Ben_Miller_2024_real_estate_v2
00:00:00.000 | Hello, everybody. It's Sam from the Financial Samurai podcast. And in this episode, I have
00:00:12.700 | a special guest with me, Ben Miller, founder and CEO of Fundrise. Welcome to the podcast
00:00:18.700 | again, Ben.
00:00:19.700 | Hey, Sam. How's it going?
00:00:20.700 | I'm really looking forward to talking to you because you have made a pretty big turnaround
00:00:26.080 | in terms of your outlook for 2024 real estate. Last time we spoke was at the end of August
00:00:31.240 | 2023, and you seemed much more cautious back then. But I listened to a latest episode on
00:00:37.600 | Onward, the Fundrise podcast, and it was entitled Buying the Bottom. So to me, I was like, wow,
00:00:44.960 | buying the bottom. Is this it? Are the good times back? So I'd love to hear from you what
00:00:50.520 | your new thesis is for this year.
00:00:52.840 | Yeah. I mean, it's exciting. I'm very bullish on real estate. We went through 18 months
00:00:59.960 | of declines in real estate as a result of interest rate hikes. So real estate is inversely
00:01:08.280 | correlated with interest rates. Another way to think about interest rates is just like
00:01:11.920 | your P/E multiple. So same thing happened in tech. Same thing happened in the stock
00:01:16.520 | market. You know, multiples fell. And basically in real estate, they essentially fell 50%.
00:01:22.440 | So a property that was pricing at a four-cap rate is now pricing at a six-cap rate or something
00:01:27.800 | like that, for example. And so a cap rate is the same as a multiple. It's just inverse
00:01:33.560 | of multiple. So, you know, like a five-cap rate is a 20 multiple. So interest rates drove
00:01:40.120 | multiples way down, and that drove prices and valuation way down. And now interest rates
00:01:46.520 | have, in my view, they've peaked, and we're going to see interest rates start to fall
00:01:51.240 | this year. And as they do, it's going to start driving real estate prices and multiples back
00:01:57.880 | up. Sure.
00:01:58.840 | So in some ways, it's really simple. I mean, I honestly believe most investing actually
00:02:03.480 | is about trying to keep it simple. Right. And so back in August 2023,
00:02:09.240 | I was a little bit more bullish, partly because I was in the hunt to buy another property.
00:02:14.840 | But it seemed to me that inflation did peak already, right? 9.1% in, I think, June 2022.
00:02:20.360 | It's been rolling over ever since. So back then, wouldn't it have been clear that eventually,
00:02:27.880 | sooner or later, the Fed would cut rates? Therefore, nobody should be selling in 2023,
00:02:33.720 | and people should be buying? Or is that just easy to talk about in hindsight now that Jerome Powell
00:02:38.840 | has specifically said, well, three rate cuts potentially in 2024?
00:02:44.280 | Yeah, I think technically the bottom was October. And so in October, just to try to put us into the
00:02:51.320 | mindset we had then, there was a lot of talk about interest rates going essentially to 10%.
00:02:57.560 | The Treasuries, they'd gone from 3.5% to 5% in about 90 to 100 days from August when we were
00:03:08.280 | talking to October, they went up, was equivalent to like 35%. And in that moment, people were
00:03:15.960 | arguing that there were so much supply of Treasuries coming to market, there was going to be
00:03:21.320 | a lot of borrowing by the federal government, there's going to be huge deficits, and all of
00:03:25.320 | that would basically lead to higher interest rates because the market couldn't absorb
00:03:30.280 | that much new borrowing by the government. And so there was an expectation by part of the market
00:03:38.040 | that the long-term interest rate would go to six or seven, or even 10. And there were people out
00:03:43.640 | there talking about that. So it wasn't clear until November that that basically wasn't likely.
00:03:49.400 | I didn't think that was likely either, but essentially, I can tell you why. As a result
00:03:55.880 | of that sort of uncertainty about the long-term rate, you had basically reluctant buyers because
00:04:03.080 | you didn't want to buy a falling knife, and reluctant sellers because basically, they didn't
00:04:09.080 | want to sell into a market that they think would improve later. So there was a frozen market,
00:04:18.280 | essentially zero transactions of consequence happened last year. It wasn't a good time to
00:04:22.840 | sell for sure. I don't think it was obvious in August that inflation and rates would basically
00:04:29.480 | be tamed by the end of 2023. Well, in terms of buying the bottom,
00:04:37.640 | so that implies that sellers probably should not be selling at this time. What do you say to that?
00:04:44.280 | And why would someone want to be selling at this time if we're really just off the bottom right now?
00:04:51.720 | Yeah. There is no willing seller. There's only forced sellers in the bottom. And so,
00:05:00.040 | what's happened in the real estate market is that basically, a lot of borrowers borrowed
00:05:07.240 | too much money when rates were zero. And they basically have to either pay down their debt or
00:05:14.360 | sell. And that's inevitable. Those rates aren't going back to zero.
00:05:22.120 | True. And so, the question is basically,
00:05:25.480 | how long can they hold on? And what's happening is like a herd that slowly loses the weakest
00:05:31.960 | members of the pack and you sort of hunt it. The borrowers can only hold on so long.
00:05:37.400 | And the two things that are happening is that there are borrowers who are capitulating
00:05:43.480 | and also buyers like us who look at the long-term rate and price and say, "Okay,
00:05:51.240 | the gap is basically not so large as it would have been in October." And so, sellers and buyers have
00:05:59.720 | to meet somewhere in the middle. And that means if you're a buyer, you have to get
00:06:03.960 | a little bit aggressive. Everybody wants to buy at a price that makes them feel comfortable.
00:06:09.560 | Normally, when you're buying something in a downturn, like I remember I bought something in
00:06:13.080 | 2010 and I was freaked out. I just thought, "Oh my God, I can't believe I'm buying this thing
00:06:17.800 | right now. It's so dangerous." And I looked back and I was like, "Oh my God, I stole it."
00:06:21.800 | Yeah.
00:06:22.200 | So, during a downturn, emotionally, you feel fearful. And during an upswing, emotionally,
00:06:28.840 | you feel confident. And it's really ultimately the opposite of what's happening in reality.
00:06:34.840 | Yeah, right. So, Ben, you just gave me an idea regarding using the cash in various
00:06:41.400 | funds to take advantage of opportunities. So, for example, let's say you buy a distressed
00:06:47.400 | property deal, which you think is good from the flagship fund. Could you then support that deal
00:06:53.080 | with the cash from the income fund to try to make a better return for the income fund and support
00:06:59.480 | the deal for the flagship fund to make it a success later on? Or is this wonky thinking on my part?
00:07:06.520 | From a regulatory point of view, you have to be really careful crossing funds
00:07:13.080 | and/or co-investing. So, you can't have a perception or reality, but either can be
00:07:20.520 | problematic, of one fund bailing out the other. Even if you do it with good intentions, nobody
00:07:26.360 | presumes good intentions of anybody in the financial industry, which is largely right.
00:07:33.080 | So, you can have funds investing shoulder to shoulder, side by side, same price, same terms.
00:07:40.840 | But even that requires independent review, which you have to have independence to basically make
00:07:47.800 | sure that the transaction is kosher. So, it's challenging. You want to be careful and generally
00:07:55.480 | want to avoid excess complexity. Yeah. No, that makes sense. Thanks
00:07:59.960 | for clarifying that. So, Ben, what are your thoughts about office, big city office properties?
00:08:06.440 | Because you see the big coastal cities like New York, San Francisco, office properties are getting
00:08:12.280 | sold for 50%, 60%, 70% down. To me, I'm thinking to myself, if there is a fund out there that is
00:08:20.120 | specifically looking at buying office property down 60%, 70%, whatever, 80%, I want to allocate
00:08:26.520 | some of that capital right now because I think in 10 years, 20 years, it could be worth much more.
00:08:32.120 | What are your thoughts on investing in that space and potentially starting a fund to invest in that
00:08:38.120 | space? Yeah. I've been waiting for the office
00:08:41.240 | market to really reprice and it actually hasn't repriced very much. I saw a transaction happen
00:08:48.360 | outside DC in Bethesda, which is the wealthiest part of the suburbs of Washington. And somebody
00:08:56.280 | had bought this 40-year-old building, but it had been fully renovated. It was purchased in 2019,
00:09:03.320 | fully renovated, went into foreclosure and got purchased. And the difference was in 2019,
00:09:09.880 | the price was $390 a square foot, plus they invested in renovating the building and bringing
00:09:17.400 | it up to kind of a modern standard. So they probably were into it for 450, I bet, maybe
00:09:22.680 | 500 a square foot. And the new buyer bought it for $89 a square foot.
00:09:28.120 | I mean, it's unbelievable. I mean, just that fact makes me salivate and want to buy.
00:09:32.760 | Yeah. But is there potentially no upside to that?
00:09:35.880 | That one I think is interesting. I'm just trying to give a specific example of what makes it
00:09:40.920 | interesting and then what the risk might be. So it's near the metro, it's in Bethesda. And so if
00:09:47.560 | I think about it from a macro point of view, you sort of say, okay, well, you probably at this
00:09:52.680 | point, you want to be investing in sort of less urban neighborhoods actually, where you still have
00:10:00.760 | public transportation, but you're not going to worry in that instance about crime and the suburbs
00:10:06.120 | have seen a lot of growth as a result of work from home. So that deal actually was one of the
00:10:12.520 | first deals I saw where I thought like, that's probably a really good deal. Mostly I haven't
00:10:17.560 | seen transactions that deep a discount in that good a location. And so you really have to be
00:10:23.720 | pretty deeply discounted, I think, before it becomes attractive, because the problem you have
00:10:31.000 | with office is that it's a vicious cycle. This is the danger of investing in distress, is that
00:10:40.120 | distress can get more distressed. It's like when Sam Zell bought the Tribune because he
00:10:47.400 | thought it was a distressed newspaper and then it just went bankrupt. How much risk are you
00:10:55.560 | actually taking I think can be tricky because over the next probably decade, you're going to see
00:11:03.640 | deterioration in office space. And so you'd have to be getting a really good discount. You have
00:11:10.600 | to be getting the right property in the right location. And I think it's still early, super
00:11:16.120 | early. I mean, I think we have half a decade, sort of like the mall industry. I mean, it's still
00:11:21.400 | dying and it hasn't died yet. You're just such a long downturn. I mean, malls have been dying since
00:11:28.920 | the introduction of e-commerce 20 years ago. And I think of e-commerce in 1997 versus now,
00:11:37.080 | think about work from home now versus what it's going to be like in 10, 20 years.
00:11:42.280 | We're going to see a lot more change, virtual reality, 3D, AI, and it's just going to continue
00:11:48.920 | to eat away at office. It is getting interesting, but it's not clear. I don't think it's at the
00:11:55.240 | bottom with some exceptions. Yeah. No, that makes sense. I mean,
00:12:00.040 | if I put on my economist hat, could I say that the destruction in office property wealth
00:12:06.840 | can simply be shifted towards the value creation of residential property wealth
00:12:13.480 | because more people are permanently going to be working from home longer? Could that
00:12:18.440 | be a simple thesis? And if so, does that mean residential will permanently see an uptick in
00:12:26.200 | value for, I don't know, as long as we shall live? Well, I mean, I'm hesitant to say permanently,
00:12:32.360 | but I think that the parallel between e-commerce and work from home is there. And so just to
00:12:38.360 | put a finer point on it, right? So retail and malls were just devastated by e-commerce and
00:12:44.120 | industrial was the beneficiary because industrial was not an institutional asset class back before
00:12:50.360 | e-commerce. And what happened was every three square feet of retail you lost, you picked up
00:12:55.000 | one square foot of industrial. And obviously Amazon got a lot of the economics too. So it
00:13:01.400 | wasn't one for one. So maybe a third of the value that was destroyed was picked up by industrial.
00:13:09.000 | So I think that some ratio like that exists for residential too. And as office loses a trillion
00:13:15.320 | dollars in value or maybe more, residential picks up something pretty significant. And so it's
00:13:25.000 | my experience buying in real estate and also in tech is that it's much easier making money when
00:13:32.280 | the tailwind, when the macro's behind you, pushing you, helping you. And it's really
00:13:38.520 | challenging to make money when it's against you, when the wind's at your face. There's things that
00:13:44.120 | are really hurting. I was in the retail business. I actually have a decent experience in it.
00:13:49.640 | And so you just have to work a lot harder. And I'm not sure the return, let's say if you can get
00:13:57.160 | teens or even greater return in residential, how much more are you getting for buying office?
00:14:05.320 | You're not going to get that much more. And you're just taking... Because the problem is
00:14:10.360 | the other side of that is where's your liquidity? Who's the buyer? I have a friend who went to work
00:14:17.480 | for TV news. He was a TV news professional in 1999 and his career just never... 20 years later,
00:14:26.360 | he got out of TV news because the ratings only went down his whole career. My experience with
00:14:33.320 | macro is all things being equal, you definitely want it at your back, not at your face.
00:14:38.200 | Right. No, that makes sense. That totally makes sense. In terms of price forecasting,
00:14:45.720 | what I found interesting is in 2023, if you look at the St. Louis Fed data, it shows the median
00:14:50.840 | home price is down 8% as of third quarter 2023. And maybe it'll only be down 5% once the fourth
00:14:57.480 | quarter data comes out. But then you look at the Freddie Mac index and the Case-Shiller index,
00:15:02.040 | and it says the median home price is up 2% to 3.5%. So I guess two questions for you. One,
00:15:09.400 | which index do you believe and where do you think or how much did home prices increase or decrease
00:15:16.120 | in 2023? Single family homes is like a non-institutional business. It's home buyers
00:15:22.840 | want to live there. So it's a consumer product actually. And I don't really think either is
00:15:28.760 | probably correct. It's probably some mix of the two. I think generally what people saw was that
00:15:35.000 | prices didn't fall very much and sometimes they went up a little. And so 8% down seems
00:15:41.400 | high to me from the Fed data. But at the end of the day, I think that my takeaway is that
00:15:48.040 | home prices didn't fall, which I basically was pretty sure I was saying at the time. I didn't
00:15:53.560 | think they were going to fall. They didn't fall because the way homes are priced is based on
00:16:00.920 | supply and demand. And when rates went up, there was no supply of existing homes to market because
00:16:07.080 | no one wanted to sell a home with a 3% locked in mortgage. And so there was undersupply of housing
00:16:12.440 | available for sale and that kept prices up. So I think that the risky look at pricing is the primary
00:16:21.720 | stat when you're thinking about value. 2021 should have proven that out for anybody who is an
00:16:28.520 | investor. Right. And so in 2024, do you think there will be an increase in demand more than
00:16:36.280 | the increase in supply? Therefore, prices will go up. And if you believe that, how much do you
00:16:41.160 | think prices can go up in 2024? We're talking about for housing and for institutional real
00:16:45.400 | estate because I'm much more in the weeds of institutional real estate than single family
00:16:50.760 | consumer housing. Right. Let's talk about institutional real estate where investors can
00:16:55.800 | benefit from what Fundrise invests in. I don't think of it in terms of like a 12-month
00:17:01.000 | cycle. I think of it in terms of like you're buying a price and usually you look at price
00:17:07.960 | based on a price per square foot or price per pound. Like the office building, $89 a square
00:17:14.440 | foot. Well, that seems like a good price, right? You don't even know what the yield is on that
00:17:19.960 | office building. It might be terrible. It might be attractive. Buying yield in 2021 was a mistake,
00:17:25.560 | right? Because interest rates were so low. Yields were pushing prices up. Today is the opposite.
00:17:31.400 | Interest rates are a lot higher and that's pushing the price down. So I look at the price per square
00:17:38.360 | foot and say, "Okay. Well, I'd much rather buy a depressed price per square foot even if it
00:17:43.080 | looks like the yield is not as good as it was in 2021." So anyways, just to get at your question,
00:17:50.280 | real estate multiples or real estate cap rates, they fell 50% in the last 18 months because
00:17:56.920 | interest rates went from zero to five and a quarter or five, you know, or so. Or if you
00:18:01.880 | think about it like all in, you could borrow at 3% or less during 2020, 2021 and then now you have
00:18:11.000 | to borrow at six or 7%. So interest rates basically doubled. That's why cap rates fell 50%.
00:18:17.000 | I don't think interest rates are going back to zero. They probably end up halfway in between
00:18:20.120 | where they were and where they are. I almost call it 2.5%. That'd be 2.65% or something halfway in
00:18:27.640 | between. So that would basically mean that you have multiples could increase by 25%. They still
00:18:33.400 | fell 50% and you get back half of it just on normalizing interest rates. You should have 25%
00:18:39.080 | potential gains in movement in rates. And that doesn't include natural growth from
00:18:47.240 | rents or from buying something really cheap or renovations or things like that or income.
00:18:56.040 | You buy a property that has a 5% income, you get that too. So if I think about returns, I stack
00:19:05.560 | them in three ways. You look at your income and that might be typically 5% to 8% on a stabilized
00:19:13.000 | property. You look at your rent growth or inflation and let's say that's historically been 3%. So you
00:19:19.720 | end up with like a 8% to 12% return there, something like that. And then if cap rates can
00:19:27.080 | move 25%, you know, over say two years, that gets you to a pretty good total return.
00:19:34.280 | That's how I would think about it.
00:19:35.720 | Okay. It's interesting how you think about it versus how maybe like just the average
00:19:40.680 | retail investor thinks about it. Because for us, we think, well, how much is my home going to go
00:19:45.960 | up in one year or how much is my asset, right? Year over year growth. And from your perspective,
00:19:52.200 | there's multiple combination of factors and it's a longer term perspective. So I guess,
00:19:58.520 | you know, as an investor, let's say the property, there's no interest rate change,
00:20:04.680 | so no cap rate change. The only thing that changes is rent growth. So just trying to
00:20:12.840 | understand this. So let's say rent growth is 5% for this one complex properties.
00:20:18.600 | How much does the NAV of that property change in the fund?
00:20:24.120 | Yeah. So if you had a property, like an apartment building, let's say had
00:20:28.680 | free cashflow or income of 5% and then you had rent growth of 5%, you would look at that and say,
00:20:36.680 | "Well, that's a total return of 10%." And then the NAV would pick up the 5%
00:20:42.200 | in appreciation and the dividends would pick up the 5% in income.
00:20:47.960 | Okay. So it would be exactly how it is. Like if there's 5% rent growth,
00:20:52.360 | let's say there is no appreciation in terms of like no change in cap rate, it's 5%.
00:20:56.840 | Yeah. Because the income went up 5%. It's sort of like, if you think about a company,
00:21:02.760 | if their earnings grow 5%, right? And their multiple doesn't change,
00:21:06.920 | then their stock price would go up sort of commensurately.
00:21:09.160 | Right. Got it. Okay. I think that's helpful for investors and listeners. So what I've gathered
00:21:17.000 | from this is, well, rates go down, cap rates go down. Over a two-year period,
00:21:23.320 | it sounds like we could see eight to mid-teens growth.
00:21:27.400 | I mean, it's not going to happen linearly.
00:21:31.640 | Sure.
00:21:32.360 | Most change happens non-linearly. Sorry, not to get too philosophical, but we experience time
00:21:37.880 | in a linear way, but actually most change happens in these sort of catalytic ways where
00:21:45.640 | the market recognized in November that inflation was coming down and it just shifted by 20,
00:21:52.840 | 25% in 60 days. So I believe that's going to happen in fits and starts and there'll be moments
00:22:00.840 | of fear along the way. But yeah, that's my view is that there's a lot of room for rates to come
00:22:11.080 | down, multiples to normalize and prices to follow.
00:22:15.000 | Right. Well, it's interesting in the last couple months of 2023, you saw bond prices increase,
00:22:21.960 | 10-year treasury bond yields go down to like 3.8%, stock market rally. I feel like maybe we're
00:22:30.280 | getting a little bit ahead of ourselves. We've pulled in a lot of growth based on a huge rally
00:22:36.120 | in the end of 2023. And now you're seeing the 10-year bond yield go back up to back up to almost
00:22:43.000 | 4% again. What are your expectations for the number of Fed funds rate cuts this year? And
00:22:51.240 | where do you see the 10-year bond yield finishing at the end of this year? It's currently at almost
00:22:56.120 | 4% again.
00:22:57.320 | I don't normally think that way. It's the whole Ray Dalio,
00:23:01.160 | I'd rather be approximately right than precisely wrong.
00:23:03.960 | Oh, okay.
00:23:05.080 | So whatever number I tell you is going to be precisely wrong on December 31st, 2024.
00:23:09.480 | But I think approximately right is that rates are coming down. I don't think there's much
00:23:16.600 | debate about that. I think that the economy is still slowing, that high rates are slowing the
00:23:25.080 | economy and it's going to slow inflation and that may actually hurt the stock market because growth
00:23:29.960 | is going to slow for a lot of companies. And it's like an interesting thing where the stock market's
00:23:37.880 | near the 2021 peak and real estate's pricing at 50% or huge discount, whatever you want to call
00:23:43.960 | it, 20 to 50% discount. So that seems to me like an opportunity in private markets where the public
00:23:50.680 | markets seem like they... Yeah, they do seem like they got ahead of themselves, but it just depends
00:23:56.360 | on your horizon. I think two years from now, we're going to look back and say that's like
00:24:00.520 | too high a price, probably not. But six months from now, we get probably so.
00:24:06.360 | Yeah. No, I like that saying. I haven't heard that saying. Yeah, at the end of the day,
00:24:10.280 | we're just making predictions, but we've got to operate our investments
00:24:14.600 | somewhat based on our predictions. Otherwise, we're being incongruent with thought and action.
00:24:20.440 | I'm pretty bullish on 2024, which makes me kind of hesitant. Every time I get bulled up,
00:24:24.440 | I'm thinking, "What am I missing? What could go wrong?" I mean, it seems like maybe
00:24:28.840 | inflation could pick back up. I mean, I was at the gas station the other day and I was like, "What?
00:24:33.240 | Gas is back up to $5.40 a gallon. Natural gas prices for your home is probably back up."
00:24:38.600 | I'm thinking, "Oh, no. Hopefully, inflation doesn't go back up like it did in the 1970s.
00:24:44.600 | Then it's going to be higher rates for longer." Do you have any of those type of fears that
00:24:50.200 | inflation could be kicking back up again in 2024? I mean, I've been fairly consistent about this and
00:24:56.280 | I've been wrong so far, but I basically believe that inevitably high rates and quantitative
00:25:01.880 | tightening will materially slow the economy. I think it's happening as we speak. The Fed will
00:25:08.360 | be reluctant to drop rates soon enough. I think the biggest risk is on the downside where we end up
00:25:16.280 | with recession, not that we end up with inflation high forever or coming back. I think the Fed is,
00:25:24.440 | if you look at which error they're likely to make and they're likely to cut too much or cut too
00:25:28.680 | little, I think it's that they're likely to cut too little because of the whole institutional
00:25:32.760 | momentum behind their fear of repeating what happened in the 1970s. My view is basically,
00:25:39.320 | that's why I think the stock market is potentially a little bit ahead of its skis because
00:25:45.000 | if growth slows, then earnings growth, which are currently forecasted to be pretty decent,
00:25:51.320 | I think it'll be like 13.5%, if that slows, then basically that's going to be a problem for the
00:25:57.640 | market. Conversely, a recession would be bullish for real estate because it brings interest rates
00:26:04.040 | down and interest rates pulled down are much more consequential than profit growth.
00:26:10.440 | Just to put some math on that. As you said, let's say that normal profit growth or rent growth is
00:26:17.720 | 3% to 5% in real estate. I just said that multiples fell 50%. Take you a decade plus
00:26:27.160 | in profit growth at 3% to 5% a year to get back what you lost in multiples.
00:26:33.240 | If there's no change in rates.
00:26:35.480 | Yeah. Well, just to normalize, what's the bigger driver of returns, multiple compression or
00:26:42.120 | expansion or profit growth is clearly cap rate compression. My point is that if there's a
00:26:48.920 | recession, profit growth for potentially everything slows down, but that won't matter as much to real
00:26:55.960 | estate as the decline in interest rates. Got it. No, that makes a lot of sense. In a way,
00:27:03.960 | real estate investors might be rooting for a recession because it would force the Fed's hand
00:27:09.800 | to cut rates faster, sooner, and more than expected. Right now, the expectations are for
00:27:15.560 | three rate cuts, maybe 25 basis points each, bring down the Fed funds rate to 4.5, 4.75,
00:27:21.960 | which is still quite restrictive if inflation stays at 3%. That is restrictive.
00:27:27.960 | I'm of the belief that the Fed is going to cut more than three times and we can revisit this
00:27:34.760 | at the end of the year and that would bring more fuel or support the real estate market further.
00:27:40.520 | Yeah. Hold on. I have two things I want to debate with you. First, just let me go to the point about
00:27:47.960 | bad news is good news. I mean, for the last year, slowing economy has been a point of rallying for
00:27:55.880 | the stock market. The bad news is good news cycle, I think, has driven down inflation and driven up
00:28:03.720 | the stock market. But at some point, bad news becomes bad news. That's basically what I'm
00:28:09.160 | saying. A recession or a forecast around slowing growth is that actually bad news is not good news
00:28:16.120 | at some point. I think that when that shifts, the stock market could have a bit of a problem.
00:28:22.120 | Then your second point about rooting for the market to fall is definitely real estate industry
00:28:29.320 | and all these borrowers who have a problem extending their loans. They're rooting for
00:28:35.640 | a return to the 2010s. 2010s in terms of rates or prices?
00:28:39.480 | Both. It's a great decade for real estate. Yeah. Well, the way I think about it,
00:28:47.240 | I think about myself as a capital allocator. I look at asset classes that performed over the
00:28:52.840 | trailing 12 months. I look at asset classes that have underperformed over the past 12 months. I
00:28:58.760 | try to allocate more capital to the underperformers when there's a historical correlation with
00:29:04.120 | performance. We know real estate outperformed before 2023, but real estate underperformed in
00:29:12.120 | 2023 to the S&P 500 because S&P 500 was up 24%. Real estate was pretty sluggish. Depending on
00:29:19.640 | which index you follow, down 5% to up 3.5%, 4%. That's big underperformance for that year.
00:29:25.560 | I'm expecting a normalization of performance. That spread can't be that wide for that long.
00:29:32.040 | There's so much liquidity on the sidelines looking performance. When I look at the S&P 500 at 47.50,
00:29:37.640 | I'm thinking, "Well, it's kind of fully valid in my opinion." I'd rather be plowing money into
00:29:43.480 | real estate at this point because I think there's better diversification and more upside potential.
00:29:48.520 | Right. You're saying the same thing I'm trying to say. You're just saying it in a stock market or
00:29:58.600 | like a RIA language. Yes, that's exactly what I'm trying to say too. My view is
00:30:05.800 | totally aligned with what you just articulated. This is great. I think this is the first time
00:30:12.920 | in several years that we're totally aligned, which actually, again, makes me kind of worried.
00:30:18.840 | I'm like a promo optimist. I'm a realist too, but man, we're totally aligned. Okay.
00:30:27.720 | Let me just say it because I've been a perma bear for the last couple of years
00:30:32.360 | and you were an optimist. Now, I'm an optimist and you're an optimist.
00:30:39.080 | I'm still an optimist.
00:30:39.880 | You're still an optimist.
00:30:40.680 | All right. Well, I'll tell you what. Let's wrap up this episode here. It was great talking about
00:30:49.320 | real estate. In an upcoming episode, let's talk about the Fundrise Innovation Fund and
00:30:55.560 | Venture Capital. Thanks so much for coming on the show, Ben.
00:30:58.440 | Yeah, it was so fun, Sam.
00:31:00.520 | Thanks, everyone, for listening to the conversation I had with Ben about his outlook for real estate
00:31:05.080 | in 2024. It's nice to hear he's optimistic as I am. I also found it interesting that he believes
00:31:12.040 | October 2023 was the bottom for this latest real estate cycle. If you would like to explore the
00:31:18.040 | various Fundrise funds, you can go to financialsamurai.com/fundrise, F-U-N-D-R-I-S-E.
00:31:25.800 | Lastly, if you enjoyed this episode, I'd appreciate a rate, review, and a share.
00:31:30.840 | Every episode takes hours to record, edit, and produce, so I really appreciate your support.
00:31:36.440 | Fundrise has been a longtime sponsor of Financial Samurai
00:31:40.040 | and Financial Samurai is an investor in a Fundrise fund.
00:31:44.280 | Thanks so much.
00:31:52.600 | [BLANK_AUDIO]