October 7, 2025 • 30 mins
Josh Volen, co-founder and managing principal at CIRE Equity, joins the podcast to discuss trends in commercial real estate investing as urban populations shift, hybrid work environments evolve, and industries adapt to changes in global trade.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Ryan (00:08):
Hi, welcome to this episode of the First Trust ROI
Podcast.
I'm Ryan Isekinen, ETFStrategist at First Trust.
Today I'm joined by Josh Volan,co-founder and principal at
Sire Equity.
Josh and I are going to discussinvesting in real estate.
What are some of the advantagesand nuances that investors
should be aware of, as well aswhat are some of the uh reasons
(00:29):
that the industry has grown morecomplicated over the years, at
least for us outsiders who arenot professional real estate
investors?
Thanks for joining us on thisepisode of the First Trust RY
podcast.
Well, I'm I'm glad we were ableto get this set up.
Thank you.
So Sire Equity is the name ofyour firm.
Yep.
Where does Sire come from?
(00:50):
And it's C-I-R-E, it's notS-I-R-E.
Josh (00:53):
It's for people that are not Siri or Sire.
You know, we are a commercialinvestment real estate firm, so
that's where Sire comes from.
Uh, but we're definitely not amarketing firm because people
always ask, like, Sire, how'dyou guys come up with that?
But yeah, that's what it is.
Ryan (01:10):
Yeah, and you you don't have a theme song either,
probably.
Josh (01:12):
We don't we don't have a theme song yet, but now you got
me thinking.
Ryan (01:15):
No, there you go.
Um, okay, so how did you end upin the real estate industry?
Josh (01:21):
Yeah, so the a bridge version is um I was actually
sitting on the beach in Brazilstudying abroad during college,
and I had one semester left whenI got back to uh figure out
what I was gonna do.
And so sitting on that beach, Iwas like, how do I sit on the
beach and earn money?
(01:43):
And I was reading a lot ofbooks when books were coming
from Amazon.
So uh I had friends coming withsuitcases full of books to
Brazil, and I was just devouringbooks, and I read a book, Think
and Grow Rich by Napoleon Hill,and that really stood out to me
because what that book talkedabout is how do I put my talents
out there and to not trade mytime one for one for treasures?
(02:05):
How do I scale that so I canearn passive cash flow
effectively and sit on the beachand enjoy my life?
And uh a lot of the researchcame back to real estate, right?
Commercial real estate.
So people make money, they selltheir business, and then what
do they do?
They go and invest.
And when they invest in, theyinvest in hard assets or
alternatives like real estate,and they earn that passive cash
(02:25):
flow, and they're able to goplay golf or do whatever they
wanted to do.
So I said, well, why don't Ijust start there?
So I went back to college, gotmy real estate license, just
like the 1.5 million grandmas,moms, sisters, cousins, everyone
that has a real estate license,uh moved down to San Diego and
start in brokerage.
So I got to learn and earn.
So I was working with familyoffices, high net worth,
ultra-net worth, ultra networth, and institutions to help
(02:48):
them buy and sell theircommercial real estate.
And I gotta learn what a gooddeal looks like, knowing that I
always wanted to be on theprincipal side of the business.
Ryan (02:56):
So and take us forward then.
Um Sire Equity, how did yourhow did you start, how did you
transition from that commercialreal estate experience to launch
your firm?
Josh (03:06):
Yeah, so obviously that was the intention the entire
time.
Um it was 2009, GFC is goingon, uh, world's falling apart,
and third deal in a row that Iwas like, I should be buying
this deal was my trigger to uhstart up the firm.
So just a short 15 years ago,March of 2020, launched Cire
Equity.
(03:26):
And um, you know, just took allthat experience.
My client base at the timewere, you know, again, family
offices, high net worths, and Ijust found a deal, went out to
raise deal by deal.
So, you know, to give the27-year-old a blind pull fund
probably wasn't the best playcoming out of the GFC, but uh
deal by deal made sense.
(03:48):
So started by raising $25,000at a time, putting all my money
back into the deals, uh, diddeal by deal all the way up
until 2019 until we launched ourown uh perpetual vehicle, which
was a non-traded nav read.
Ryan (04:01):
Yeah.
It's it's always amazing to melooking back, like out of some
of those financial calamities,like you end up with these
amazing um new opportunities.
You know, prices go down,everyone freaks out, everyone's
uh you know afraid, and youknow, there's the the uh
proverbial blood in the streets.
Right.
And those people that have theopportunity, the eyes to see the
(04:24):
opportunity, end up makingsomething of it.
Josh (04:26):
Yeah, definitely.
Look, timing plays into a lotof these things, right?
Yeah.
If I would have had a family atthat point, would I have made a
different decision?
I don't know.
But I I would hope that I wouldcontinue to bet on myself.
And I can tell you, 2009,coming off of one of my best
years as a broker, across fromsomeone I wanted to marry, my
now wife, and she had made morethan me doing residential real
(04:50):
estate short sales.
And I I'm just looking going,what am I doing?
Like, what's gonna happen?
And and just laying theregoing, I'm gonna bet on myself
again.
Right?
I need to stay confident, stayoptimistic, and this fear, not
let the fear prevail, go back tothe data, go back to what the
opportunity set is.
And again, there was plenty ofopportunity.
(05:12):
So hence the third deal on theroad that was like, I should be
buying this deal was thattrigger to launch.
Ryan (05:17):
So for someone who's not in the real estate industry all
the time, as maybe an outsider.
Most people own real estate,but they're not really investors
in real estate.
They own their residence,maybe.
Um it seems that it's gottenreally complicated, really
complex.
The environment that we're inhas all sorts of um, I don't
(05:41):
know, all sorts of nuances thatpeople are worried about,
whether that's you know, peoplenot going back into cities after
COVID and not returning towork, and what does that mean
for office space, or what doesthat mean for retail that's
adjacent to office space?
And there's all these differentthings that are that people are
worried about.
Um, in your opinion, as someonewho's a professional investor
(06:03):
in real estate, has it gottenmore complicated, or is that
just the narrative that we onthe outside observe?
Josh (06:11):
Uh let's keep the narrative going.
It's extremely complicated, soyou shouldn't get into it.
No, um, I think we complicatethings, right?
And I think whenever um thereare shifts until there's a new
normalcy, there's all the fearand the fear headlines come out,
and that narrative that willsell the newspapers gets
regurgitated over and overagain.
(06:31):
Sometimes to become a prophecythat becomes a reality,
sometimes it's repeating thingsthat were six months a year
typically old news.
Um so if you think about from2009, 2010 to 2000 through 2020,
the one headline in the presswas around retail.
Retail was dead, retailapocalypse, Amazon effect.
(06:53):
Right?
And so what did COVID actuallydo for that?
It actually helped accelerate alot of the narratives that were
either starting or that werealready in the press to either
prove them right or prove themwrong.
And I think 2020 actually,COVID sped that up to show
retail's not dead, and retailended up being a product type
that's been very resilient inlast mile delivery in the
(07:15):
omnichannel delivery of goodsand services.
What comes out of that then isyou're talking about now an
office revitalization or a newoffice shake up to normalcy,
right?
That we're trying to figure outnow with hybrid or whatever
that looks like, work from homehybrid to back to office.
And you it's prettyinteresting, you have a
dichotomy there right now whereyou have the kind of old school
(07:36):
thought it's like, look, I don'tknow if people are working
unless I see them in the officementality, to this new, super
new mentality of, hey, I grew upin COVID in high school or in
college.
I really want to work in anoffice.
I want to be around people.
I don't want to be isolatedagain.
I want to learn with people.
I want to do this podcast inperson versus on Zoom today to
(07:58):
have that connection.
So you kind of have polarizingon both ends of that that are
both saying, I want to be back,and then the people in the
middle that are going, I kind oflike this work from home thing.
I got this hybrid, I got thisflexibility.
So that's the new normalcy oftrying to figure out what that
looks like because Office isn'tdead, right?
There's not a lot of loyalty toOffice because if you have an
(08:19):
internet, you have your cellphone, you can be anywhere,
potentially.
Um, you have all these nowtechnology tools that you can
utilize too to get teamstogether.
However, the replacement of theoffice is now going, how do we
collaborate?
What's going to draw people tooffice, right?
What are the amenities?
Does it have a golf simulator?
Does it have a pool table?
Does it have a kitchen foreveryone to use?
(08:40):
Does it have a gym for everyoneto attract people to come back
to work together, but with amuch smaller footprint?
You know, does the fullaccounting team, does the full
marketing team need to come backto the office and take 20,000
square feet, or is now it's justexecutives and it's 4,000
square feet, right?
So right sizing is kind ofwhat's going on that I'm seeing
(09:00):
at least in the office world.
But the demand is, yes, itmight be down, but then you also
have inventory leaving themarket too, right?
The conversion to residentialin office.
We have an office building inSan Diego that's being converted
to a residential building.
So they just took 250,000square feet out of the market,
which helps again get you backto a demand-supply balance at
(09:21):
some point.
And then you could go the otherway with that, just like
retail.
You don't build retail for 15years, and now what do you have?
You have it's out of balance,and now you have rents rising
pretty rapidly.
So it's cyclical.
Ryan (09:34):
Yeah.
And I mean, if you're I wouldimagine there's more demand to
live in a beautiful buildingthat's being redone in San Diego
than in other parts of thecountry, perhaps.
Um how important is thatgeographical location when it
comes to some of these trendsthat you're seeing?
Like people that moved out to amaybe uh more of a hybrid work
(09:57):
environment in a less attractiveplace versus a more attractive
place.
Is that is that something thatyou pay close attention to?
Josh (10:04):
We do.
We definitely track the data onwhere are people, where where
the trends, where are peoplegoing, what do jobs look like,
what's the you know, thedisposable income levels of
people, what are transmodaltrends.
We're looking at a lot ofdifferent data points for what
we invest in.
Um but yeah, there's definitelybeen there's markets that are
(10:25):
doing better than others, right?
And it's not just about a lotof it's around affordability,
but it's also, you know, I wouldsay there's been a lot of
polarization, you know, when itcomes to politics and different
things that have changed incertain cities that move people
to other places as well orattract people to certain
places.
So we've seen a lot ofmovement, and uh, I don't think
(10:46):
that's stopped or a normalcythere either.
I think you've seen somedefinite winners of uh of some
of the transitions of movementtowards call it going from
California and going east toArizona into Texas.
Texas continues to grow um andthen all the way to Nashville,
right?
You see kind of that sprawl andinto Florida.
(11:07):
So you've seen this kind ofdispersion of people move across
the country and mainly from theWest Coast.
Ryan (11:14):
So I want to talk a little bit about from a macro
perspective, some of the fatsome of the forces that uh are
important for you as a realestate investor.
Um interest rates come to mind.
I I think most people, whatthey're familiar with in the
residential real estateexperience is that we we went
through this period of timewhere rates shot up really
quickly.
And it it sort of made senseinitially that people would
(11:37):
think, well, if you've gothigher mortgage rates, houses
are less affordable, maybe thatputs a downward pressure on
prices, but we've seen kind ofthe opposite because then people
don't want to sell their housebecause they don't want to
refinance, so there's lessinventory.
So it's so do you see anythingsimilar to that from the
commercial side of things, orhow how do you think about
(11:58):
interest rates?
Josh (11:59):
Yeah, I I think interest rates are gonna go up, they're
gonna go down, and if you wantto really ride that roller
coaster, my crystal ball is asfoggy as anyone else's.
I'm I'm not a professionaleconomist on that, but uh I
think it's what the way myapproach to interest rates is
can we live with the interestrate we're at right now and can
(12:19):
we lock that in?
Because I want to sleep easy atnight as an investor myself,
and I don't want to ride thatroller coaster of if a deal
doesn't make sense and you haveto have a lower interest rate
for the deal to make sense, itprobably doesn't make sense to
buy the deal.
It's common sense.
So just simple mental modelsaround that.
I've seen, we've definitelyseen the pressure on people.
(12:40):
It's from the GFC even how didbillionaires become
millionaires?
They over-leveraged, right?
They used the inappropriateamount of leverage, they rode
the roller coaster of letting itbe variable rate.
What happened in 21?
It was very enticing to govariable rate loans because they
were so enticing, they'reinducing to go and do deals that
maybe you shouldn't be doing atan over-leveraged price point.
(13:02):
And then when that ran up,starting in Q2 of 2022 and just
kept running, that train runsaway with all your equity, and
you don't have a backup optionto that.
Your rent growth is clearly notmaking up for that.
So betting on pro forma versusbetting on existing or investing
in existing, one's betting,one's investing.
Right?
(13:23):
And so locking in interestrates and having a positive
spread to debt today is a quickway of your backup then is cash
flow versus hoping, which is nota strategy, reacting, which is
never great, to a market thatyou can't control.
So if you can you can box inthose variables or those risks
(13:44):
with fixing your debt and makingsure you have those
fundamentals of whatever you'rebuying, that's another way to at
least sleep easier and nightand not ride that roller
coaster.
Ryan (13:53):
So there's been a lot of evolution in the ways that
people own real estate, whetherit's their their residents or
other forms of REITs.
Um talk a little bit about thedifferent types of ownership
structures of real estate.
Yeah, so and maybe some of theadvantages or disadvantages.
Josh (14:12):
You know, uh I get asked this question a lot, especially
from you know, having friendsthat let's say build a business,
sell their business, and theygo, okay, now we got this pile
of money, we're gonna go intoreal estate.
And they go, what should I do?
And I start laughing, it'slike, well, you just sold your
business.
It's like me saying, I justsold my business, I'm gonna go
into your business and juststart buying, you know, whatever
(14:33):
you were doing, and what wouldyou tell me?
Yeah, right.
And so um there's a lot ofdifferent ways to invest into
real estate.
Uh there's the directownership, like you mentioned,
right?
Owning a house, people undercan understand that.
Buying a second house, buyingmultifamily, buying triple net
properties.
But I think there's a misnomerof what owning real estate looks
like direct.
(14:54):
I think people, there is athought process that it can just
be passive.
And there's no such thing asowning a piece of real estate
and being passive because it'salways active.
Even if you're deferring to aproperty manager, that property
manager is still calling you andgoing, hey, the plumbing broke.
We need to fix it.
Do you want to fix it?
Or we're gonna fix it and we'regonna spend your money to fix
(15:16):
it and send you the bill.
So it's there's still an activeownership, even in direct.
Then you go all the way to theother side, which is super
passive, and that's where youuse investment advisors and
different things to vet out,which are the public markets,
right?
Publicly traded REITs or otherstocks that you can buy that own
real estate.
And what I like to say is it'skind of like the Goldilocks
(15:37):
approach for everyone.
You got to figure out what'stoo hot, what's too cold, and
what's just right for you.
You know, to take an liquid, anilliquid asset like real estate
and make it hyper liquid to themillisecond probably is a
little misaligned at that point.
That feels a little for me,that's a little bit of a.
Ryan (15:54):
It's tough to mark a price when you're dealing with real
estate.
You know, mark like you can astock, right?
Josh (16:00):
Like a millisecond by the millisecond for something that's
really not liquid, you'remanaging the real estate in a
different way.
You're managing a company in adifferent way.
Ryan (16:09):
Yeah.
Josh (16:09):
And it's a long-term investment to make it a
short-term, that short term.
And then on the other side issuper illiquid, right?
Even if I own my real estateoutright myself, I still have to
go bring it to a real estateagent to go value that property,
bring it to market, gatheroffers, and try to sell it.
And that could take 90, 180plus days.
So there's things in the middlenow, too, that provide that.
There's different intervalfunds, there's different um nav
(16:32):
reads that are non-tradedvehicles that provide
semi-liquidity.
So there's a lot more optionstoday, and that's again where
you have professionals.
I would always defer toprofessionals on this.
If you're not the professional,it's like the Matt Damon quote,
right?
Around uh rounders, if youcan't spot the sucker, you're
probably the sucker.
Like you got to be careful, getthe professionals around you to
(16:52):
help you with that and let themdo what they do.
Ryan (16:55):
So real estate is also interesting from the perspective
of other industries.
We've seen costs have reallycome down in the last several
decades for the stock market,for bonds, like spreads have
come in.
And real estate is an areawhere if you're selling a you
know your home, you're stilllikely to pay five or six
(17:17):
percent when it comes to the thecommissions to real estate
agents.
Um and this is kind of a maybea a rabbit trail.
Uh, but I'm wondering what youthink of that.
It why why has that a uh beenthe case?
And is that also the case, Iguess, when it comes to
commercial?
Is there still that thatfrictional cost of uh
transacting?
Josh (17:38):
Yeah, I would say in some ways it's come down and become
more systematized, right?
I think in residential, it'smore perfect information in
residential.
I think everyone has some ideathat they're checking Zillow or
Redfin or whatever it is.
Now it could be any of the AIapps.
What's my house worth, right?
And they're gonna give you somedata because there's more
prevalent stock and velocity inresidential.
(18:00):
Two homes next to each othermore likely or closer in value.
You can't say the same thingwith commercial.
You could have two buildingsright next to each other having
completely different valuationsbased on the tenancy that's
inside the building, the leaseterm that's inside the building,
the encumbrances that come ontop of that building, right?
Same zoning, everything else,but they could be very different
(18:21):
in pricing.
So there's imperfectinformation in commercial real
estate, which is why there'ssuch a wide swath of opportunity
in commercial real estate.
So expertise, a informationthat maybe other people don't
have or relationships thatpeople don't have can create
outsized opportunity.
And that's why expertise,starting with that, for someone
(18:43):
that's new jumping intosomething, how do you pick up 20
years of expertise overnight?
Um, on the actual transactionalcost side, there's cities, you
know, smart cities like in uhSan Francisco and LA, just
picking on my home state ofCalifornia, that have created
additional friction in thatbecause they put transfer costs
of three, five plus percent.
(19:03):
It's the mansion tax in LA asan example.
Five percent off of the grossvalue of a $10 million plus
asset, gross value, right?
If you have any leverage, let'ssay you have 50% leverage on
that, that's a 10% hit to yourequity.
That's painful, and thathappened right overnight.
So, how do you recover fromthat, right?
The values have to move up thatmuch more for you to recover
(19:26):
that type of equity.
So, yeah, is that a friction ofpeople wanting to sell an
asset, or do people start to getcreative on how they sell
assets then or what they do withtheir assets?
So, you know, um, it'ssomething definitely to watch
that it's made it more difficultin some areas to make people
want to hold on, which thencreates a supply-demand
imbalance again.
Ryan (19:46):
Yeah.
So as an asset class, realestate has all sorts of nuances
that that people maybe don'tthink about, um, at least as a
non-professional real estateinvestor.
What are some of the attributesof real estate that make it a
little bit different than owningstocks or bonds, and maybe some
of the more attractiveattributes of real estate in
general, whether from a taxperspective or otherwise?
Josh (20:10):
No, it's a great question.
So I would say there's ahandful of reasons why real
estate as an asset class is donereally well.
Is one, you can get leverage inreal estate, right?
That's one of the benefits ofreal estate, is being able to
utilize leverage.
And hopefully you're usingpositive leverage.
There's a difference betweenpositive and negative leverage,
right?
If you have a 6% interest rateand you're buying something with
(20:31):
a 5% return, you're upsidedown.
That's negative leverage.
Every dollar you're borrowingfrom the bank, you're paying an
extra dollar to them of whatyou're not making.
But if you have 7% return and a6% interest rate for every
dollar you borrow from the bank,you're making a dollar on every
dollar you've borrowed from thebank, right?
So you utilizing positiveleverage is great for real
estate or getting that leverage.
The other benefit is typicallypeople want to talk about it's
(20:54):
around volatility.
Real estate, again, being anilliquid asset class, and as
long as you're not trading onthe millisecond, shouldn't be as
volatile.
It's more steady eddy.
Yes, you'll have cycles, butbecause it's illiquid, you're
gonna hold through those cyclesmore likely.
It's kind of forcing you tohold through those cycles a
little bit more.
So uh it smooths out thevolatility in that because you
(21:15):
typically have income incommercial real estate.
That's your foundation for thevaluation.
Um, the tax efficiency of it,right?
I'm a California guy.
You know, taxes is a bigquestion.
Money saved is money earned,and the tax benefits that come
along with real estate, theright interest write-off,
depreciation, or even it uh costsegregation to accelerate your
(21:36):
depreciation, to shelter yourincome so that the income you
actually are receiving from theproperty is income you can
actually spend.
Right?
That's a really big benefit, oryour appreciation is also
another benefit of these, theseare real assets.
So tariffs and all the otherthings in the news, that
inflation, it's an inflationaryhedge, effectively being a hard
real asset.
It's not going down, labor'snot going down in price, cost of
(22:00):
goods are not gone down inprice, which means over time the
value of the property should goup in the sense of replacing
that property gets harder andharder every single year.
So again, value appreciationover time and an inflationary
hedge.
So those are a handful ofreasons why people typically go
to real estate.
Ryan (22:16):
Yeah, that those are uh those are very good points.
And I I think I hadn't thoughtabout the uh from a tariff
perspective.
Everyone's talking abouttariffs and focused on tariffs
this year.
And it is more insulated fromthe concerns on the one hand,
because you don't have to worryabout input costs and being able
to pass that along.
(22:36):
But on the other hand, theinput costs mean that it's more
expensive to replace, and soyour value of your real estate
actually appreciates potentiallywith that uh increased cost.
That's uh that's a really goodpoint.
Josh (22:49):
Less supply too, right?
If it becomes there's lessdevelopment that occurs from
that, so then it creates again abigger bridge of or a bigger
gap or chasm of supply anddemand, which then puts pressure
on rents.
So all this goes it's simpleeconomics, right?
Of supply-demand, where doesthat meet?
What's equilibrium look like?
And that's always shiftingdepending on what's going on in
(23:10):
the market.
But I haven't really seen itshift downward as much as I've
seen it shift up and to theright in regards to the cost of
replacement.
Even in a downturn, we haven'tseen the cost of replacement go
down.
We just seen what you can buythings are way below replacement
cost.
Ryan (23:26):
So as you look out at the different opportunities in real
estate, are there any specifictypes of um whether it's sectors
or deals that you think ingeneral are more attractive now
or trending to be moreattractive now?
Josh (23:39):
I think there's uh opportunity to generate alpha
wherever you have an expertise,right?
So that's what I would startwith for any of the investment,
for any investor to take a lookat.
Do you have any edge orknowledge that you can utilize
in what you're buying?
And and for us, you know, we'reoperators.
My my background is we arehands-on vertically integrated
(24:02):
operators of real estate, andthat's a big difference than
just allocating to real estate,right?
Buying and hoping that it'sgoing to be passive.
And so what we're looking to dois how do we buy something and
add value to it, being avalue-add investor?
And in certain markets, we'veseen dislocations because of the
news headlines around uh westarted off in retail.
So when I was talking about theretail apocalypse, retail's
(24:24):
dead, Amazon effect, that was2010 to 2020 and beyond.
Now it's the darling of theinvestment classes.
It's amazing how the tidesswitch so quickly.
We are experts in operatingretail, right?
We take that same operatingknowledge, and what we did is we
look at goods and services anddelivery to people.
And how do you do that?
It's omnichannel.
We were talking aboutomni-channel before people were
(24:46):
saying what that actually was,but that was you have the online
presence to gain a client, butthen the delivery is shopping
centers or distribution centers.
So we balance it with a barbellof industrial.
And the things that we startedbuying and that we continue to
buy is in the industrial sectornow.
So our portfolio is prettybalanced between the two.
And that's industrial, includeslogistics, right?
(25:08):
The distribution.
So you look at port cities,which are getting just
bludgeoned right now because ofthe tariffs.
Again, short-term shocks, andthis is a long-term investment
horizon, a long-term strategy.
We don't just change ourstrategies overnight,
willy-nilly.
We look at things for a longperiod of time, 10 years plus.
I don't think it's easier tobuild in a port city or find
(25:28):
good real estate in a port city.
So we still like these portcities.
Um, and so we're buyingindustrial logistics,
manufacturing, and then flex.
We talked a little bit aboutthe rebalance of office.
So you went from 20,000 squarefeet in that beautiful office
tower in downtown, which hadyour accounting department, your
marketing department, and allthe other operations departments
(25:50):
and your executives, and now,but you have a manufacturing
facility, right?
So now what you do, what do youdo?
You downsize from 20,000 feetto 3,000 or 5,000 feet.
You keep the nice office withamenities so people can come
there and use them.
And you take the other 15,000feet and you downsize that to
10,000 or 7,000 feet, and youput it in your manufacturing.
And what's that called?
That's called flex space,flexible space.
(26:12):
And so where we found adislocation in the market is
actually in that manufacturingto flex space.
Two things.
Manufacturing, power isinfrastructure.
People talk about data centerand everything else.
It's really power, is whatyou're talking about.
We like to buy power with thatinfrastructure because it's
really hard to get.
Allocation.
And two, flex is stillindustrial, so you get
(26:35):
industrial interest rates, sothe banks still can understand
industrial.
They don't like office, butthey love industrial.
And you're getting slightlybetter pricing on the flex space
because industrial buyers don'tunderstand flex space and their
box is very narrow, so they'rejust buying logistics or pure
industrial per se.
(26:56):
So there's been a dislocationin that market, so we're getting
a higher return on the buybecause of the market moving
out, and we're getting stillvery good interest rates from
the banks or the lenders.
So we get to make that spreadin between.
So that's positive leverage,and that's a dislocation that's
been created in the market.
So that's one of the thingsthat we've go after today.
Ryan (27:13):
Interesting.
Um, okay, so on the other sideof the coin, are there any
specific areas in real estate,whether it's sectors or
otherwise, that you would treada little bit more cautiously on
and maybe think there's a bitmore risk?
Josh (27:26):
That's a great question.
Um, I would say it comes backto the whole comment around
expertise, right?
We typically avoid operatingbusiness type real estate.
So we're not a hospitalityowner and operator.
Uh there's great opportunitiesin that.
There's uh people doingconversions, obviously, from
kind of the the walk-uphospitality, you know, into
(27:48):
multifamily.
We're also avoiding call itdirect development today.
I still feel like there's,especially today with the
disruptions in the market andthe interest rate environment,
it's created a chasm again or agap of it's cheaper to buy than
to build still.
So why would I build and takethat risk, that speculative
risk?
We're not spec developers.
(28:10):
I don't want to ride thatrollercoaster.
I want to buy somethingexisting that already has cash
flow that can add more cash flowto it.
So I would avoid I'm avoidwe're avoiding development per
se, hospitality or anything thathas an operating business
element to it, and just buyingcurrent cash flow and seeing
where we can just add a littlebit more to it.
Ryan (28:28):
Okay.
Um I'm looking at the uh theclock here, and we've already
gone a half an hour, so uh Iappreciate you um sticking with
me for uh for some time here.
And you know, I'm I'm springingthis on you, but um one of the
questions that I try to ask myguests on the podcast is uh what
books are you reading or haveyou read or are you planning to
(28:50):
read that you would recommendpeople checking out?
And this doesn't have to be areal estate book, this could be
just you know, a Josh Volanlikes this particular book.
Are there any books that you uhwould put on that list?
Josh (29:02):
Yeah, so um I always start with foundational books for me.
And the first one is Mindset byCarolyn Dweck.
So starting with her mindset,abundance versus scarcity, fear
versus in my what I call theother side of fear, which is
love, the push and pulls in ourlife.
So I start with uh mindset.
The second is grit.
(29:23):
So Angela Duckworth, that's agood follow-on.
She quotes Carolyn Dweck in herbook.
So, grit, how do we instillgrit in our kids?
How do we how does grit show upin our lives and how do we
build that resilience?
So grit.
Um I would say nonviolentcommunication because uh I'm a
father and I I want to learn howto be a better situational
communicator as a leader, andthat's been a very impactful
(29:45):
book, a good one to read with myspouse as well.
So it gives those tools.
So when you combine thosethree, just kind of the
wholesome leaderslash everydaylife.
And there's a lot of otherbooks, but uh another book by
Brooks, um, which is Uh he wrotewith co-authored with Oprah,
and that talks about you knowjust a bountiful life and the
(30:06):
arrival fallacy of all of uschasing the horizon, you know,
these people that are hardchargers and achievers and that
arrival fallacy, right?
Of if I do this, then I'll behappy, and just really
appreciating the journey.
And so I really appreciatedthat book.
It was it was really wellwritten.
And uh so yeah, there's ahandful of books.
Ryan (30:24):
Yeah, I really appreciate that.
I haven't read any of those, soI'll have to add them to the
list.
Sounds good.
Uh, but again, really uhappreciate your time and thanks
for coming on the podcast.
Um, hopefully we can do itagain sometime down the road.
And thanks to all of you aswell for joining us on this
episode of the First Trust ROIpodcast.
We'll see you next time.
Hi, welcome to this episode of the First Trust ROI
Podcast.
I'm Ryan Isekinen, ETFStrategist at First Trust.
Today I'm joined by Josh Volan,co-founder and principal at
Sire Equity.
Josh and I are going to discussinvesting in real estate.
What are some of the advantagesand nuances that investors
should be aware of, as well aswhat are some of the uh reasons
(00:29):
that the industry has grown morecomplicated over the years, at
least for us outsiders who arenot professional real estate
investors?
Thanks for joining us on thisepisode of the First Trust RY
podcast.
Well, I'm I'm glad we were ableto get this set up.
Thank you.
So Sire Equity is the name ofyour firm.
Yep.
Where does Sire come from?
(00:50):
And it's C-I-R-E, it's notS-I-R-E.
Josh (00:53):
It's for people that are not Siri or Sire.
You know, we are a commercialinvestment real estate firm, so
that's where Sire comes from.
Uh, but we're definitely not amarketing firm because people
always ask, like, Sire, how'dyou guys come up with that?
But yeah, that's what it is.
Ryan (01:10):
Yeah, and you you don't have a theme song either,
probably.
Josh (01:12):
We don't we don't have a theme song yet, but now you got
me thinking.
Ryan (01:15):
No, there you go.
Um, okay, so how did you end upin the real estate industry?
Josh (01:21):
Yeah, so the a bridge version is um I was actually
sitting on the beach in Brazilstudying abroad during college,
and I had one semester left whenI got back to uh figure out
what I was gonna do.
And so sitting on that beach, Iwas like, how do I sit on the
beach and earn money?
(01:43):
And I was reading a lot ofbooks when books were coming
from Amazon.
So uh I had friends coming withsuitcases full of books to
Brazil, and I was just devouringbooks, and I read a book, Think
and Grow Rich by Napoleon Hill,and that really stood out to me
because what that book talkedabout is how do I put my talents
out there and to not trade mytime one for one for treasures?
(02:05):
How do I scale that so I canearn passive cash flow
effectively and sit on the beachand enjoy my life?
And uh a lot of the researchcame back to real estate, right?
Commercial real estate.
So people make money, they selltheir business, and then what
do they do?
They go and invest.
And when they invest in, theyinvest in hard assets or
alternatives like real estate,and they earn that passive cash
(02:25):
flow, and they're able to goplay golf or do whatever they
wanted to do.
So I said, well, why don't Ijust start there?
So I went back to college, gotmy real estate license, just
like the 1.5 million grandmas,moms, sisters, cousins, everyone
that has a real estate license,uh moved down to San Diego and
start in brokerage.
So I got to learn and earn.
So I was working with familyoffices, high net worth,
ultra-net worth, ultra networth, and institutions to help
(02:48):
them buy and sell theircommercial real estate.
And I gotta learn what a gooddeal looks like, knowing that I
always wanted to be on theprincipal side of the business.
Ryan (02:56):
So and take us forward then.
Um Sire Equity, how did yourhow did you start, how did you
transition from that commercialreal estate experience to launch
your firm?
Josh (03:06):
Yeah, so obviously that was the intention the entire
time.
Um it was 2009, GFC is goingon, uh, world's falling apart,
and third deal in a row that Iwas like, I should be buying
this deal was my trigger to uhstart up the firm.
So just a short 15 years ago,March of 2020, launched Cire
Equity.
(03:26):
And um, you know, just took allthat experience.
My client base at the timewere, you know, again, family
offices, high net worths, and Ijust found a deal, went out to
raise deal by deal.
So, you know, to give the27-year-old a blind pull fund
probably wasn't the best playcoming out of the GFC, but uh
deal by deal made sense.
(03:48):
So started by raising $25,000at a time, putting all my money
back into the deals, uh, diddeal by deal all the way up
until 2019 until we launched ourown uh perpetual vehicle, which
was a non-traded nav read.
Ryan (04:01):
Yeah.
It's it's always amazing to melooking back, like out of some
of those financial calamities,like you end up with these
amazing um new opportunities.
You know, prices go down,everyone freaks out, everyone's
uh you know afraid, and youknow, there's the the uh
proverbial blood in the streets.
Right.
And those people that have theopportunity, the eyes to see the
(04:24):
opportunity, end up makingsomething of it.
Josh (04:26):
Yeah, definitely.
Look, timing plays into a lotof these things, right?
Yeah.
If I would have had a family atthat point, would I have made a
different decision?
I don't know.
But I I would hope that I wouldcontinue to bet on myself.
And I can tell you, 2009,coming off of one of my best
years as a broker, across fromsomeone I wanted to marry, my
now wife, and she had made morethan me doing residential real
(04:50):
estate short sales.
And I I'm just looking going,what am I doing?
Like, what's gonna happen?
And and just laying theregoing, I'm gonna bet on myself
again.
Right?
I need to stay confident, stayoptimistic, and this fear, not
let the fear prevail, go back tothe data, go back to what the
opportunity set is.
And again, there was plenty ofopportunity.
(05:12):
So hence the third deal on theroad that was like, I should be
buying this deal was thattrigger to launch.
Ryan (05:17):
So for someone who's not in the real estate industry all
the time, as maybe an outsider.
Most people own real estate,but they're not really investors
in real estate.
They own their residence,maybe.
Um it seems that it's gottenreally complicated, really
complex.
The environment that we're inhas all sorts of um, I don't
(05:41):
know, all sorts of nuances thatpeople are worried about,
whether that's you know, peoplenot going back into cities after
COVID and not returning towork, and what does that mean
for office space, or what doesthat mean for retail that's
adjacent to office space?
And there's all these differentthings that are that people are
worried about.
Um, in your opinion, as someonewho's a professional investor
(06:03):
in real estate, has it gottenmore complicated, or is that
just the narrative that we onthe outside observe?
Josh (06:11):
Uh let's keep the narrative going.
It's extremely complicated, soyou shouldn't get into it.
No, um, I think we complicatethings, right?
And I think whenever um thereare shifts until there's a new
normalcy, there's all the fearand the fear headlines come out,
and that narrative that willsell the newspapers gets
regurgitated over and overagain.
(06:31):
Sometimes to become a prophecythat becomes a reality,
sometimes it's repeating thingsthat were six months a year
typically old news.
Um so if you think about from2009, 2010 to 2000 through 2020,
the one headline in the presswas around retail.
Retail was dead, retailapocalypse, Amazon effect.
(06:53):
Right?
And so what did COVID actuallydo for that?
It actually helped accelerate alot of the narratives that were
either starting or that werealready in the press to either
prove them right or prove themwrong.
And I think 2020 actually,COVID sped that up to show
retail's not dead, and retailended up being a product type
that's been very resilient inlast mile delivery in the
(07:15):
omnichannel delivery of goodsand services.
What comes out of that then isyou're talking about now an
office revitalization or a newoffice shake up to normalcy,
right?
That we're trying to figure outnow with hybrid or whatever
that looks like, work from homehybrid to back to office.
And you it's prettyinteresting, you have a
dichotomy there right now whereyou have the kind of old school
(07:36):
thought it's like, look, I don'tknow if people are working
unless I see them in the officementality, to this new, super
new mentality of, hey, I grew upin COVID in high school or in
college.
I really want to work in anoffice.
I want to be around people.
I don't want to be isolatedagain.
I want to learn with people.
I want to do this podcast inperson versus on Zoom today to
(07:58):
have that connection.
So you kind of have polarizingon both ends of that that are
both saying, I want to be back,and then the people in the
middle that are going, I kind oflike this work from home thing.
I got this hybrid, I got thisflexibility.
So that's the new normalcy oftrying to figure out what that
looks like because Office isn'tdead, right?
There's not a lot of loyalty toOffice because if you have an
(08:19):
internet, you have your cellphone, you can be anywhere,
potentially.
Um, you have all these nowtechnology tools that you can
utilize too to get teamstogether.
However, the replacement of theoffice is now going, how do we
collaborate?
What's going to draw people tooffice, right?
What are the amenities?
Does it have a golf simulator?
Does it have a pool table?
Does it have a kitchen foreveryone to use?
(08:40):
Does it have a gym for everyoneto attract people to come back
to work together, but with amuch smaller footprint?
You know, does the fullaccounting team, does the full
marketing team need to come backto the office and take 20,000
square feet, or is now it's justexecutives and it's 4,000
square feet, right?
So right sizing is kind ofwhat's going on that I'm seeing
(09:00):
at least in the office world.
But the demand is, yes, itmight be down, but then you also
have inventory leaving themarket too, right?
The conversion to residentialin office.
We have an office building inSan Diego that's being converted
to a residential building.
So they just took 250,000square feet out of the market,
which helps again get you backto a demand-supply balance at
(09:21):
some point.
And then you could go the otherway with that, just like
retail.
You don't build retail for 15years, and now what do you have?
You have it's out of balance,and now you have rents rising
pretty rapidly.
So it's cyclical.
Ryan (09:34):
Yeah.
And I mean, if you're I wouldimagine there's more demand to
live in a beautiful buildingthat's being redone in San Diego
than in other parts of thecountry, perhaps.
Um how important is thatgeographical location when it
comes to some of these trendsthat you're seeing?
Like people that moved out to amaybe uh more of a hybrid work
(09:57):
environment in a less attractiveplace versus a more attractive
place.
Is that is that something thatyou pay close attention to?
Josh (10:04):
We do.
We definitely track the data onwhere are people, where where
the trends, where are peoplegoing, what do jobs look like,
what's the you know, thedisposable income levels of
people, what are transmodaltrends.
We're looking at a lot ofdifferent data points for what
we invest in.
Um but yeah, there's definitelybeen there's markets that are
(10:25):
doing better than others, right?
And it's not just about a lotof it's around affordability,
but it's also, you know, I wouldsay there's been a lot of
polarization, you know, when itcomes to politics and different
things that have changed incertain cities that move people
to other places as well orattract people to certain
places.
So we've seen a lot ofmovement, and uh, I don't think
(10:46):
that's stopped or a normalcythere either.
I think you've seen somedefinite winners of uh of some
of the transitions of movementtowards call it going from
California and going east toArizona into Texas.
Texas continues to grow um andthen all the way to Nashville,
right?
You see kind of that sprawl andinto Florida.
(11:07):
So you've seen this kind ofdispersion of people move across
the country and mainly from theWest Coast.
Ryan (11:14):
So I want to talk a little bit about from a macro
perspective, some of the fatsome of the forces that uh are
important for you as a realestate investor.
Um interest rates come to mind.
I I think most people, whatthey're familiar with in the
residential real estateexperience is that we we went
through this period of timewhere rates shot up really
quickly.
And it it sort of made senseinitially that people would
(11:37):
think, well, if you've gothigher mortgage rates, houses
are less affordable, maybe thatputs a downward pressure on
prices, but we've seen kind ofthe opposite because then people
don't want to sell their housebecause they don't want to
refinance, so there's lessinventory.
So it's so do you see anythingsimilar to that from the
commercial side of things, orhow how do you think about
(11:58):
interest rates?
Josh (11:59):
Yeah, I I think interest rates are gonna go up, they're
gonna go down, and if you wantto really ride that roller
coaster, my crystal ball is asfoggy as anyone else's.
I'm I'm not a professionaleconomist on that, but uh I
think it's what the way myapproach to interest rates is
can we live with the interestrate we're at right now and can
(12:19):
we lock that in?
Because I want to sleep easy atnight as an investor myself,
and I don't want to ride thatroller coaster of if a deal
doesn't make sense and you haveto have a lower interest rate
for the deal to make sense, itprobably doesn't make sense to
buy the deal.
It's common sense.
So just simple mental modelsaround that.
I've seen, we've definitelyseen the pressure on people.
(12:40):
It's from the GFC even how didbillionaires become
millionaires?
They over-leveraged, right?
They used the inappropriateamount of leverage, they rode
the roller coaster of letting itbe variable rate.
What happened in 21?
It was very enticing to govariable rate loans because they
were so enticing, they'reinducing to go and do deals that
maybe you shouldn't be doing atan over-leveraged price point.
(13:02):
And then when that ran up,starting in Q2 of 2022 and just
kept running, that train runsaway with all your equity, and
you don't have a backup optionto that.
Your rent growth is clearly notmaking up for that.
So betting on pro forma versusbetting on existing or investing
in existing, one's betting,one's investing.
Right?
(13:23):
And so locking in interestrates and having a positive
spread to debt today is a quickway of your backup then is cash
flow versus hoping, which is nota strategy, reacting, which is
never great, to a market thatyou can't control.
So if you can you can box inthose variables or those risks
(13:44):
with fixing your debt and makingsure you have those
fundamentals of whatever you'rebuying, that's another way to at
least sleep easier and nightand not ride that roller
coaster.
Ryan (13:53):
So there's been a lot of evolution in the ways that
people own real estate, whetherit's their their residents or
other forms of REITs.
Um talk a little bit about thedifferent types of ownership
structures of real estate.
Yeah, so and maybe some of theadvantages or disadvantages.
Josh (14:12):
You know, uh I get asked this question a lot, especially
from you know, having friendsthat let's say build a business,
sell their business, and theygo, okay, now we got this pile
of money, we're gonna go intoreal estate.
And they go, what should I do?
And I start laughing, it'slike, well, you just sold your
business.
It's like me saying, I justsold my business, I'm gonna go
into your business and juststart buying, you know, whatever
(14:33):
you were doing, and what wouldyou tell me?
Yeah, right.
And so um there's a lot ofdifferent ways to invest into
real estate.
Uh there's the directownership, like you mentioned,
right?
Owning a house, people undercan understand that.
Buying a second house, buyingmultifamily, buying triple net
properties.
But I think there's a misnomerof what owning real estate looks
like direct.
(14:54):
I think people, there is athought process that it can just
be passive.
And there's no such thing asowning a piece of real estate
and being passive because it'salways active.
Even if you're deferring to aproperty manager, that property
manager is still calling you andgoing, hey, the plumbing broke.
We need to fix it.
Do you want to fix it?
Or we're gonna fix it and we'regonna spend your money to fix
(15:16):
it and send you the bill.
So it's there's still an activeownership, even in direct.
Then you go all the way to theother side, which is super
passive, and that's where youuse investment advisors and
different things to vet out,which are the public markets,
right?
Publicly traded REITs or otherstocks that you can buy that own
real estate.
And what I like to say is it'skind of like the Goldilocks
(15:37):
approach for everyone.
You got to figure out what'stoo hot, what's too cold, and
what's just right for you.
You know, to take an liquid, anilliquid asset like real estate
and make it hyper liquid to themillisecond probably is a
little misaligned at that point.
That feels a little for me,that's a little bit of a.
Ryan (15:54):
It's tough to mark a price when you're dealing with real
estate.
You know, mark like you can astock, right?
Josh (16:00):
Like a millisecond by the millisecond for something that's
really not liquid, you'remanaging the real estate in a
different way.
You're managing a company in adifferent way.
Ryan (16:09):
Yeah.
Josh (16:09):
And it's a long-term investment to make it a
short-term, that short term.
And then on the other side issuper illiquid, right?
Even if I own my real estateoutright myself, I still have to
go bring it to a real estateagent to go value that property,
bring it to market, gatheroffers, and try to sell it.
And that could take 90, 180plus days.
So there's things in the middlenow, too, that provide that.
There's different intervalfunds, there's different um nav
(16:32):
reads that are non-tradedvehicles that provide
semi-liquidity.
So there's a lot more optionstoday, and that's again where
you have professionals.
I would always defer toprofessionals on this.
If you're not the professional,it's like the Matt Damon quote,
right?
Around uh rounders, if youcan't spot the sucker, you're
probably the sucker.
Like you got to be careful, getthe professionals around you to
(16:52):
help you with that and let themdo what they do.
Ryan (16:55):
So real estate is also interesting from the perspective
of other industries.
We've seen costs have reallycome down in the last several
decades for the stock market,for bonds, like spreads have
come in.
And real estate is an areawhere if you're selling a you
know your home, you're stilllikely to pay five or six
(17:17):
percent when it comes to the thecommissions to real estate
agents.
Um and this is kind of a maybea a rabbit trail.
Uh, but I'm wondering what youthink of that.
It why why has that a uh beenthe case?
And is that also the case, Iguess, when it comes to
commercial?
Is there still that thatfrictional cost of uh
transacting?
Josh (17:38):
Yeah, I would say in some ways it's come down and become
more systematized, right?
I think in residential, it'smore perfect information in
residential.
I think everyone has some ideathat they're checking Zillow or
Redfin or whatever it is.
Now it could be any of the AIapps.
What's my house worth, right?
And they're gonna give you somedata because there's more
prevalent stock and velocity inresidential.
(18:00):
Two homes next to each othermore likely or closer in value.
You can't say the same thingwith commercial.
You could have two buildingsright next to each other having
completely different valuationsbased on the tenancy that's
inside the building, the leaseterm that's inside the building,
the encumbrances that come ontop of that building, right?
Same zoning, everything else,but they could be very different
(18:21):
in pricing.
So there's imperfectinformation in commercial real
estate, which is why there'ssuch a wide swath of opportunity
in commercial real estate.
So expertise, a informationthat maybe other people don't
have or relationships thatpeople don't have can create
outsized opportunity.
And that's why expertise,starting with that, for someone
(18:43):
that's new jumping intosomething, how do you pick up 20
years of expertise overnight?
Um, on the actual transactionalcost side, there's cities, you
know, smart cities like in uhSan Francisco and LA, just
picking on my home state ofCalifornia, that have created
additional friction in thatbecause they put transfer costs
of three, five plus percent.
(19:03):
It's the mansion tax in LA asan example.
Five percent off of the grossvalue of a $10 million plus
asset, gross value, right?
If you have any leverage, let'ssay you have 50% leverage on
that, that's a 10% hit to yourequity.
That's painful, and thathappened right overnight.
So, how do you recover fromthat, right?
The values have to move up thatmuch more for you to recover
(19:26):
that type of equity.
So, yeah, is that a friction ofpeople wanting to sell an
asset, or do people start to getcreative on how they sell
assets then or what they do withtheir assets?
So, you know, um, it'ssomething definitely to watch
that it's made it more difficultin some areas to make people
want to hold on, which thencreates a supply-demand
imbalance again.
Ryan (19:46):
Yeah.
So as an asset class, realestate has all sorts of nuances
that that people maybe don'tthink about, um, at least as a
non-professional real estateinvestor.
What are some of the attributesof real estate that make it a
little bit different than owningstocks or bonds, and maybe some
of the more attractiveattributes of real estate in
general, whether from a taxperspective or otherwise?
Josh (20:10):
No, it's a great question.
So I would say there's ahandful of reasons why real
estate as an asset class is donereally well.
Is one, you can get leverage inreal estate, right?
That's one of the benefits ofreal estate, is being able to
utilize leverage.
And hopefully you're usingpositive leverage.
There's a difference betweenpositive and negative leverage,
right?
If you have a 6% interest rateand you're buying something with
(20:31):
a 5% return, you're upsidedown.
That's negative leverage.
Every dollar you're borrowingfrom the bank, you're paying an
extra dollar to them of whatyou're not making.
But if you have 7% return and a6% interest rate for every
dollar you borrow from the bank,you're making a dollar on every
dollar you've borrowed from thebank, right?
So you utilizing positiveleverage is great for real
estate or getting that leverage.
The other benefit is typicallypeople want to talk about it's
(20:54):
around volatility.
Real estate, again, being anilliquid asset class, and as
long as you're not trading onthe millisecond, shouldn't be as
volatile.
It's more steady eddy.
Yes, you'll have cycles, butbecause it's illiquid, you're
gonna hold through those cyclesmore likely.
It's kind of forcing you tohold through those cycles a
little bit more.
So uh it smooths out thevolatility in that because you
(21:15):
typically have income incommercial real estate.
That's your foundation for thevaluation.
Um, the tax efficiency of it,right?
I'm a California guy.
You know, taxes is a bigquestion.
Money saved is money earned,and the tax benefits that come
along with real estate, theright interest write-off,
depreciation, or even it uh costsegregation to accelerate your
(21:36):
depreciation, to shelter yourincome so that the income you
actually are receiving from theproperty is income you can
actually spend.
Right?
That's a really big benefit, oryour appreciation is also
another benefit of these, theseare real assets.
So tariffs and all the otherthings in the news, that
inflation, it's an inflationaryhedge, effectively being a hard
real asset.
It's not going down, labor'snot going down in price, cost of
(22:00):
goods are not gone down inprice, which means over time the
value of the property should goup in the sense of replacing
that property gets harder andharder every single year.
So again, value appreciationover time and an inflationary
hedge.
So those are a handful ofreasons why people typically go
to real estate.
Ryan (22:16):
Yeah, that those are uh those are very good points.
And I I think I hadn't thoughtabout the uh from a tariff
perspective.
Everyone's talking abouttariffs and focused on tariffs
this year.
And it is more insulated fromthe concerns on the one hand,
because you don't have to worryabout input costs and being able
to pass that along.
(22:36):
But on the other hand, theinput costs mean that it's more
expensive to replace, and soyour value of your real estate
actually appreciates potentiallywith that uh increased cost.
That's uh that's a really goodpoint.
Josh (22:49):
Less supply too, right?
If it becomes there's lessdevelopment that occurs from
that, so then it creates again abigger bridge of or a bigger
gap or chasm of supply anddemand, which then puts pressure
on rents.
So all this goes it's simpleeconomics, right?
Of supply-demand, where doesthat meet?
What's equilibrium look like?
And that's always shiftingdepending on what's going on in
(23:10):
the market.
But I haven't really seen itshift downward as much as I've
seen it shift up and to theright in regards to the cost of
replacement.
Even in a downturn, we haven'tseen the cost of replacement go
down.
We just seen what you can buythings are way below replacement
cost.
Ryan (23:26):
So as you look out at the different opportunities in real
estate, are there any specifictypes of um whether it's sectors
or deals that you think ingeneral are more attractive now
or trending to be moreattractive now?
Josh (23:39):
I think there's uh opportunity to generate alpha
wherever you have an expertise,right?
So that's what I would startwith for any of the investment,
for any investor to take a lookat.
Do you have any edge orknowledge that you can utilize
in what you're buying?
And and for us, you know, we'reoperators.
My my background is we arehands-on vertically integrated
(24:02):
operators of real estate, andthat's a big difference than
just allocating to real estate,right?
Buying and hoping that it'sgoing to be passive.
And so what we're looking to dois how do we buy something and
add value to it, being avalue-add investor?
And in certain markets, we'veseen dislocations because of the
news headlines around uh westarted off in retail.
So when I was talking about theretail apocalypse, retail's
(24:24):
dead, Amazon effect, that was2010 to 2020 and beyond.
Now it's the darling of theinvestment classes.
It's amazing how the tidesswitch so quickly.
We are experts in operatingretail, right?
We take that same operatingknowledge, and what we did is we
look at goods and services anddelivery to people.
And how do you do that?
It's omnichannel.
We were talking aboutomni-channel before people were
(24:46):
saying what that actually was,but that was you have the online
presence to gain a client, butthen the delivery is shopping
centers or distribution centers.
So we balance it with a barbellof industrial.
And the things that we startedbuying and that we continue to
buy is in the industrial sectornow.
So our portfolio is prettybalanced between the two.
And that's industrial, includeslogistics, right?
(25:08):
The distribution.
So you look at port cities,which are getting just
bludgeoned right now because ofthe tariffs.
Again, short-term shocks, andthis is a long-term investment
horizon, a long-term strategy.
We don't just change ourstrategies overnight,
willy-nilly.
We look at things for a longperiod of time, 10 years plus.
I don't think it's easier tobuild in a port city or find
(25:28):
good real estate in a port city.
So we still like these portcities.
Um, and so we're buyingindustrial logistics,
manufacturing, and then flex.
We talked a little bit aboutthe rebalance of office.
So you went from 20,000 squarefeet in that beautiful office
tower in downtown, which hadyour accounting department, your
marketing department, and allthe other operations departments
(25:50):
and your executives, and now,but you have a manufacturing
facility, right?
So now what you do, what do youdo?
You downsize from 20,000 feetto 3,000 or 5,000 feet.
You keep the nice office withamenities so people can come
there and use them.
And you take the other 15,000feet and you downsize that to
10,000 or 7,000 feet, and youput it in your manufacturing.
And what's that called?
That's called flex space,flexible space.
(26:12):
And so where we found adislocation in the market is
actually in that manufacturingto flex space.
Two things.
Manufacturing, power isinfrastructure.
People talk about data centerand everything else.
It's really power, is whatyou're talking about.
We like to buy power with thatinfrastructure because it's
really hard to get.
Allocation.
And two, flex is stillindustrial, so you get
(26:35):
industrial interest rates, sothe banks still can understand
industrial.
They don't like office, butthey love industrial.
And you're getting slightlybetter pricing on the flex space
because industrial buyers don'tunderstand flex space and their
box is very narrow, so they'rejust buying logistics or pure
industrial per se.
(26:56):
So there's been a dislocationin that market, so we're getting
a higher return on the buybecause of the market moving
out, and we're getting stillvery good interest rates from
the banks or the lenders.
So we get to make that spreadin between.
So that's positive leverage,and that's a dislocation that's
been created in the market.
So that's one of the thingsthat we've go after today.
Ryan (27:13):
Interesting.
Um, okay, so on the other sideof the coin, are there any
specific areas in real estate,whether it's sectors or
otherwise, that you would treada little bit more cautiously on
and maybe think there's a bitmore risk?
Josh (27:26):
That's a great question.
Um, I would say it comes backto the whole comment around
expertise, right?
We typically avoid operatingbusiness type real estate.
So we're not a hospitalityowner and operator.
Uh there's great opportunitiesin that.
There's uh people doingconversions, obviously, from
kind of the the walk-uphospitality, you know, into
(27:48):
multifamily.
We're also avoiding call itdirect development today.
I still feel like there's,especially today with the
disruptions in the market andthe interest rate environment,
it's created a chasm again or agap of it's cheaper to buy than
to build still.
So why would I build and takethat risk, that speculative
risk?
We're not spec developers.
(28:10):
I don't want to ride thatrollercoaster.
I want to buy somethingexisting that already has cash
flow that can add more cash flowto it.
So I would avoid I'm avoidwe're avoiding development per
se, hospitality or anything thathas an operating business
element to it, and just buyingcurrent cash flow and seeing
where we can just add a littlebit more to it.
Ryan (28:28):
Okay.
Um I'm looking at the uh theclock here, and we've already
gone a half an hour, so uh Iappreciate you um sticking with
me for uh for some time here.
And you know, I'm I'm springingthis on you, but um one of the
questions that I try to ask myguests on the podcast is uh what
books are you reading or haveyou read or are you planning to
(28:50):
read that you would recommendpeople checking out?
And this doesn't have to be areal estate book, this could be
just you know, a Josh Volanlikes this particular book.
Are there any books that you uhwould put on that list?
Josh (29:02):
Yeah, so um I always start with foundational books for me.
And the first one is Mindset byCarolyn Dweck.
So starting with her mindset,abundance versus scarcity, fear
versus in my what I call theother side of fear, which is
love, the push and pulls in ourlife.
So I start with uh mindset.
The second is grit.
(29:23):
So Angela Duckworth, that's agood follow-on.
She quotes Carolyn Dweck in herbook.
So, grit, how do we instillgrit in our kids?
How do we how does grit show upin our lives and how do we
build that resilience?
So grit.
Um I would say nonviolentcommunication because uh I'm a
father and I I want to learn howto be a better situational
communicator as a leader, andthat's been a very impactful
(29:45):
book, a good one to read with myspouse as well.
So it gives those tools.
So when you combine thosethree, just kind of the
wholesome leaderslash everydaylife.
And there's a lot of otherbooks, but uh another book by
Brooks, um, which is Uh he wrotewith co-authored with Oprah,
and that talks about you knowjust a bountiful life and the
(30:06):
arrival fallacy of all of uschasing the horizon, you know,
these people that are hardchargers and achievers and that
arrival fallacy, right?
Of if I do this, then I'll behappy, and just really
appreciating the journey.
And so I really appreciatedthat book.
It was it was really wellwritten.
And uh so yeah, there's ahandful of books.
Ryan (30:24):
Yeah, I really appreciate that.
I haven't read any of those, soI'll have to add them to the
list.
Sounds good.
Uh, but again, really uhappreciate your time and thanks
for coming on the podcast.
Um, hopefully we can do itagain sometime down the road.
And thanks to all of you aswell for joining us on this
episode of the First Trust ROIpodcast.
We'll see you next time.
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