speaker A: The problem is as an asset starts to get priced to perfection, you have to start getting into more of the stuff that. [00:50:19] Speaker B: Yeah, it's true. You have to be competitive. You have to. I mean, we sold one recently that was. [00:50:23] Speaker C: Which is great. It's great on an exit. Yeah, you want to be careful on the buy. [00:50:26] Speaker B: But like. So we sold one or I sold one recently for the Temple Shalom that was right off Lake Shore Drive in East Lakeview. It was a 50 unit building. And everybody came and looked at it was a gorgeous like Tudor style courtyard. And you know, you show it to everybody and there's a lot of parity in how people look at it and what they, the pricing should be. And Frank Campisi from JAB saw something different. You know, I talked to him about like a little bit of the unused zoning capacity. [00:50:50] Speaker C: Shout out Frank and Jim. [00:50:51] Speaker B: Jan. Yeah, right. And. And so they walked it with their architect. And we talked about using some of the unused zoning capacity, adding. I forget how many it is. Call it eight units into the garden level, which is really high ceilings. And then, you know, to your point about the competition, they're gonna take advantage of the, ah, SAP tax program because there's some studios in the building. And so like, the affordable rate for the studio is not much of a Give. So they'll like, they'll get significant relief on real estate taxes. And then when I talk to people about what they saw in the deal, about how they won the deal. Wow. You know, didn't think of that there. [00:51:26] Speaker A: No, there is. There is alpha, right? That's exactly right. Yeah. It's really interesting. [00:51:30] Speaker B: Yeah. [00:51:31] Speaker C: So, but I would say, especially whether it's office or multifamily, in the middle market, like if you're a seasoned, experienced operator with 20 plus years of experience, the ability to raise money and to know all the tricks of the trade locally especially. [00:51:44] Speaker B: Yeah. [00:51:45] Speaker C: Like you go to another market, you're the 10th phone call. You know, you don't know all the caveats, how to deal with the city and all that stuff. You don't have that same edge. Oh, and in the mid market, on big building, small bits a little different. But in the middle market, it's like the Goldilocks principle. [00:51:57] Speaker B: Yeah. [00:51:58] Speaker C: In the middle market, you can find a lot of those opportunities. Opportunities. A great example. [00:52:02] Speaker B: The last few years were an incredible example that a lot of people, especially if they raised money, went to like Phoenix or Nashville or Denver or one of them Texas, one of the markets. [00:52:10] Speaker C: We did it too, by the way. We bought a building in Austin and [00:52:12] Speaker B: Nashville, you know, and you can go and you can have different levels of success or failure, honestly, but you realize the grass isn't greener. You realize you're just another guy of hundreds that are trying to do business there. And then you don't have that edge and you don't have the relationship to execute it the same way, too. So you could build them. [00:52:30] Speaker C: It just takes another three to five years to build those relationships. [00:52:34] Speaker B: So go to a part of this conversation that's really important that we have is the leasing side of it, because there's a huge disconnect in the public's perception of office, painting office with a broad brush and the success you guys have had leasing in the last 18 months or so. [00:52:49] Speaker A: Yeah. [00:52:49] Speaker B: Like every article you read is, office is dead. Office is dead. You guys have leased 900,000. You released 900,000 square foot of office space in 2025. [00:53:01] Speaker C: We've leased 190,000. [00:53:03] Speaker B: Where's the disconnect? [00:53:04] Speaker C: So we did 850,000 square feet last year. Now, that includes, like Chicago Board of Trade, which there was a lot of leasing activity, both renewals and rentals. [00:53:11] Speaker B: You should include it because that's like the pinnacle of what people describe as. [00:53:13] Speaker C: So that's a big one for like the tower. Right. So It's a big property in our loft portfolio. We've done 350,000 square feet in the last 18 months. So a little longer than a year. And then in this building, this building had no windows, no bathrooms 24 months ago, and we've leased 190,000 square feet in this building. [00:53:32] Speaker B: So what is it about the success that you've had? You talked about a little bit about the product that you're offering and stuff. But why is there this disconnect? [00:53:39] Speaker A: Look, it wasn't this way in 2022 and 2023. Like, work from home was still a huge factor then. People didn't know what they were going to do. But I think, like, I mean, if you suppress like that decision making, like, for long enough, even if people are going from 20 to 10 and 40 to 20 or whatever, eventually they got to make moves. And like, the thing with it is, is, like, Chicago's a massive office market. It's 150 million feet right in a mile around this area and the Loop. [00:54:06] Speaker C: So, like, like, you could take Nashville, Charlotte, a bunch of these hot Southeast markets combined, and it's not Chicago. [00:54:12] Speaker A: Yeah, like, like, and we have a building in Nashville and we leased it to 100%. But like, Nashville's like 40 million. And like, on the way up, that's great because there's no inventory. And. But like, on the way down, like, just our annual renewals in Chicago are like half the size of some of these Southeast markets. And half the buildings go offline. They can't do deals. And you got half left. And it's. Even though it looks like there's a lot of inventory, there's nothing quite as much as you think, because the 40 million that's vacant, like 20 million of it, you can't do a deal in [00:54:43] Speaker C: like, like a, like a tenant rep will not bring their client to a building where they know they can't. [00:54:49] Speaker A: Why would this. [00:54:50] Speaker B: Yeah, yeah. [00:54:50] Speaker A: Why would they? And so then that's. That's how we've been successful at Border Trade, which Pistorio is doing an incredible job at. He's the best. And you just come in and prove that you're able to do deals and you're doing it the right way, and that's how you fill a tower. We're doing it 150 Michigan as well. [00:55:07] Speaker C: And momentum is like, real. [00:55:08] Speaker B: So that's an iconic building. But it was also like, you know, both 150 Michigan and the Board of Trade. The reason why I think it's really important to include the stats of those in the figure that we talked about is because that's what people would say is like one of the tougher segments in office. Right? I don't know if I don't know the classification. I guess that's like class B or was class B and now it's class A. I don't know. But like, what did you do to those? And obviously you had new capital stacks, the ability to do deals. But what have you done to those buildings that made them desirable? [00:55:37] Speaker C: Number one, they're just totally irreplaceable buildings. Like, they're. They're only a handful of buildings where you can get into a Cabot o' Hare and say, take me to Chicago Board of Trade building. Take me to the diamond building. You know, there's only a handful, though. So, like, we're constantly trying to find buildings that are really. And it goes back to the, like, the love of the game, I guess, a little bit. But we only want to buy buildings we actually like and that stand out. So that could be location, that could be asset quality, it could be that it's iconic and historic. So I think you start with that. But then again, a lot of these buildings, they were a little boring. They were a little hcbot. I mean, if you walked in there two years ago, you would have been like, okay, cool, it's a historic building. What's next? We've added a museum. We've added tons of furniture, we added a scent. We have music playing in the lobby. Again, it's not rocket science, but it's 20 or 30 little things that if you do well. Yeah, the gym we redid. We redid the conferencing center. You do all those things and then you walk. I'll steal this from Pistorio, but he always says, you want to have somebody walk into a building and feel like it gave you a hug. And it's a little thing, but we do that. Whether it's Chicago Board of trade is 1.4 million square feet or a 40,000 square foot urban flex. We do the same thing. [00:56:49] Speaker A: Then how do you do a deal? Like, how long does it take you to get them a floor plan for what they asked for? How long does it take you to respond? How long does it take you to price it? Yeah, you got a guy that's out of town asset manager that has to approve it and this and that. Like, you take like weeks. Like, we do it in like a day or two. And you know you've got the deal before someone else is even getting it priced or whatever. That's a huge component. [00:57:11] Speaker B: Have you guys, like, gone numb to the fact that you own some, like, some real estate like that, or is it kind of. [00:57:18] Speaker A: Yeah, like. Like. I mean, like. [00:57:20] Speaker B: Like, you pinch yourself sometimes when you. I'm not trying to be, like, cheesy about it or gas you up, but, like, [00:57:27] Speaker C: project. We don't even. Like, I don't even think about it much, but every now and then I do. I do take a step back and, like, I was with my wife, we were driving on the South Street a couple weeks ago, and, like, Board of trade was just in the background. I was like, ann, can you believe we own that building? [00:57:39] Speaker B: Yeah, it's pretty cool. [00:57:40] Speaker A: You're with your kids or whatever, you know, we operated. [00:57:42] Speaker C: Operated. Excuse me. We operated. [00:57:44] Speaker A: But, like, I. I actually don't have time to think about. Like, I'm grateful just that I get to do what I like to do every day, and there's a lot of people that have trusted me to put me in that position, and I'm grateful for it. But, like, we're in, like, a flow state. Like, we're not even, like, thinking about making money really. We're thinking about executing the tactical things on deals that we needed to do. Like, more in the way that, like, a collector collects things and does things versus, like, someone who's trying to make money. We're trying to make money. [00:58:15] Speaker B: Yeah. [00:58:16] Speaker A: But, like, we're super tactically focused. Yeah, I love that answer. [00:58:22] Speaker B: Yeah. [00:58:22] Speaker A: Yeah. [00:58:24] Speaker B: Let's do the Salt Shed story. [00:58:26] Speaker A: Yeah, yeah. [00:58:27] Speaker B: You reference Craig golden, like, anybody in Chicago, just. But now you could go there, and it's like this exceptional venue, and it's something that nobody's ever done here. But it was a very. It's not like everybody was looking at that. It's a music venue. [00:58:45] Speaker A: Yeah. So, I mean, just out of the gate, I'll say, like, I mean, Craig and Bruce from 69 center are incredible, and they're awesome at what they do. And, like, they put that together there. I think it's one of the best venues anywhere, and they deserve a ton of credit. There's a whole nother component to the story of, like, what we did when we bought it, when we entitled it, when we had to negotiate with the German private equity company that owned it. And I think that's an interesting part of the story that I think a lot of people understand the story of the shit now. So I'll tell that part of the story. But in 2016, first of all, like, the wall collapse and the salt fell out on the car dealer next door and stuff like that. And then they decided to sell it and like everyone thought it was gonna get torn down and be industrial. [00:59:35] Speaker C: First of all, There were like 11 bids and it was like us and one other group that were the only people that weren't gonna demolish. [00:59:41] Speaker A: First of all, like at the time all you could do there was industrial. Yeah. You know. And second of all, like, no one, you know, it's a four acre site, it's only got 100,000 foot building on it. Like that doesn't make sense. Right. So we found out that like Morton Salt, which is owned by a German private equity company, really cared about their brand. And I was like, I think we can save the sign. And they were like, we can't save the sign. Like once we leave, you can't have it. I was like, no, like you just leave some space in the building. It's an on premise, the sign. Like, we'll figure out a way to save it. And they were like, we'd love it if you could save the sign. [01:00:13] Speaker C: It's a landmark. Yeah. [01:00:15] Speaker A: So we got them fixated on saving the sign. And there was the German CEO, Christian, who was a great guy. He was like, we really like music. Like, you know, we really like. It could be a branding thing. And we wanted to do a concert venue there. And it was like a 12 month negotiation with the Sherman private equity firm. And like we couldn't find a concert operator. Like Live Nation said no. Like everyone said no. They were like, where's the parking? We were like, just where's the parking [01:00:42] Speaker B: for the error guy? [01:00:44] Speaker C: We were, at some point, I mean, we were working with Shapek fully on the job. [01:00:47] Speaker A: Yeah, Jeff was involved for a while and Jeff did a great job. So me and Zach and Jeff were in the office and like we couldn't find a concert, a concert company. So we had rei, which we ended up doing in REI on the other side of the river over there. And we walked into his office with a rendering where the Morton sign was changed to rei. And like he was like, he was like the fuck out of my office. And. And Jeff like actually like saved it. Like, he's like a master of like, of stuff like that. I don't remember exactly what he did, [01:01:17] Speaker C: but yeah, that was not a fun. [01:01:19] Speaker A: Basically he basically saved it. And then we ended up, we ended up just buying it on our own. [01:01:27] Speaker C: We met, we met Craig and Brewster along the way and we had a lot of momentum. I'll never forget because you Weren't on the first tour. Bruce showed up on his motorcycle. [01:01:35] Speaker B: Hell, yeah. [01:01:36] Speaker C: Bruce is quiet guy. He was just taking it all in. And he just had. You could tell he had a vision for it. Right away, he calls somebody on the phone. It's Craig. Craig was in his car, stuck in traffic, going to his house in Michigan. And they were close to the Division street exit. He got off, he came on the tour. Wasn't even supposed to be on the original tour. We walked the entire thing again with him. They were just, like, talking quietly. Had a bunch of ideas for it. We had great momentum with them. Then they disappeared for a while. [01:02:03] Speaker A: Remember? A couple years. [01:02:04] Speaker C: Yeah, they disappeared for about a year because they were working on the Uptown theater at the same time. They wanted to do like a mid size. I mean, it's crazy to call that midsize, but compared to, like, Soldier Field, United center, it's mid size. But it would have been the biggest thing they were working at the time. So they were working with Jerry Michelson and Scott Goodman, I think, on the Uptown Theater. And then for whatever reason, complicated deal, it just sort of fell apart. And then they came back to us on the salt shed, and that's when [01:02:28] Speaker A: it really came back to us. And then the second time we got it done. And, you know, they've been. They've been great partners and they've done a great job, but we had to pass, I think, two or three city ordinances to even make that thing happen. [01:02:41] Speaker B: Was there a tailwind or a headwind with the city when you proposed that? Well, you look at it now, and it's. [01:02:47] Speaker C: Depends on the department. [01:02:48] Speaker B: Yeah. [01:02:49] Speaker A: So. So, interestingly, I love the Rahm administration. They did a great job. Interestingly, Lincoln Yards was sucking all the oxygen out of the room at that point in time. And this whole area was the sacrificial lamb to kind of stay industrial. And we didn't get a lot of love while Lincoln Yards was going on. And then Lightfoot, Covid, and they were like, this is what they wanted. And they were super supportive. I mean, we had to pass multiple city ordinances. There were a lot of challenges, and we got it done. Then, you know, when Covid hit and [01:03:27] Speaker C: we were like, Samir, who was the deputy chief of staff under Lightfoot, I [01:03:30] Speaker A: mean, he was incredible. You know, Covid, we're like, okay, like, when are we gonna be able to even have a concert? That was scary. But it turned out to be a huge. [01:03:38] Speaker B: At least, right? [01:03:39] Speaker A: Yeah, it was that side. Yeah. And it just turned out to be you know, obviously a huge demand driver. [01:03:44] Speaker C: And Burnett. Burnett was a supporter from day one, but. [01:03:47] Speaker A: But, yeah, it's been great, and we have great partners on it. It's really important. Really important. And, yeah, it's a project a lot of. A lot of people know. But look, I'm just as proud of stuff that people have never heard of, like where we did really good work, you know? [01:04:03] Speaker B: Yeah. I mean, that one. That one was real splash for this. You know, people go there and enjoy. Like, they think about how many thousands of people go there and enjoy that. You fought that fight. You know, people don't know the story, and they don't know the work that went into it, but it's got to be gratifying to see that many people, like, enjoy it on an annual basis. [01:04:22] Speaker C: The funny thing is that the thing about that project I like the most is that we didn't jump the shark. It's really easy with a big venue, Something that's sexy, that's a big project to try to make it too nice, to kind of miss the boat, miss the 80, 20 rule. [01:04:35] Speaker B: Yeah. [01:04:35] Speaker C: And when you go there, you have a real sense that it was a salt shed. Yeah, that's what it was. [01:04:40] Speaker A: Yeah. [01:04:40] Speaker C: And I think that's what, like, Craig and Bruce, and we do it too, but they're just really good at, like, pulling in, like, the authenticity of a space in the building. Seeing the river, seeing the highway, seeing Elston. And it, like, it feels like Chicago. I've always said Chicago kind of as a marketing problem. And, like, that building and what they built there just feels Chicago. I grew up here. I grew up in the city and stuff. And, like, I think that's more than anything. That feeling is resonating. [01:05:04] Speaker A: And I got to give. I got to give Michael Polsky, who's our investor in that, a shout out in his family office. I mean, he came in on short notice in December 2016. [01:05:16] Speaker C: It was December 2016. Michael showed up. We gave him a tour with you, me and Max. The building was in such disarray and had no lights in the shed that I went to Home Depot and I bought those big floodlight flashlights. We had four of them, and there were, like, bats flying around and pigeons and stuff. You know, it gets, like, dark at 4pm in December and stuff. And at the end of the meeting, Michael was like, well, if the numbers look good, I'm in. [01:05:38] Speaker A: Yeah, it's. [01:05:39] Speaker B: I mean, you could look at it now and say, oh, it's obvious that somebody you know, at that level would want to invest in something like that. But at that point, it was pretty abstract, you know, and it was so raw that you need a guy with that level of like, entrepreneurialism to go for it with you and to trust. [01:05:55] Speaker C: We walked in with big institutions and every single one of them said, this has the potential to be an awesome project. Like, they had vision for it, but they were like, we have no structure in which we could ever do something like this. [01:06:06] Speaker B: Yeah, maybe some of the answer you. You guys have rattled off a number of partners that you have and people that you've worked with that I probably part of the answer. But when you're doing things differently and when you feel, you know, I feel like you guys are leading the charge in your space. Like, where. Where do you look for inspiration for what you're doing? You can't really just look at people that have done it before some way because you're doing things differently. [01:06:29] Speaker C: Well, Matt likes. Matt likes Ralph Lauren. [01:06:32] Speaker A: So. Okay, yeah, so this is a little embarrassing, but like, I didn't know a lot about Ralph Lauren, but there's this documentary called Very Ralph. [01:06:40] Speaker B: Okay, we'll watch it tonight. [01:06:41] Speaker A: You should watch it. And it actually like, kind of resonated with me because, like, he's not a designer. Like, he doesn't. He wasn't. [01:06:48] Speaker C: Well, hold on. Tell us how you were in Jamaica. Matt goes to Jamaica. [01:06:50] Speaker A: Yeah, so I go to Jamaica a lot. And his house is there and you can see it in the distance. And then I saw his wife like walking around the golf course and I was playing it because she comes over to that property and walks the trails and stuff. So I was like interested in him. And he's got this cool house in Jamaica and stuff. And then people there were like, oh, yeah, he's in town right now because I know because my friend works there and you have to wear like a white tux to work when he's there. So my wife was like, let's watch this documentary. So we watched it and it's like, he doesn't make clothes. He figured out how to get people to make clothes in the way that he wants. And he's just good about designing everything. And he like creates these. Like, he's got the house in Jamaica, he's got thousand acre ranch in Colorado and stuff like that. And he like immerses himself like in the lifestyle of the stuff he's trying to create. And he really talks about, like, he's just trying to make things that make people feel a certain way. [01:07:41] Speaker C: So. So the clothes are Just like a byproduct of this universe that he creates. I think like Brendan Sotakov does a great example. [01:07:48] Speaker A: He does the same thing. Yeah, yeah. And he, yeah, he's like immersing himself in this universe to like. And it like resonates with people where they like, they don't know why they like it, but they just like it. [01:07:59] Speaker B: It's hard. Like I would imagine I'm not good at doing that and I have a hard time. Like people that are like very cerebral and take the time and have enough people that work with them that give them the ability to think sometimes because it be in that state, you have to be clear headed. You can't be like playing defense all day and like clearing out your inbox and responding to people. Isn't that. Aren't those things like in conflict with one another sometimes? [01:08:24] Speaker A: They definitely are. [01:08:25] Speaker B: There's so much shit. [01:08:25] Speaker A: I mean I don't know how you're. [01:08:26] Speaker B: But then you're also trying to think and like think about your business and the vision you have for it. Like big picture. [01:08:31] Speaker A: I don't know how your email situation is, but mine feels like it's a 30 or 40 hour a week job just on email. And that's a problem. Like we're all gonna have to do something about that at some point. But I would say for like the first part of my career, like I was really involved in like financial creativity, you know, to figure out how to make these things happen. And as I've gotten more and more involved in like the boots on the ground operating of the buildings now I spend a lot more time thinking about design. Zach's a much better designer than me and he can do stuff like this and everything. But I appreciate design and I think it's really important. And I'm really focused on like we buy an old building. For 30 years people have been building whatever tenants want. It's a gerrymandered thing of floor plans. I'm focused on like how do you demise this building in a way that it's like versatile. What's the word that I use? I don't know if I should say it. I mean, but there's a word, there's a bad word that I use for it now. Now let's say you got to do I'm something. [01:09:29] Speaker B: We don't have enough people. [01:09:30] Speaker A: And I think that really like requires a lot of creativity because like it's like. And like, you know, I think people think we work with some great architects, but I think people think you can just like, go to an architect and they're going to figure it out. They don't spend all day thinking about loft buildings and walking around them and looking at everything and stuff like that. [01:09:46] Speaker C: So I just think when you're obsessed with product and you're obsessed with, we call it like, user experience. So they use it a lot in, in tech. Right. And like, you have these things that can create friction where you, like, lose people. [01:09:57] Speaker B: Yeah. [01:09:58] Speaker C: So, like, if you're Sotakoff, if you're Ralph Lauren, you're creating a universe where, like, the smell, the color, the patina, the texture, like, everything is paid attention to. But it goes further. When you're in real estate or you're selling a product, what's the price? How are we selling it? What's the salesperson like? Like, what is the entire, like, workflow experience of the user in that product? We're thinking about that in terms of. [01:10:20] Speaker A: You're tethered to the laws of economics. [01:10:23] Speaker C: So when you talk to, like an architect, like, they're not thinking big product, they're focused on the architecture. The interior designer is just focused on that. The tenant rep is just focused on price per square foot. Like, we want to have the entire experience figured out for the tenant. And that comes down to when Matt says, respond in 24 hours, tell them what we want to do. Like, we're the experts at demising office. We do it all the time. Why should the tenant rep be doing that? Why should somebody who's never built out an office space be doing that? Then you're a taker of pricing and you have all these bad outcomes that happen because you lose people because there's too much friction. [01:10:53] Speaker B: What I've heard you guys say is you're like, obsessed about what the brand of R2 is too. And it's not just branded is maybe a lazy word for it. But to me, when I think of, like, Ralph Lauren, it's. It's not just, you know, the clothes he makes. It's when you go to the, you know, you go to his. The rl, you know, off of Michigan Avenue, the restaurant. But it's way deeper than that. It's the whole thing. It's how he carries himself. It's what he's, you know. And so with R2, it can be the type of buildings you buy, the type of website, the design, you know, all the. The fonts that you have on the, you know, the signage in the build. Everything is a little bit different. But then it's also when they get to know you Guys, it's still a reflection of that. Everything kind of reinforces it. You know, it's like the whole we're [01:11:35] Speaker C: not perfect, but it is a goal of ours. Right. And like, good example is there's a developer, Bill Smith, who you go to any of those building. He built industrial buildings, he built apartment buildings, office buildings, and even today you go to any of his buildings and you know, it's a Bill Smith building. My goal, our goal is that you walk into an R2 building and you know it's an R2 building. You don't need to see the logo. You don't need to have a sign on it. You just know it. [01:11:58] Speaker B: And Bill was building him at a time too, that, you know, a lot of people were doing very, like, say trendy, but like very modern and kind of cold. And he was enough on trend to be on trend. But it's aged so much better than a lot of stuff of that. [01:12:12] Speaker A: He was a really good developer. [01:12:13] Speaker B: Yeah. Really had a touch to it. [01:12:14] Speaker A: Yeah. [01:12:15] Speaker B: So let's wrap it with a couple. I'm going to a couple quotes from your year end letter which you shared with me, which is fantastic. And I'm sure you guys will say something humble about the year end letter, but it's. It's truly fantastic. And they're the first page of it at a quote in bold underline. There's no substitute for giving a. [01:12:34] Speaker A: You want to take that one. [01:12:35] Speaker B: So much of it. I'm not cheapening the letter because so much of it is incredibly eloquent and thoughtful. So I'm not trying to pull some, like, crass statement out of it, but like, to me, that like, punctuated the tone. [01:12:48] Speaker C: Well, like, like, yeah, we like, we like, buy buildings we actually like and want to own. [01:12:53] Speaker B: Yeah. [01:12:54] Speaker C: And I think like, when you're. Again, if you're in an allocator model, it's a different business. You gotta. If you're buying multifamily, you go buy multifamily. Like, it may not be you, like, love the building or not. Like, we want to work on buildings that we would want to office in ourselves. Or if we were 22 years old, that's a building we would be. Want to have an apartment in. Right. So, like, it sounds simple, but we actually just get a good feeling from buildings. And then if we really like it, it's a good, like we start with that and then if the numbers work afterwards, then. [01:13:24] Speaker A: But it's also just like people like, it's like, okay, like, there's a guy watching Your car. Like, you know, anyone can watch a car, right? But like, you ever seen a guy who's like, yeah, like really watching your car? He gives a shit? Like, he's the best guy there. He's. Could be the maintenance guys at our buildings. [01:13:39] Speaker B: Yeah. [01:13:39] Speaker A: It could be a leasing guy. Like, it's really like, it's actually like the most important thing. I would rather have someone who's like, not even as good if they really care. You're gonna get a better result. [01:13:53] Speaker B: Well, those, I mean, the people on your team too are some of the people that are like the touch points of your business and for your customers, right? [01:13:59] Speaker A: Yeah. [01:14:00] Speaker B: Like, you'll go meet your lenders, go meet your investors. And I know you guys are very hands on with the building, so I'm not downplaying that. But like the maintenance guy that shows up to take care of an issue is the more important interface for the customer than you guys are. [01:14:12] Speaker C: They're the tip of the spear. [01:14:13] Speaker B: Yeah, 100%. And so the last was the opposite on the last page. The opposite of indifference is love. That word isn't used often in investing, but maybe it should be. Why? I mean, you love the buildings, but [01:14:29] Speaker A: like, it's more the. Yeah, it's like, you know, in the context of the letter. It was a long letter, right, That I think you read. [01:14:37] Speaker B: But it's like three weeks worth of reading for me too. [01:14:41] Speaker A: Like, indifference is giving you shit's important. Indifference is the worst thing you could have. The best person in the world and if he's indifferent. Yeah, you're in big trouble. And I was trying to think of like, what's the opposite of indifference? Right? And I came up with love, which is not something that you normally. You don't say. It's people you work with. You don't say it. And it doesn't, doesn't mean like, I love you. It means like show love with what you're doing. Like show. And then we use the phrase, it needs some love. That's what we say when we walk. That's good building. It needs some love. What does? And like what that really. [01:15:16] Speaker C: But to me, it's also love. [01:15:17] Speaker A: What that really is in this context though is it's the opposite of indifference. Yeah, that's, that's what I was trying to say. [01:15:22] Speaker C: And like, to me it's like, like real estate's hard. Like on a day to day basis, everything's two steps forward, one step back. We had a massive, like, plumbing leak at a building we love the other day. And you know, like our entire construction team had to go over there we had to pull them out of the basement because we were worried about hitting the switch gear Things are hard and they come up the last like it's a hard business it's hard to buy real estate hard to operate buildings with an edge hard to sell real estate so like you gotta like have fun and actually like what you're doing and I think we feel very fortunate that we're get to have a lot of [01:15:53] Speaker B: fun along the way yeah well keep it up because we're enjoying the city's lucky to have you guys here doing what you're doing thanks for making the [01:16:01] Speaker A: time thanks man yeah, we appreciate it [01:16:02] Speaker B: thanks for making an exception on your you know I know you don't like [01:16:06] Speaker A: to do I'm gonna go back to being reclusive now but it's cool this [01:16:09] Speaker B: was good all right well thanks for [01:16:11] Speaker A: doing it yeah it.

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From Chicago Board of Trade to The Salt Shed. Meet Chicago's Most Creative Developers: R2

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