People often ask me about my background in picking out REITs. My common answer is that I have a broad background in commercial real estate covering all aspects of brokerage, development, investment sales, management, leasing, capital markets, and REIT valuation. Over the last 25 years I have been involved in just about every facet of the value creation chain that includes three recessions including the last one that was also the "tipping point" for my writing career.
Over the early part of my career (1988-2002) Donald Trump was my biggest inspiration. It was during the early 1990's recession that I experienced "first hand" the agony of rising interest rates (1986-1989) that led to a weakened economy and an eventual eight month recession. I had just started to borrow money then so I was not exposed to the enormous debt like Donald Trump. But I remember reading Trump: The Art of the Comeback in 1997 and it brought life to my early career in development. As Trump explained:
Many people are afraid to fail, so they don't try. They may dream, talk, and even plan, but they don't take that critical step of putting their money and their effort on the line. To succeed in business, you must take risks. Even if you fail, that's how you learn. There has never been, and will never be, an Olympic skater who didn't fall on the ice.
Then by the early 2000s I was a seasoned developer and I had begun to feel like I was the "next" Donald Trump. I was 35 then and I had built up a comfortable net worth thanks to a fairly leveraged lifestyle. Although I had not experienced significant failure, I was in love with the "art of the deal" and I felt like I had conquered the world. As Trump said:
Real estate is at the core of almost every business, and it's certainly at the core of most people's wealth. In order to build your wealth and improve your business smarts, you need to know about real estate.
I was living the good life and my passion for deal making was infinite. Buying land, building shopping centers, and owning franchises was nothing but a "walk in the park". I simply felt like the money train would never stop. I was in a groove…and Donald Trump said it best:
It's tangible, it's solid, it's beautiful. It's artistic, from my standpoint, and I just love real estate.
The Great Recession
By 2007 I started to feel the train coming off the tracks. My business partners were large home builders and I was witnessing the housing bubble first hand. The banks and the bankers began to drop like flies. Most of my real estate was locked up in illiquid partnerships and I had bet big on what I love the most: commercial real estate.
I did not have a lot of staying power so I had to find a new strategy. I reached out to "The Art of the Comeback" and found these words of wisdom from Mr. Trump:
I've seen people that are extremely brilliant and they don't have the staying power. They don't have that never give up quality. I've always said that other than bad ideas, which is a reason for failure, the ability to never ever quit or give up is something that is very, very important for success as an entrepreneur.
Many of my friends had transitioned into new careers far away from real estate. I began to ponder the idea myself. It seemed that the financial crisis was going to be the nail in my coffin and I began thinking about a new career. But what next?
But I kept thinking about the words from my mentor, Donald Trump:
Stick to what you know.
Starting All Over Again
So by 2010 I had finally witnessed the bottom that Donald Trump felt in the early 1990s. Up until then, I had never known what failure meant and I had never experienced the humility and suffering of financial loss. Risk was finally a word that I understood and I began to reshape my thinking on investing.
I decided that I needed to reevaluate my life while also reflecting on the success and failures that now shaped my core values. I knew that there had to be answer so I kept digging…
One day I decided to go back to my roots. I was raised by my mother, a single parent, and I started thinking about all of the success experienced by her tireless work ethic - raising two boys on her own. I recall thinking about the ups and downs of the 1970s and the 1980s and the subsequent success that I had as a developer for almost two decades.
I began thinking about all of the economic hardships that other successful investors had encountered and then the light went off. Outside of Donald Trump, I knew of one other investor who has experienced similar deep financial distress and like me, this investor had reshaped his life to become one of the most intelligent investors of all time.
Enter the world of Benjamin Graham. His rags-to-riches youth shaped his entire outlook on money and he was quoted as saying:
Adversity is bitter, but its uses may be sweet. Our loss was great, but in the end we could count great compensations.
Graham's severe economic hardship left a very deep and permanent impression such that he emerged from those first hard years with an absolute drive to become very rich. As he once said:
The years of poverty since Father's death had touched me only lightly. They had developed in my character a serious concern for money, a willingness to work hard for small sums, and an extreme conservatism in all my spending habits.
Having witnessed failure first hand, I have grown to practice a similar "extreme conservatism" and that means that I now evaluate risk much like Warren Buffett said (and referring to Ben Graham):
They become part of your DNA when investing, you really can't go wrong.
Now you can see why I preach such a risk-averse outlook and why I spend considerable amounts of time on research and analysis. Although it's impossible to eliminate all investment risk, I try to minimize the risk by filtering out the disadvantageously positioned companies first. I like what Donald Trump said:
Do your homework before you invest. A dumb investor is a dead investor.
Some Passionate Picks
Usually I write articles late at night. It's not so much that I'm a night owl but I have a large family and I can't get much quality work done while being a ring leader in a circus (of 5 kids). Sometimes I get tired of writing but I always find the energy to stay on track. I think that comes from the love for real estate investing. Donald Trump said:
Without passion you don't have energy, without energy you have nothing.
Today we are seeing a tremendous opportunity in commercial real estate investing and although some of the REITs are expensive, I still find value in many of them. Interest rates remain at historic lows and there is a wave of opportunity for investors to benefit from the continued recovery that we are experiencing. I have included a list of some of my passionate picks, many of which I have previously written detailed articles on. I wish all the best for a safe and Happy Holiday.