Listen and subscribe to Counting Capital for free on the following platforms:
Apple Podcasts | Spotify | Google | Amazon
Robert Brunswick:
Hello, my name’s Robert Brunswick. I’m chairman of Buchanan Street Partners, a real estate investment management firm, and I’d like to welcome you to our Counting Capital Podcast, which we’ve created to basically provide knowledge to our investors, registered investment advisors, family members, and lifelong learners at large, where we provide topical information about real estate investing, investing more broadly, and specific businesses that we think are appropriate for our listenership to learn more about. It’s my great pleasure today to provide you with access to Tony Premer who used to run Pac Life’s real estate business, and I think you’re going to enjoy very much learning about Tony’s career and more over what he did at Pac Life and what he’s doing today. Tony, welcome. It’s great to have you on the program.
Tony Premer:
Great to be here, Robert. Thanks very much.
Robert Brunswick:
So let’s frame for our listenership a little bit about your background so they can understand how you grew up in the business. And you really are one of those unusual characters as in that you haven’t had lots of jobs, you really were primarily at Pac Life, but talk a little bit about your career and how you ended up in real estate.
Tony Premer:
Yeah, very good. So definitely not a job hopper. So I started really my business career with a public accounting firm now known as Deloitte. I didn’t have any great aspirations for being a partner of one of those firms necessarily, but I wanted to learn about numbers and financial statements and learn a little bit about accounting too. So I spent early part of my career with Deloitte roughly about three years, learned things about financial statements, learned some basic skills in business, which was helpful later. Ultimately, from there, I spent some time moving to an operating real estate company. That real estate company still exists today, but it really gave me a chance to go from one side of the business where I had a chance to review financial statements on behalf of other investors to being an operating partner effectively in a business to see, “Hey, how does a company run and how do you develop real estate and how do you operate real estate?” So really an interesting opportunity there.
And then the next stop after that was Pacific Life where I was for 29 years as you remark, so interesting spot there as well. And through my career at Pacific Life, I had a chance to work in various types of investment opportunities within real estate, bonds, mortgages, equity, all kinds of different types there, and also across many different property types as well. So all that in summation is a very quick trip through a long real estate career, but it started out as an accountant and ultimately finished as a guy that was running a real estate department for an institutional investor.
Robert Brunswick:
Perfectly played, great education, and real world experience. So as you may be self-reflect a little bit, Tony, on those experiences and you look at your own attributes, acumen, what your skillset is, what did you learn about yourself and what would you say is really your key ingredients that made you successful in that career path?
Tony Premer:
Yeah, so I would say this. Look, I think the training that I got was great, but I think you learn to be nimble in your career. The accounting business taught me things like how to test for overstatement or understatement of numbers, really understand how to be an evaluator of numbers. Are the numbers too high? Are the numbers too low? And I think that’s an important skill, a little bit of critical thinking maybe for that particular role.
Later on in my career, as the world changed, look at the early ’90s when the securitization of real estate first began, trying to understand structures, trying to understand the underlying collateral for various types of instruments was all very important as well. And then I think for me, one of the important things too is relationship building, right? Certainly one of the things you have to learn to do, especially as you move up in an organization, is you have to learn to relate to people. And you have to learn to relate to people sometimes on their terms, which is all part of the drill. So in some respects, I had a chance to deal with some of the smartest guys on Wall Street, some really big egos, kind of interesting to deal with those folks. In other cases, it was something a little bit more homespun, an entrepreneur in real estate that was just trying to figure out how to take his business from point a to point.
So for me, looking through my career, I think a lot about the relationships I’ve developed, the chances to create greater skills in terms of the evaluation of numbers and the analytics if you will. But at the end of the day, you got to be nimble across all those components and all those skill sets to get to where you want to be if you’re trying to grow in the business.
Robert Brunswick:
Yeah. I mean knowing you like I do, I think you’ve summarized well your attributes and they clearly have lent you to your success in your career. As I think broadly about a life insurance company and how they participate in real estate, I think for many folks who might not understand capital stacks and capital markets, they might not understand how active life insurance companies are in the real estate space. So maybe you can just share a little bit about how they participate in lending and investing and why that collateral and that profile of investment works for a life insurance company.
Tony Premer:
Insurance companies are very big investors traditionally in fixed income instruments, so that would contemplate bonds but also contemplates things like commercial mortgages. And so there’s a big appetite for the insurance companies.
And maybe to take a quick step back, insurance companies typically have a very big appetite to invest long term, and that is largely because a lot of their liabilities as it relates to life insurance policies are long-term as well. So if they’re taking money in for premiums and they’re thinking about how they’re going to be able to safeguard those dollars as well as invest them over time, the profile for the investments that they typically are looking at are typically going to be longer term assets and they’re also going to be probably higher quality assets, maybe a little bit lower risk. So there’s certainly a balanced portfolio and there’s some elements of a portfolio that may have more risk, but on the whole, the summary of the portfolio is it’s fairly safe to protect principle but also to drive return.
So if you understand that in terms of what they’re trying to do with their portfolios, ultimately what they’re looking to do on the real estate side is to find opportunities that generate good risk adjusted returns. And so with that, they look at different property types, they’re going to look at different geography. And in the context of a commercial real estate investment team that I ran at Pacific Life, our objectives were routinely to try and think about foundational investments that provided a good core return, but also look on the periphery to find things that maybe could get a little extra juice, if you will, a little extra return with a fair amount of risk that could add some yield to the portfolio. So that was certainly part of what we did. And that can take the form of an investment in a hospitality asset, right? Not one of the main four food groups, retail, office, industrial, multifamily, but certainly is an opportunity to invest in something maybe with a little bit more return.
So I guess the key takeaway is that the insurance companies routinely are looking for opportunities to invest in high quality assets that provide good risk adjusted returns, and that can take the form of bonds, it can take the form of commercial mortgages, or it can take the form of equity, investing as an equity partner in assets as may be dictated by portfolios that have certain demands on that investment activity.
Robert Brunswick:
Very good. Let’s make sure, if you think about the greater investable space of the insurance company’s book of investments, what percentage of that would be allocated to real estate investing as a percentage? And then separately, what’s the breakdown of that between debt and equity?
Tony Premer:
Yeah, very good. So the typical profile for most insurance companies for their real estate investment book, for overall investment portfolio, typically 10 to 20%, which you can expect. The allocation for Pacific life was on the higher end of that, as an example. So if you think about 20% is in real estate and if you think about maybe an allocation of 5% to private equity, and then a substantial chunk of the remainder is related to fixed income investments, maybe a little bit of high yield, but mostly high grade or investment grade securities that they’re buying, that gives you a cross section of what a portfolio might look like.
Robert Brunswick:
So when you say 5%, you don’t mean 5% of 100%. You mean 5% of 20%. So it was 1% of the greater book was in equities of real estate?
Tony Premer:
No, no. Just to be clear, so I was saying within the real estate book of 20%, that number is basically includes all real estate equity and debt. The private equity would be a 5% allocation would be in addition to the commercial real estate.
Robert Brunswick:
Got it. Okay. But the equities of real estate equity within your greater real estate allocation of 20% was what percent?
Tony Premer:
It was probably about 1/3 of that. Maybe 25% or 1/3 of that.
Robert Brunswick:
So that’s a pretty good percentage.
Tony Premer:
Yeah, yeah. Because we grew that, I mean, it was once very much very small, but it grew over time. So it became more important and more robust part of the portfolio over time.
Robert Brunswick:
So we’re going to come back to the equity side.
Tony Premer:
Sure.
Robert Brunswick:
But just to be clear on the debt, which was the mainstay of the real estate investment side, you’re not only originating new whole loans on a brand new apartment project, you’re also buying CNBS paper. You’re buying a lot of instruments where you’re just one of many investors that can go in on any day and buy a piece of fixed income that happens to have real estate collateral behind it.
Tony Premer:
Right. Absolutely.
Robert Brunswick:
Is that fair?
Tony Premer:
That’s fair. So CNBS or commercial mortgage backed securities are just bonds backed by a bunch of loans to commercial real estate. So that’s one instrument that we would invest in. Different from a commercial mortgage in that usually the bonds or the CNBS have liquidity. So you can trade those routinely. It’s easy to trade those, and that’s distinct from a commercial mortgage, which once you originate a commercial mortgage-
Robert Brunswick:
You hold it.
Tony Premer:
… you hold it. You could sell it, but it’s very difficult to sell it quickly. And that’s a lot different than a commercial mortgage backed security, which I can call up somebody, a trader on Wall Street, and say, “I want to sell this today. What is your bid?” And you can transact in that bond almost immediately if you wanted to do that.
Robert Brunswick:
Tony, Pac Life is a big insurance company. 20%, you were overseeing 20% of their investable assets, if you will, your whole real estate activity. So how big was your department? How many people worked in real estate?
Tony Premer:
So we had just a little less than 100 people on the team.
Robert Brunswick:
My gosh.
Tony Premer:
Frankly, we were always trying to work to get up above 100 because we needed the resources, but with the changeover and certainly some of the conditions in the marketplace, it was just difficult for us to grow. But we had routinely between 95 and 100 people on the team.
Robert Brunswick:
So I would imagine your job started to turn into really overseeing people, building culture, maintaining culture, and maybe got out of the day-to-day investment side a little bit. Or were you still as active as ever in investments with 100 people yourself?
Tony Premer:
Yeah, so with a group that size, I certainly had a lot more in the way of management and trying to nurture and grow people, obviously that was an important part of my job.
Robert Brunswick:
Sure.
Tony Premer:
I always loved the transactional part of it, so I was always eager to be involved in those. But at the end of the day, what I had to do is I had to delegate to a certain extent. Usually I would go and see some of the larger transactions, personally meet the sponsors. Certainly I was on the investment committee that would ultimately approve those transactions. And I had authority within the institution to approve transactions as large as 500 million by myself, but routinely we were looking at things that were smaller than that, and the team just figured out a way to get that done and ultimately run it through its approval channels to complete it. But the 100 people that are on the team contemplated not only asset originators, but it was also people who were involved in closing and people who are actually involved in asset management after we had originated the asset too. So it was really kind of a full production line, if you will, for the investments from beginning when we originated to the end when we basically conclude with the investment.
Robert Brunswick:
So I’d love the listeners to have a takeaway, and you took 29 years, but you’re going to share it with them here in a moment of what were your business. I mean, Pac Life is a premier life insurance company by reputation. You must have had some key business takeaways of what you learned in your 29 years. They must have had a particular culture about them. So just share with us a little bit about what was maybe some takeaways from your Pac Life experience from a business standpoint that you take forward with you or you message to others in your life.
Tony Premer:
Yeah, I think the culture that we had that we tried to develop and nurture at Pacific life was one that, first off, we’re going to do what we say we’re going to do, right? Your credibility in the marketplace and your reputation is critical. The moment you start telling people that you’re going to do something and then you fail to deliver gets around very quickly and can have the effect and the impact of ultimately of making you unsuccessful in the business. So for us, we always felt like, “Look, our bond is our word. We’re going to make a commitment and tell you what we’re going to do and we are going to deliver.”
Now, obviously if something happens in the transaction that’s a significant material event or change in the facts of the transaction, then that’s room for, “Hey, let’s have a little discussion about what we got here.” But fundamentally, I think that was critical. We always tried to say, “Look, our bond and basically our agreement to do and commit to a transaction, we will deliver.” So I think that was critical for sure. And that was particularly important because we were doing a lot of relatively large transactions. And so that ability to deliver certainty for large transactions was particularly important in the marketplace. And frankly, that was our calling card. If somebody had a large transaction and it could be sophisticated, it could be complex, it was our chance to roll up our sleeves and deliver value to the institution by delivering not only diligence, but delivering certainty ultimately to the client who was looking for the money. So that was all part of it and kind of key for us.
So I would identify that as probably one of the key things that we really tried to do. We wanted to be hard-working, we wanted to be diligent as well. We wanted to make sure that we understood the investment. It’s easy to take what I would refer to as more of an actuarial analysis on a big pool of investments and just try and do a broad brush and apply maybe some sampling and try and figure out what you got. But ultimately, our strategy was to try and dig in deep on larger transactions to make sure we understood the value that we were getting. And so that was a key operating requirement for us in terms of how we looked at it also.
Robert Brunswick:
Helpful. So as I think about the uniqueness of being able to do both debt and equity investing, a lot of lenders don’t play on the equity side. So I think you kind of answered it by saying, “We knew that real estate as if it was our own, even if we were making a loan.” So to wear the hat of being an investor and taking the equity risk, give us an example of what you would invest equity in and why you liked those opportunities.
Tony Premer:
Right. So our book at Pacific Life was substantially oriented toward multifamily. And the reason, and that’s mostly on the debt and the equity side, when we decided in roughly 2012, ’13 to try and expand our equity program, we looked around at adjacencies relative to our debt program and then said, “Where do we think we can be impactful?” So we already had a substantial business of providing construction loans for multifamily developers. We had a huge Rolodex of all the national players-
Robert Brunswick:
In the debt seat? Not equity.
Tony Premer:
On the debt side. On the debt side. So for us, the logical extension of that was to go out to those same parties and say, “Look, we want to be an equity investor as well.” And so typically the strategy on the multifamily side was to look at opportunities that were fairly substantial projects, usually urban in terms of location. They may in some cases have been the best projects in the city under development. Many of them were high-rise. We looked at certain times, we were looking at garden products that we would consider to be maybe somewhere just slightly off urban. Maybe not suburban, but we called it surban. Somewhere between urban and out in the suburbs, if you will.
Robert Brunswick:
Right.
Tony Premer:
But the whole idea was to be kind of close and infill to the opportunities for employment and where people wanted to live. So we were pretty active in that business. And ultimately on the equity side, we wanted to make sure we had the right sponsors, the guys who knew what they were doing, and had a demonstrated track record as an enterprise to do those businesses. We wanted to make sure that the capital we were providing was appropriately aligned to the sponsorship. And then finally and lastly, we wanted to make sure that the project made sense economically, that we could justify all the assumptions on the project. Do the rents make sense? Do the expenses make sense? Do the development costs make sense? Because ultimately, your pro forma that you start with is merely that, it’s a pro forma. You obviously have to prove it at the end of the day to make sure you deliver the returns that you expect to get.
Robert Brunswick:
Yes, very helpful. And I know you guys, again, to your point, were very active in the multifamily space and doing that joint venture equity investing. So as I think about the business today as we sit here broadly, real estate business versus years back, what is different today than when you started in the business or during the middle of your career as you think about and reflect on it?
Tony Premer:
Yeah. Well, geez, the technology’s advanced so substantially and the way we communicate. I mean, when I first started in the business we were sending facsimiles around, right? That’s obviously a lot different. I would say also when I first started in the business, it was really the beginning of the securitization of real estate. And when I say that, the commercial mortgage-backed security market was just evolving. So your ability to buy a bond backed by a bunch of commercial mortgages and a pooled structure was a novel concept in the ’90s, early ’90s, basically for sure. So that was a key form of securitization.
Another key form of securitization was on the equity side. Real estate investment trusts just began to go public then and give opportunity for anybody to own a piece of a real estate company. Prior to that, basically they were all private companies. And maybe you could be a limited partner in some form, but it was very difficult. The REIT market as it evolved gave everybody an opportunity to not only invest, but to buy and sell the securities from an equity perspective. What a great tool, right? So if I look back and think about the biggest changes in commercial real estate from when I started to where we’re at today, is really that securitization element, the ability to buy bonds or equity securities that are backed by commercial real estate and be able to trade those and be participants in those. So that’s pretty significant for sure.
Robert Brunswick:
So the evolution of public debt and public equity and real estate, the maturation of the capital markets, which brought more predictability, if you will, to real estate in general, I mean, where more capital has flown to the space, so the doesn’t have the volatility that you used to have, and firms like yours really help with that.
So you’re a young man still. You’re obviously have had a great storied career at Pac Life and the prior organizations, but I know that you’re not done and that you’re now kind of pursuing, if I may call it your entrepreneurial chapter. So tell us a little bit about what you’re doing today and how your prior experience has really enabled you to leapfrog, if you will, or to take advantage of what you see as a new chapter for you.
Tony Premer:
What I did at Pacific Life is highly impactful to what I want to do now and what I am doing now. And as you mentioned, it’s an entrepreneurial itch that I felt like I wanted to scratch.
Robert Brunswick:
Sure.
Tony Premer:
So when I was at Pacific Life, what I would see many times is I would see organizations typically in the multifamily business who would come and we were looking for capital. And a lot of times they were what I would refer to as kind of emerging businesses, guys who didn’t have maybe a lot of enterprise track record, but ultimately they had good bones in terms of the personnel. And from an institutional perspective, the boxes that you need to check to get capital from an institution are typically, “Show me you’ve got a demonstrated track record as an enterprise, show me you’ve got the capability and then show me that you can match and provide capital yourself into the transaction to deliver the alignment that the institutions want as well.” So a lot of these groups that we saw certainly check those boxes, but there were many that did check the boxes and then these-
Robert Brunswick:
They might’ve had a worthy project.
Tony Premer:
Worthy project. And the fundamental bones of the organization, the people were highly qualified, but they had no demonstrated track record as an enterprise. These were kind of fresh entrepreneurs themselves who maybe had left a bigger firm and then joined together with a partner and were trying to launch their own business. So you had those guys. And the other thing that they were short on in the box that they couldn’t check was just the capital. They just didn’t have enough capital to satisfy the alignment requirements of a lot of institutions.
So my objective with my entity is to insert myself into those opportunities to not only provide capital, but also try and evaluate some of these enterprises and try and help them nurture and grow to the next level. So I refer to it as a kind of an emerging developer operator strategy where I’ll provide capital, provide maybe some advisory input as well, but ultimately try and help them to get their projects done. And in the meantime, obviously I’ll be taking some of the risk, but I’ll also get some return for that too. So it’s complimentary and I think it’s a niche that needs to be filled. I’ve had some pretty good traction so far in terms of the discussions with various candidates.
Robert Brunswick:
And I imagine, as you said, one of your core competencies of building relationships has really carried you well here because you probably have good access to some interesting opportunities.
Tony Premer:
Yeah, so the platform at Pacific Life was a national and actually beyond platform. So if somebody says, “Hey, tick off the top 15 developers that you worked with.” When you’re at Pacific Life, I can give you a national list. But I’ll also say that some of my earliest calls have been to some of the guys I know who have left some of the big major firms and have shot out on their own as entrepreneurs, and those are the guys that I want to support. For me, it’s not too hard to make the calls to find out, “Hey, who’s left the shop in the last year or two that launched their own business?” and get in touch with them if I don’t know them already, and introduce myself as an opportunity to participate in their transactions. So it’s been interesting.
Robert Brunswick:
Tony, when you and I grew up in the business, there were four food groups, retail, office, industrial and multifamily. Today there’s 20, 25 asset classes within real estate that all have valid business strategies and opportunities. But as you kind of reflect on today’s market, maybe let’s be agnostic to the current capital market activities, where do you see opportunity as you look at investing or participating today?
Tony Premer:
Right. So I mean, I’ve always been fond of avoiding the herd for sure.
Robert Brunswick:
Sure.
Tony Premer:
So in today’s world, and Robert, you know this as well as anybody right now, there’s a lot of capital that’s rushing toward the industrial sector. There’s a lot of capital going toward the multifamily sector. Office has been more difficult, maybe a little bit of a vacuum there in terms of opportunities, but also a very risky environment.
Retail, same thing. Retail seems to be coming maybe out of its trough, but still in many cases can be very risky. So what I try and do, and I’m just always looking for opportunities. I mean, you can say, “I will never do an office transaction in any market,” but you’re really nullifying the opportunity to do transactions that may be interesting. There is a price and there is a return for every element of risk that you’re going to try and take in a commercial real estate investment. So I think the hardest thing to do is to try and figure out are you getting paid adequately for the risk you’re taking?
We can all agree maybe that, well, you got to get a 7% for a multifamily project and maybe you get an 18% for an office type project, but ultimately there’s a lot of room in between there. It’s a very gray area to try and figure out where is the best place to get return. So I hate to denounce any particular sector in the market, but I also think that you got to be careful. So for my book right now, I think I like the multifamily sector, but I also think you got to be careful about what markets you’re trying to execute in because there’s very different opportunities. Certain states, certain submarkets, certain property types too. I mean product types I should say. So high rise versus low rise, there’s a lot of different opportunities there. So fundamentally, I think you just got to be careful, and it’s really a case by case evaluation.
Robert Brunswick:
And when you think about multifamily, I think demographically where we are with just the aging of our population and senior housing and congregate care and whatnot, do you participate in that at all or are you strictly kind of conventional, multifamily as you look at it?
Tony Premer:
I think for right now I’m focused on conventional multifamily, and maybe with a slight nod to some student housing opportunities. So I think that fundamentally, I believe the US is under housed and it’s still very difficult to build in many jurisdictions. There’s still some pretty good job growth in some jurisdictions that’ll drive demand for sure. So can supply meet that demand? That’s the fundamental question of economics, right? Is, what’s the right place to be where you’re kind of on the power curve as it relates to demand? But in my mind, as much as there’s all kinds of different property types, and look, there’s even that, there’s affordable components, there’s obviously independent senior living facilities, all kinds of things, for me, I would say the objective is to stay within more of a mainstream multifamily channel, if you will, and then also maybe consider some of the offshoots of that, which in my mind maybe means some student department opportunities.
Robert Brunswick:
Great. I’m glad you said student, because as we wrap here, we have a percentage of our listenership that are younger investors, younger career folk students looking to get into the work world. So what message might you have for them about if you were restarting again, knowing all that you know, what message might you give to that young person who’s thinking about a career in real estate or career in general?
Tony Premer:
Yeah, I think the easy answer is certainly follow your passion, right? I don’t know, I’ve always loved the tangible real estate, right? That’s just good fun stuff. The analytics is fun, but as it relates, there’s a lot of different things you can do in real estate. Whether you’re acting as an intermediary or you’re acting as an investor or you’re acting as a principal, there’s lots of things you can do, but I think the key thing is to get experience across the board early on, develop your network. I’ve been involved in mentoring some young people who are trying to launch their careers in real estate, and the first thing and advice I always give them is start building your network. Get out there and start meet people. Try and make an impression, keep in touch with people. You just never know where those bridges you build can come back and help you later on. So I think that’s particularly important.
I mean, you got to do your homework, you got to understand the property types, and so you got to be a little bit self-taught and disciplined and make sure you try and understand the vocabulary and the details. How do you do analysis for certain property types? But I think if you can do that and you can develop a network and you can kind of follow your passion within some lane of commercial real estate, I think it can be a tremendously rewarding career.
Robert Brunswick:
Well, well said from someone who’s done it. And I want to just thank you for our relationship. We sat on a board for a number of years and had great fun, and I would affirm that your attributes of critical thinking and analysis really came to light in that setting and you taught me a lot, so I appreciate that. And I’m sure you’ve taught our listenership great things today, and hopefully we’ve had some good learning with Tony Premer, my guest on our Counting Capital podcast. And I’ll look forward to seeing all of you next month as we bring you another guest. Thank you so much.