Auren Hoffman (00:01):
Welcome to world of Daas, a show for data enthusiasts. I'm your host Auren Hoffman, CEO of SafeGraph. For more conversations, videos, and transcripts, visit safegraph.com/podcast. Hello fellow data nerds. My guest today is Tyler Henritze. Tyler is senior managing director and head of real estate acquisitions at Blackstone. Tyler has worked on over $100 billion of transactions in his career, including some of the largest buyouts in history. Tyler, welcome to World of DaaS.
Tyler Henritze (00:34):
Happy to be here. Thank you for having me.
Auren Hoffman (00:36):
Now, Blackstone real estate takes kind of a thematic approach to investing. I know over the past decade and a half you guys have acquired over a billion square feet of industrial warehousing, kind of anticipating this rise of e-commerce. What interesting assets are you guys investing in today that support like a trend that you see over the next decade?
Tyler Henritze (00:58):
Maybe to take a step back for a second. I think it'd be helpful to talk about the evolution in our business in answering that question. And if I looked at our business going back 10 or 15 years ago, we were really investing in episodic, opportunistic deals that really had no rhyme or reason. It was an asset or a business that was disjointed, maybe distressed and we would invest and it would be an office deal one day and a hospitality deal the next day.
Tyler Henritze (01:24):
Really coming outta the global financial crisis as our business began to scale, we really did take on much more of a thematic approach as you described. And the simplest way that I explain it to people is we're really trying to identify large demographic or technological shifts in human behavior, and then asking ourselves what's the real estate corollary to that? So you mentioned logistics.
Tyler Henritze (01:47):
Early in 2011 or '12, we started to key in on the rise of e-commerce and we asked ourselves, what are gonna be the knock on effects to our real estate business? And we identified the industrial theme as a huge strategy and that has been probably one of our biggest global thematic bets that we've made over the last 10 years. But there's a handful of others as well. We have been very active in the housing sector, in particular, the for rent space, the multifamily space across the Southeast and Sunbelt.
Tyler Henritze (02:15):
We've seen these sort of migratory patterns in terms of where people want to work and live. A lot of times that's a shift to slightly more affordable, slightly warmer weather states. In some cases there's slightly more business friendly tax environments. And at the same time, in addition to sort of the consumer behavior-
Auren Hoffman (02:32):
Are you just trying to figure out, okay, where are the U-Hauls going or gonna go by there or...
Tyler Henritze (02:36):
That's it. I mean, I think that's part of it. We look at what are changes in terms of where college graduates wanna move and live. We're looking at U-Haul data in terms of changes in U-Haul data. We looked at this coming out of the global financial crisis, we've looked at it coming out of the pandemic, but in addition to residential housing, a couple other sort of thematic themes that you might not correlate back to real estate, you think about content creation, Netflix, Hulu, Amazon. Well, how does that relate to real estate?
Tyler Henritze (03:04):
Well, all of those shows get produced in different places. A lot of them get produced in sound stages. Those sound stages are largely concentrated in a few markets, LA, New York, Toronto, but also in places like Georgia, where you've got pretty heavy tax incentives, we built up a business that exclusively focuses on owning the real estate in which all of these shows that we like to watch are filmed. So that would be another-
Auren Hoffman (03:29):
Cause I imagine they're selling their time on the sound stage by the day or by the hour or something like that. Are you also operating it and trying to get these like, in some ways it's kind of like a event space business or something like that, or you were just owning it and then licensing it to an operator?
Tyler Henritze (03:45):
We largely own the real estate and lease it out. The business used to be you'd lease it out usually for the period of time that it took to shoot a show. That's evolving as some of the big studios want to control studio space and key markets, longer term. We're not providing much in the way of services other than in some instances we might provide equipment rentals to the shows. But they're coming in generally with their crews and their bodies to sort of put on the productions and we're [crosstalk 00:04:13]
Auren Hoffman (04:13):
A typical rental then is like three months to make the show or what's a typical show that they're having?
Tyler Henritze (04:19):
There are certain markets that cater more towards movies, certain markets that cater more towards television. But I would say it used to be that six months might be a typical lease for a movie or show. But what's happening because these studios are so prolific, they're actually leasing space in some cases for as long as 10 years. [crosstalk 00:04:36]
Auren Hoffman (04:36):
So then just do show after show after show or... Okay. Makes sense.
Tyler Henritze (04:40):
Exactly. I can keep going but one more thematic theme that we were early into was what we call life science office space. So if you think about everybody that's created all these mRNA vaccines, the backbone of that is a lot of research done out of very specialized labs. Well, those labs from the outside look a lot like office buildings, but the technical specs are very different. They need higher air handling requirements to move the air in with greater frequency, cause they're doing very high precision testing.
Tyler Henritze (05:09):
The floors need to handle a greater weight loads because of some of the equipment. And those clusters of lab office space tend to be in markets where you've got a real concentration of PhD type talent. Think Cambridge, Massachusetts, think South San Francisco, think Seattle and a little bit in San Diego as well.
Auren Hoffman (05:30):
I imagine these are also immune to work from home trends and stuff like that. You need to be in the office to do these life science types of things.
Tyler Henritze (05:37):
You made a great point there. I mean, what I'm not referring to is, we're not investing in real estate that caters towards call centers, where people can put a headset on and do it from home. You can't do specialized testing in your living room, you can't film the next episode of your favorite Netflix show at home. These require people to be together and in person, but they also tap into a huge research theme and trend in and around life science, which we were doing even before COVID. Obviously coming outta COVID, that business has accelerated. Same thing with sort of media and content creation. But again, I almost describe these as fairly basic theme. So these are not novel.
Auren Hoffman (06:18):
It seems like a lot of people know about them, but somehow you guys are still kind of the leaders out there.
Tyler Henritze (06:24):
What we're really trying to do, and I think where we've differentiated ourselves is trying to pick up on these themes earlier than others and then pivot within those themes as demand amongst the tenants evolves within those sectors. So industrial is a great example. We just started blindly buying warehouses in 2011 and '12 because we felt that one package that gets delivered to somebody at their home needs to be repositioned about three or four times compared to when it used to just get shipped straight to a store and you'd buy it from a store.
Tyler Henritze (06:57):
So very simplistically, we said that means more demand for warehouse space. Well, fast forward, 10 years later, that's about the least kept secret in real estate, warehouse spaces in short demand. But within that sector, I think we've been ahead of the curve in pivoting. We started buying older warehouses, very close in to dense urban areas five or six years ago when everybody still wanted what I would describe as the very large format mega distribution facilities that tended to be in more suburban locations. We sort of saw what was happening and we saw delivery times that Amazon wanted to take from three days to two days to one day the same day. And we realized in order to do that, they needed real estate that was much closer into these urban environments.
Auren Hoffman (07:45):
Now, prior to 2008, Blackstone was I guess, more of an opportunistic fire and was still doing incredibly well. And then you said kind of like post-financial crisis, you guys have been more thematic. Was it the financial crisis, which was the catalyst or was there some sort of catalyst that like really changed her thinking like, "Hey, we're not gonna be able to make as much money being opportunistic anymore, we need to be more thematic?"
Tyler Henritze (08:10):
I think it was driven by two things. We really wanted to develop real sector expertise within the places in which we wanted to invest. And we also saw all coming outta the global financial crisis that not all real estate reacted the same way to the global financial crisis. Pre the global financial crisis, a lot of real estate was very correlated to GDP. Industrial rents, office rents, hotel rates, very correlated to GDP. And therefore a lot of people built of real estate portfolios and they said, okay, we want 20% office, 20% multifamily, 20%... And it was sort of a diversified portfolio.
Tyler Henritze (08:48):
We saw early coming out of the global financial crisis that industrial rents, which had historically been correlated almost one to one with GDP growth. GDP was growing at 3%. Industrial rents would grow at 3%. There started to be a huge divergence there. And when we saw that, we started to ask ourselves why. And I think it kind of led us to conclude that pre to global financial crisis, I think a lot of people thought that technology either didn't really have a big impact on real estate a or it would kind of impact all real estate the same.
Tyler Henritze (09:17):
And I think we questioned that hypothesis and started saying, no, no, no, no, no. There's going to be certain asset classes and certain formats of real estate that technology is a huge tailwind for and others it's a huge headwind. I can't think of a better analogy or real life example than a mall all relative to a warehouse.
Tyler Henritze (09:37):
I mean, goods literally were leaving the mall as an expensive delivery mechanism to get goods to the consumer and showing up in warehouses. So you can call one a retail asset and another, an industrial asset. But I would almost argue that a lot of logistics facilities today are modern retail centers. They are the delivery mechanism to get goods from the supplier's hand into the consumer's hand.
Tyler Henritze (10:04):
And we started looking at the world and each asset class through that lens and asking ourselves, will this asset class benefit from big technological or demographic shifts or struggle? We essentially said, we're gonna not just de-emphasize, we're gonna almost completely ignore the sectors that have those secular headwinds and overweight the sectors that have the opposite and then go much deeper in a smaller number of strategies and themes and build out real operational expertise within them.
Auren Hoffman (10:36):
For the real estate things that have these headwinds that are coming, is there any way to make money through a short or is it just like, hey, you just wanna rebalance your portfolio and get out of that stuff?
Tyler Henritze (10:48):
Most of our business is a long lonely business where we're buying real estate and managing and operating it. And we generally make all the operational decisions in and around that asset. The only way to really effectuate a short would be through the public markets, shorting securities, which-
Auren Hoffman (11:02):
Ah, got it. Okay.
Tyler Henritze (11:03):
... a lot of people do is not a big part of our business today. Certainly people do that and have been successful at doing that.
Auren Hoffman (11:11):
What about when you think of like there's certain regulatory risks that come in real estate? I know in San Francisco in 2020, implemented a transfer tax where you have to pay 5.5% of a sale once you sell. And if you had bought before 2020, you may have not factored in a 5.5% into your IRR. How do you think about these evolving regulatory risks when you're dealing with real estate?
Tyler Henritze (11:36):
It's a great question. And I think in general, we try to think about which sectors or strategies or jurisdictions have higher regulatory risk than others. Not surprisingly in a lot of these municipalities that are looking for tax revenue, sometimes it's easier to impose taxes on commercial landlords than it is on residential landlords, buildings don't vote, individuals do. And certain states lean a little more progressive in terms of their regulation, whether it be around things like transfer taxes or mortgage recording taxes or even regulations in and around housing.
Tyler Henritze (12:10):
So I think we have to take that into account. Anything that's residential that involves where somebody lives, there's a, I think heightened sensitivities. And I think that we've gotta be mindful in terms of how we operate, that we bring sort of best in class operational standards to bear in those regards. When you're buying at a warehouse or you're buying a storage facility, there generally is not a lot of regulatory pressure.
Tyler Henritze (12:34):
Politicians don't seem to be waking up every day and saying, geez, we need to regulate where you store your leftover gym equipment in your storage facility. So there are times when the lack of regulatory hurdles makes those asset classes easier to navigate and invest in. Conversely, there are sectors that prove more challenging. You think about things like senior housing. It makes sense. You've got elderly people living in facilities. You think about post COVID environment. There's a lot of sensitivities there. There's more regulation. You've gotta take into account that uncertainty in terms of how you think about the risk profile of investing in those type of sectors or geographies, wide range in terms of regulation across geographies, both within the US and outside.
Auren Hoffman (13:16):
Now there's certainly a debate of how much we're gonna move to a more remote first environment. But I think everyone will agree that 2023 will be far more remote than 2019. And how much more remote? I think we can have a debate about it. SafeGraph is a remote first company. How does the investment strategy play into that? Because you may be a little bit less weighted to office, you might be more weighted to fund restaurants in Nashville cause maybe everyone's moving in Nashville. How do you think about that?
Tyler Henritze (13:47):
I certainly don't wanna speculate on how quickly people will return to the office, especially for a lot of functions that are easily performed and done in a remote setting. So you've heard me talk about a lot of strategies and themes that we think have great secular tailwinds behind them. What I'm not banging the table about is a big bet on what I would describe as commodity B office buildings, that if you walk the halls, you would see cube after cube of people largely doing isolated individual work that can be easily done at home. And I think there are certain functions, whether it be call center functions or accounting functions or finance functions that are very easily done at home. And beyond that, I think there's gonna be a bit of a Swiss cheese element where people say, okay, there is an element of collaboration and connectivity that we might wanna foster in an in-person setting.
Tyler Henritze (14:44):
And the way we're gonna configure our space is gonna be different as a result. It's not gonna be as oriented around individual work production, which I think we're learning can be done in a lot of different places. So I think our office strategy today is largely premised on some of these forms of office real estate that really require people to be together in person and beyond the lab office space and beyond studio space. There are companies today that when they're looking to bring people back in the office are saying to themselves, okay, we used to have a fine office, but it wasn't particularly inspiring.
Tyler Henritze (15:21):
If we wanna get people back in the office, even if it's two days, three days, four days a week, whatever it may be, they're really leaning in I think to the investment in the quality of real estate they're buying, they're favoring, newer buildings, they're favoring buildings that are heavily amenitized, so that there's multiple hooks to get people to come in. Buildings are putting in small healthcare clinics within the building. There's a company now called Eden Health that essentially provides primary care, sort of micro clinics within office buildings.
Auren Hoffman (15:48):
Oh, that's awesome.
Tyler Henritze (15:49):
Which if you think about it from the employee perspective, they're kind of saying to themselves, well, wait a second, I don't need to commute into the office to do some conference calls and some work that I can do at home. But if there's a collaborative element to the job, if there's an element of training culture building also, it's where my gym is. And it's where my health provider is. That starts to create an added incentive for that employee to come into the office some number of days a week. And we're seeing a real divergence in terms of rental rates amongst what I would describe as modern, newer buildings that are heavily amenitized in best in class locations and commodity office buildings that are older struggling because that demand is just not there today. People are essentially upgrading in terms of the quality of office experience they're providing to their tenants in the event they are trying to get people back.
Auren Hoffman (16:43):
We're moving to the very interesting environment where interest rates are changing, there's a lot of uncertainty. When you're doing buyouts, I imagine you use a lot of leverage. You have to get a lot of debt. How are you managing this type of uncertainty? How do you manage the lenders? Is there some sort of mutual understanding that you guys work through as you guys move into times that are more difficult? How do you think about that?
Tyler Henritze (17:07):
Yeah. Good question. We typically are a leveraged buyer depending on the strategy we'll borrow between 50% and 70% on an acquisition. We spend a lot of time on the front end, making sure that we have got term to our financing five years, seven years, 10 years, depending on the business plan that would allow us to presumably ride through any uncertainty and volatility. So we bought several businesses before the global financial crisis P was a very large $40 billion.
Auren Hoffman (17:37):
Yeah, that was one of the biggest acquisitions in history at the time, right?
Tyler Henritze (17:40):
It was one of the largest LBOs ever at the time. And after we bought it, we sold some real estate down. But fortunately we had structured a financing package that had no covenants, that had no trip wires that had a lot of optionality to us to make sure we were guaranteed the full term that we had bargained for on the front end, regardless of what happened to the operating performance of those assets.
Auren Hoffman (18:02):
Even if there is a downturn, we can at least move through our investment strategy, our investment horizon, et cetera. Right.
Tyler Henritze (18:09):
That's right. I mean, listen, we're not borrowing for 30 years, but typically what we are doing is we're setting up financing structures that are both non-recourse to us. So if there is a problem with one individual investment, the lender only has the ability to go after that one individual investment. We also, like I said, create the flexibility so that if the operating performance at the asset level deteriorates for some short intermediate period of time, we can live to fight another day. We're not in a situation where the banks are foreclosing on us.
Tyler Henritze (18:38):
We also maintain very sizeable reserves within our funds, such that we can fund interest shortfalls and make the necessary capital improvements for investments even when times get tough. And I think we've learned that you never wanna be a forced seller in real estate. You wanna have dry powder and have capital when there's these moments of dislocation, because at the depths of COVID, at the depths of the global financial crisis, nobody wants to lend to you, nobody wants to provide equity capital. If you don't have committed capital standing by ready to take advantage of those opportunities or to protect your own portfolio, you will be a forced seller. And we'd rather be the person on the other side of that trade.
Auren Hoffman (19:15):
This is like kind of a Seth Carman margin of safety kind of way of thinking through this.
Tyler Henritze (19:21):
Absolutely. I mean the other thing we've learned too is you oftentimes if you own quality real estate, the other thing we've seen is that you ride through a downturn and you're holding on for dear life and it looks pretty grim. And then all of a sudden, the cloud's clear and the sun comes out again and you think, let's think 2012 or 2011. Okay, the clouds have cleared, financing markets are stabilizing, there's a little bit capital back in the system. There's a lot of people that sort of, they say, okay, I'm gonna sell now. And what we've learned is if you own great real estate, this isn't true for [inaudible 00:19:53]. But if you own great real estate, resist that urge to sell the moment the cloud's clear, that's the beginning innings of a new cycle.
Auren Hoffman (20:00):
That's where you're starting to see the double digit growth per year or something.
Tyler Henritze (20:03):
That's where you're really starting to see the fundamentals kick back up again. I think we have done a nice job of being patient and when we own great real estate, really maximizing the windows in which we sell, certainly not selling in those moments of real distress, but also not selling day one when the cloud's clear again, because that usually is the beginning of a asset value appreciation cycle.
Auren Hoffman (20:28):
You guys historically also have done a lot of stuff in kind of broadly the hotel space. You bought Hilton in 2007, you guys did Motel 6. You did the Cosmopolitan in Las Vegas. So obviously very, very different types of assets. What have you learned from these, let's say broadly hotel types of things?
Tyler Henritze (20:46):
First of all, I would say everyone, when you talk about hospitality brings their own experiences to bear. You say the Cosmopolitan and people have a reaction, they've stayed there, they've wanted to stay there, they've heard about it. When you say Motel 6, people have a very different reaction.
Tyler Henritze (21:01):
The first thing I say to people is don't confuse the user experience with the ownership experience. McDonald's might not be your first choice in terms of where you want to go get lunch, but it's a great business. And conversely, there are some very high end hospitality assets that are amazing to stay at, but can sometimes be tricky businesses. I can guarantee you a very easy way to go bankrupt in the hotel business is to buy a four seasons asset, charge 150 bucks a night. You'll have five star reviews on your [inaudible 00:21:36] and you'll have the happiest customers on planet earth.
Auren Hoffman (21:40):
Tyler Henritze (21:40):
You'll be broken six months.
Auren Hoffman (21:41):
Tyler Henritze (21:41):
So the first thing I've learned is don't conflate the user experience with the owner experience. I've also learned that there's a lot of people in New York that represent a very small customer base that don't necessarily represent the broad base of the meat of the demand in the hospitality world. But what we've really tried to do, I would say is it's been a bit of a barbell approach. I think about it as we either want to own hotel assets that you and I would say by name. We own the Grand Wailea in Hawaii. When people go there, they don't say, "Oh, I'm going to Owahu." They say, I'm going to stay at the... I'm sorry, in Maui, the Grand Wailea in Maui. When people stay at the Cosmopolitan, they say, they're staying at the Cosmopolitan. You're selling more than just a room. And as a result, you're able to charge-
Auren Hoffman (22:27):
It's a real brand.
Tyler Henritze (22:29):
It's a real brand. There's a real experience, et cetera. The flip side of that is if you're just in the bed business, where you're selling a bed, you better be really honest at how you operate that asset and be really maniacal about providing a clean room and a very simple experience without too much labor and without too much frills to be competitive in that space.
Tyler Henritze (22:52):
So we have tended to focus on the very, what we call the select service end of the spectrum, which tends to be high margin, high free cash flow conversion, very streamlined operationally, or we focus on assets that again, really are selling more than just a room. It's an experience, the Cosmo would be a great example of that in Vegas. I think the in between is where you get tricky, where it's a full service asset that has got some labor, it's got a crummy restaurant, it's an older dated room experience. You're kind of neither, you're betwixt in between a little bit. I think that's a dangerous place to be. I think it's also where Airbnb can eat your lunch because you think a place like New York and someone's like, well, I don't, I don't need your crummy hotel restaurant, I just wanna be in [inaudible 00:23:38], I wanna be in Midtown and I, I can stay in an apartment and I don't need all the frills.
Tyler Henritze (23:42):
So I think you gotta be really honest with yourself as to what you are. And then the last thing I would say is the, and we were very successful with this in Hilton is, the management and franchise business is a great business. And it was really what made Hilton a great investment for us was the growth in that asset light, management and franchise business, where you're not owning the real estate, but you're licensing your brand or managing hotels on behalf of someone else. And increasingly those businesses, Hilton is one of them are really, I would describe as technology powered distribution, brand engines. I mean, that's really what their businesses are today. They've largely sold off their real estate. Those are great businesses as well.
Auren Hoffman (24:20):
Now sometimes you're a buyer, but of course you're private equity firm, you have to be a seller too. And you famously sold the Waldorf Astoria to a Chinese investment firm for about $2 billion. And you've described this as one of the more challenging transactions of your career. Was it challenging because it was like a cross border deal or what made it so challenging?
Tyler Henritze (24:40):
It was challenging for a couple reasons. It was a buyer that we did not have a long and deep relationship with. They were somewhat unknown. So there were some questions as to their credibility and their ability to perform. And their team almost exclusively spoke Mandarin, which was probably the biggest challenge for me. It was an incredibly complex deal. So we were essentially selling the Waldorf Astoria to this investment group.
Tyler Henritze (25:10):
Their business plan was to convert two thirds of the building to condominiums. Part of what Hilton wanted to do was maintain a new high end renovated Waldorf in the same location, but it would shrink in size, that would represent about a quarter of the asset base. They were going to engage Hilton to manage that asset on a go forward basis, the hotel component. They needed Hilton to operate the hotel on an intermediate period of time while they created their plans. [crosstalk 00:25:42]
Tyler Henritze (25:43):
I think there was like five or six governing documents that we had to negotiate, a transition services agreement, a management agreement, a franchise agreement, a purchase and sale agreement. I mean, there was a lot going on here to navigate all in Chinese. And that was tricky with a buyer that we didn't have a ton of experience with. So there was a young lady on my team who was an associate, who was our translator. She did an amazing job and I think really grew up a lot in that transaction, but she really, we could not have done that deal without her help and support and the Hilton team's help and support, but that made it very tricky.
Auren Hoffman (26:20):
What'd you learn from that, like for deals going forward? Is it just a one off, it's hard to learn anything or is there some takeaway you could take?
Tyler Henritze (26:27):
I said to somebody, it was a painful and unique process, but it was also a unique price. They were at a number that was incredibly compelling at the time. The New York hotel market was seeing a lot of supply, fundamentals were challenging and it was worth it. I look at it and say in our world, sometimes both on the buy and the sell, people shy away from real complexity and situations that are really hairy. And I think there have been situations where we have created a lot of value just because we've done the hard work.
Tyler Henritze (27:01):
We haven't taken any more risk necessarily in certain instances. You think about on the buy side, navigating through a complex bankruptcy, I'd rather do a lot of hard work to make more money than necessarily take a lot more risk to make more money. And so I think we have done a number of large complex deals that require an enormous amount of horsepower in human capital and labor. But I would argue, we have not intrinsically taken nearly that much risk in terms of what the actual businesses that were buying. There was just complexity navigating to get there. We've generated opportunistic returns in some instances, by not really taking on a lot of opportunistic risk, just doing the hard work. My lesson is, that's a smart way to invest in my opinion.
Auren Hoffman (27:49):
You mentioned like you have to win these deals. These are somewhat competitive deals that you're not the only buyer out there who's looking at these things. And there's obviously many ways to win. One is just to pay the most. But one of the things that Blackstone is known for is also just moving super fast and winning deals on speed. And a lot of times a seller is gonna want some sort of asurity. And is there some sort of way you guys have recognized that somehow to move so quickly?
Tyler Henritze (28:17):
Absolutely. I mean, there's a number of things. I mean, at a high level, and we tell this to our investors all the time, we're trying to take advantage of our scale in every way possible. We're trying to take advantage of it in terms of focusing on larger deals that are inherently less competitive because they require much larger checks. We're trying to take advantage of our scale in terms of the access and resources that we have on the ground and in the field to collect real time rental rate data so that we can move quickly.
Tyler Henritze (28:43):
We lean on our lender relationships to get better financing because of our scale. We utilize our scale to bring in the best resources operationally to lead a lot of these businesses or assets once we own them. But fundamentally, if you think about how we've organized ourselves, we've really created a system that is designed to go after these large opportunities and move very, very quickly.
Tyler Henritze (29:03):
The building blocks that allow us to do that are a real consistency in terms of the senior leadership team. A lot of us have worked together for 20 plus years, a lot of consistency in terms of some of the external advisors that we work with on a regular basis. We've had the same law firm, the same accounting team. We've got some of the same property consultants, and we've almost thought about our business from the perspective of like a systems engineer in terms of not only how do you scale it, but how do we make sure as we scale, we can move just as fast or quicker than we were before. Some of this relates even to how we collate data across our different portfolio companies and feed it back up to our acquisitions team. So we've got really precise, real time insights into what's happening in different markets.
Tyler Henritze (29:43):
And then the last one is somewhat financial, but a lot of these processes, people are hesitant to spend money chasing a large opportunity. You gotta spend real dollars from a due diligence perspective before you have any guarantees if the deal is yours or not. So what we're kind of known for is, a lot of times what'll happen is somebody a business and they'll run a first round and that'll whittle things down from 15 interest parties to five and then a second round, and that'll whittle it down to three and then a best and final round. And usually people pace their due diligence expenses commensurate with that. They don't spend a lot in the first round, they just sort of lob a number in.
Tyler Henritze (30:19):
What we really do is we'll show up at a first round bid and say, here's our number, we're done with our work, we can sign a contract in 10 days, and we need these three pieces of confirmatory [crosstalk 00:30:32]
Auren Hoffman (30:31):
Wow. Okay. So the number hits a certain number in their head. They might just do it because why wait the other six months to go through all the other rounds or something?
Tyler Henritze (30:39):
Correct. Yeah. And you know, maybe it's not six months, maybe it's two or three months, but the certainty of having a buyer like Blackstone. And the other thing I think we've done too, is we've taken a long term approach in terms of how we manage some of these relationships. I mean, there are times in that 10 day period where something comes up and it's a little bit of a blip to your underwriting and you might be justified going back to the seller and saying, "Hey, listen, we need a price cut of 2% or 3%."
Tyler Henritze (31:03):
We rarely do that because we sort of view ourselves reputationally as we want to be the preferred buyer that when we tell somebody we're done, we mean it and you can't abuse that. And so we'll spend, in some cases, millions of dollars before others will spend much at all, bring the full weight of our machine to the table. And people are like, kind of blown away. They're like, you're done. And we're like, we're done. And by the way, here's a draft of a contract that we're ready to sign.
Tyler Henritze (31:29):
And I think it's that type of wedge that we're able to drive between ourselves and our competition that it's really hard for others to do that. I mean, there are instances where people see us show up in a competitive process and will ask the bankers or the advisors, is Blackstone, really participating here and are they really interested? And we've heard examples where people sort of say, all right, we're gonna go focus elsewhere because they don't sort of wanna compete against the full weight of the machine we're able to bring to the table. We lose plenty of situations and we've got some great competitors out there as well. So I don't wanna make it sound like this is easy, but I think this is all the things we're trying to stack up to create what is still just a marginal edge (laughs) versus our competitors.
Auren Hoffman (32:12):
One thing you just said that I don't think I appreciate until this conversation was, okay, so you've got a deal team. And the way I always thought it was, cause like it's this Blackstone employee deal team. But what you just said, which I thought was interest thing is, actually the deal team is like many, many more people than that. Maybe three X larger, cause it includes all these different lawyers from multiple law firms, it includes these accountants, maybe includes a consulting firm that you're hiring to help you do due diligence, maybe some bankers that you're bringing on, et cetera. So the team is much bigger. And if you have consistency on that team over the years, you're just gonna know each other, you're gonna move faster, et cetera.
Tyler Henritze (32:49):
If you thought about a real estate transaction, then you broke it down to like the 20 component parts. We have almost like an assembly line, broken down all of those aspects. And by being able to see every situation that we look at, our environmental consulting group, they've seen every complex, new, honest environmental situation. And we've got a library of prior examples and they're able to say, well, here's how we solve this in this instance, we were able to get environmental indemnity insurance.
Tyler Henritze (33:15):
We can just process and move so much quicker than others, our physical consultants, that and the Blackstone team I would sort of think of as the brain, but we've also got the arms and the legs. And the arms and the legs in a lot of cases are our existing portfolio companies that we own. So our industrial team might be in the field that is leasing industrial space every day.
Tyler Henritze (33:38):
If we're looking at a new industrial opportunity, we're leveraging that team to say, okay, here's 100 assets spread across the US. We've got a team that covers the Southeast, a team that covers the Midwest, a team that covers California, team that covers Texas. Let's take those assets in those markets, give them the addresses, get their thoughts in real time in terms of what rental rates are. And we sort of roll all that up to the brain of the operation.
Tyler Henritze (34:03):
I do think we have sort of mechanized and systematized this due diligence process. And there's an enormous amount of consistency over the years that's been kind of finely tuned. So I kind of think about it as each year we've gotta tighten that machine up a little bit more to stay ahead of our competitors because others are watching what we do and how we do it. And we've gotta keep tightening those screws. But there are certain functions that we might bring in house as a result, like insurance on real estate. We've got a team that that's all they do is price insurance.
Auren Hoffman (34:33):
Oh, interesting. Okay.
Tyler Henritze (34:34):
We've got a team that all they do is focus on what are gonna be the property tax resets in different jurisdictions when you buy transactions. So those teams are like little SWAT teams. They all roll up their work product to the brain and then we analyze it, but can do that very, very quickly in these really large and complex situations.
Auren Hoffman (34:51):
Okay. Now this is a data podcast, we're talking about data. Real estate has typically really been a laggard in employing data, employing data science. How do you think that's going to change over time?
Tyler Henritze (35:02):
Well, I think it's changing a lot. Blackstone brought in the head of data scientists from SAC a handful of years ago and real estate really glommed onto him and said, "Hey, we've got such an amazing portfolio of assets that kick off so much data, how do we capture more of it? How do we elevate it in real time up to this sort of central nervous system that is our investment team and make quicker decisions?" Because I think what sometimes gets lost is people think that, oh, okay, well industrial real estate is hot right now. What's new there?
Tyler Henritze (35:33):
Well, nothing's new there, but what is new is what's happening today in the inland empire in California in terms of where rental rates are. And because of the supply chain, crisis rents are moving very dynamically. And if you have a really good real time pulse on that, that can be really determinant. But what we brought in the data science team to do was also to sort of ask ourselves, what are all of the different forms of alternative data that we should be looking at that we're not looking at?
Tyler Henritze (36:01):
And I could give you a number of examples and you and I have talked about some of these over the years, but we've explored everything from geolocational data to truck traffic data on certain stretches of highway to get a better handle for logistic routes. We've scraped LinkedIn job, posting data to understand in certain markets, job openings and unfilled positions. We've looked at office assets where there have been tenants that have a lease in place, but they're not occupying a lot of their space and will do a backwards looking search on LinkedIn and see that you had 200 people that used to be employed within that company that changed jobs in the last year, not a great indicator for the health of that tenant.
Tyler Henritze (36:39):
There's a lot of things like that that are external sources of data that are non-traditional that we're trying to utilize. And then also looking at our own portfolio and saying, well, it's easy to capture and pull up what are happening to rents and what are happening to hotel occupancy rates and average daily rates, but are there sensors that we can put in certain places in our assets to get a better handle on the utilization or the throughput in different logistics facilities to understand how that space is really being utilized by our tenants? What else can we capture that would answer questions that would give us an ability be a more decisive investor?
Tyler Henritze (37:20):
And the other thing we do is we share a ton of information across different sectors. I mean, what's happening in industrial is informative elsewhere. What's happening in terms of migratory patterns for multifamily are informative to where employers may want to be. Netflix, isn't going to Atlanta or Microsoft, isn't going to anti by accident. They're going to Atlanta because Georgia Tech graduates more diverse engineers than any engineering school in the country. And they're gonna follow where that talent is.
Tyler Henritze (37:49):
It's a big part of what we're trying to do. We're still getting better at it. The real estate industry as you said Auren, is definitely been slow to adopt here. And there's a lot of people that sort of are increasingly talking a big game that are not really doing that much when you peel back the onion. I think our secret weapon at the end of the day is really harnessing the data that comes off of our own portfolio.
Tyler Henritze (38:10):
I mean, just to give you some statistics, to give you a sense of the scale of our business. I mean today we own about 940 million square feet of industrial on planet earth. We own 227 million square feet of office. We own 324,000 apartment units. We own over a thousand hotels. I mean, I could keep going. It's a huge portfolio. And you just think about the opportunity every day to capture information from your tenants, your customers, the employees that are coming in and out of buildings, I mean that sort of thing. There's a real opportunity there to do a lot more.
Auren Hoffman (38:46):
Blackstone has been one of the biggest residential home buyers over the past couple decades, it's been incredibly successful. Recently there's been these kind of new types of biases iBuyers that are out there, I received Opendoor. You have maybe ones that maybe weren't as successful, like Zillow, where they exited the iBuying market. How do you see that evolving over time?
Tyler Henritze (39:08):
I think you cannot be competitive in the real estate world if you are either solely guided by tech technology and data or completely ignoring technology and data. I think there needs to be an intersection-
Auren Hoffman (39:22):
Like you still have to touch the dirt type of thing or...
Tyler Henritze (39:25):
I think you've still gotta touch the dirt. I think there's still nuances that as good as some of these iBuying algorithms are, there are still things that they miss or they can catch you off guard. I mean, I think the machines don't always pick up in real time, so you can't just shut your eyes and blindly follow the machines. I think Zillow got a little bit leaned in too much to the machines without the proper oversight. I'm a huge believer that technology can be an incredibly powerful tool to inform buying and homes are very well suited to it cause they tend to be, they're more, you're talking about smaller units, very large sample sets. And some of these algorithms are getting really good. I mean, in terms of very bespoke pieces of information, they're able to capture and pull and collate into their algorithms to price assets.
Tyler Henritze (40:11):
I just think there needs to be some human oversight to that to make sure that something like a supply chain crisis gets captured in terms of, okay, well how quickly can we renovate these homes and those type of qualitative overlays that, that are exogenous to a historical data set.
Tyler Henritze (40:28):
So we're big believers in the intersection of the two. I mean there's increasingly a lot of entrepreneurship in and around what people call prop tech. And I think the people that have been most successful are the people that have teams that bring to bear a traditional understanding of the nuances of how real estate operations and investing works with an A plus technology team. And there's a humility that both are important to understand.
Tyler Henritze (40:57):
You do need to understand in some cases the historical clunky way things were done because that still informs how people buy or it informs operations or it informs sort of what can, from the outside seem to be kind of arcane, but you've also have to embrace technology. And I think we certainly have been leaning in, in that regard as well to sort of say, okay, we cannot defend our market leading position if we are not also at the forefront of some of these technological or data innovations in our sector.
Auren Hoffman (41:30):
One of the interesting things about these iBuyers to me is that they really could be called iSellers. They're buying something and then they're trying to get it off the books within a couple months and then they make money basically on the spread.
Tyler Henritze (41:42):
I mean they're really flippers.
Auren Hoffman (41:43):
Tyler Henritze (41:43):
Really what they are-
Auren Hoffman (41:44):
iFlippers. Yeah. Yeah. (laughs)
Tyler Henritze (41:46):
They're iFlippers. I mean, I think in a lot of cases, again, they're providing, this is sort of one of the pitches we make.
Auren Hoffman (41:51):
They're like market at makers for stocks or something.
Tyler Henritze (41:54):
They're market makers. Yeah. I was gonna say, I mean, they're providing speed uncertainty to a seller. So you're a seller, you sit there and they're like, man, like I gotta hire broker, I gotta do this, I gotta do that, I gotta do a bunch of tours. If somebody said, "Hey, listen-"
Auren Hoffman (42:05):
I may have to fix a couple things in my house.
Tyler Henritze (42:07):
They may retrade me, but here's a bid. You might sort of say, all right, it's 5% light of where I think I might be able to get, but this is pretty darn easy. I think the iBuyer business plan is in an upward sloping market, you buy 5% cheap to where the market is at that moment. You hold it for three months. In the last two years, home prices have been going up every day.
Auren Hoffman (42:28):
Yeah. And maybe there's some things you have to fix to really improve it or the fixtures or et cetera.
Tyler Henritze (42:34):
That trade. But if you mechanize that as well, you create the ability to do that in scale, you can sort of do that. I think what happened in Zillow's case was they weren't able to do a lot of the renovations as quickly as they wanted to cause of some of the supply chain concerns. Therefore they were holding some of these assets on their books for longer. They weren't able to move them as quickly. I still think they've done fine on the trade cause you sort of had an upward slopping market. But I think it highlighted, they probably were taking more risk than their investors thought in terms of sort of speculating on the direction of the housing market.
Auren Hoffman (43:03):
Okay. Interesting. A couple personal questions. I know Blackstone has been super successful. Obviously you guys have raised tons of money, have all these LPs. You're also an LP in certain funds. Thanks for being in Flex Capital. How do you evaluate funds for you personally to be an LPN?
Tyler Henritze (43:19):
I look for strategies and themes that are totally distinct from my day job and what I do. I've got real estate exposure coming outta my years.
Auren Hoffman (43:28):
Tyler Henritze (43:28):
So I look for things that are first of all, non-correlated to real estate. I put a huge premium on entrepreneurs and founders that I trust. When you're an LP almost by definition, you have no control. There's an enormous amount of confidence you're putting in somebody else. First and foremost, people that I trust explicitly. Things might not work out. There might be a lot of unforeseen situations to a business plan or a strategy, but they're not gonna steal money from me. (laughs)
Tyler Henritze (43:54):
And then I think people that are transparent, that, will be really clear about exactly what their strategy is, what they're trying to do. There's not a bunch of buzzword and nothing to back it up. There's real substance to it. I sometimes get turned off by, sometimes the slicker the marketing pitch, the more skeptical I get. And sometimes when the marketing deck is like, not that sexy, I kind of like good-
Auren Hoffman (44:16):
Tyler Henritze (44:16):
... they're focused on the strategy and they're not the slickest sales people, but they really know their space well. Like very targeted and very niche. Talking about Flex Capital, I mean you guys had a very specific strategy with people that had deep expertise that were not in the business of trying to like raise a huge fund. You guys were really trying to figure out how do we bring our expertise to bear, to generate outsize returns in a very narrow and tight niche and you and I knew each other and I'd gotten to spend time with you personally. And I knew you cared a lot out what you did with a lot of intellectual curiosity that made it an easy choice. And again, the data space. I love that I'm on a data podcast as a real estate guy.
Auren Hoffman (44:56):
Tyler Henritze (44:56):
I feel Incredibly under-qualified to speak to your audience here. I'm sure they're listening to me like, why am I listening to him on a data podcast? But again, your business is very uncorrelated with what I do, which made it attractive as well.
Auren Hoffman (45:06):
Your marketing's [inaudible 00:45:07] reminds me of [inaudible 00:45:09] when he chooses doctors, he always choose the least good looking doctor.
Tyler Henritze (45:14):
Auren Hoffman (45:14):
Cause he figures they're gonna probably be the best. One of the nice perks about your business is when you're doing due diligence, you probably get to stay at some really cool, interesting places. Like, what is one place that really stood out over the years that you went to?
Tyler Henritze (45:29):
A number of years ago, the Amman chain of hotels, the brand was for sale. And we went and looked at a couple of those properties and a, I wish we had leaned in and done the deal cause what a unique luxury brand that is today. But a couple of those assets were pretty spectacular. Those were pretty fun, due diligence [crosstalk 00:45:46]
Auren Hoffman (45:46):
There a particular one, cause I know they've got all over the world. Were there a particular one where you're like, this is just so special?
Tyler Henritze (45:51):
I didn't get to go see the one in Utah, but the Aman in Turks and Caicos was pretty spectacular, would certainly go back. But that from a due diligence and a work trip perspective was pretty special and a little more exciting than going and looking at sheds-
Auren Hoffman (46:05):
Tyler Henritze (46:05):
... in the suburbs somewhere. (laughs)
Auren Hoffman (46:07):
Now you come from a pretty big family. I think you've got three sisters and two brothers, if I remember that right. And your whole family is like super high performing. You've got like siblings who are state champions in different sports and stuff. What was in the water in the household when you guys were growing up? Was there something your parents did? And are you trying to like mimic that now in your life?
Tyler Henritze (46:30):
I certainly think one of the best assets that was ever given to me was two amazing supportive parents and a bunch of siblings that I'm really close with. But I sometimes jokingly say to people that growing up in a big family is a little bit like growing up in the wild versus growing up in the zoo.
Auren Hoffman (46:45):
Tyler Henritze (46:46):
Not to knock anybody that's a single child. But you grow up in a big family, it's not the zoo, it's a little bit of a wild west.
Auren Hoffman (46:53):
You gotta kill what you eat type of thing. (laughs)
Tyler Henritze (46:55):
There's a lot of chaos you gotta navigate through. My parents were there for us whenever we needed them, but they weren't helicopter parents.
Auren Hoffman (47:02):
Kind of impossible when you have six kids.
Tyler Henritze (47:04):
Impossible. I mean it was the ultimate zone defense. And I think that created a lot of grit in all of us. It created an element of toughness. I think we all have very thick skin. We don't take a lot too personally.
Auren Hoffman (47:15):
Tyler Henritze (47:15):
I do find it ironic that in today's world where people are so darn sensitive about everything, we obsess over the smallest little mini micro issues. I'm not sure that environment is best to train people for the real world. I mean the real world is messy. You've gotta be able to navigate dealing with people that are different than you, that have different objectives than you, that aren't always gonna be aligned with you.
Tyler Henritze (47:41):
And I think growing up with five other siblings where you were forced to deal with all of that, and a bit of a chaotic, but very loving environment was for me great training. And I also was a lot less accomplished than my siblings growing up, certainly athletically speaking. (laughs)
Auren Hoffman (47:56):
Tyler Henritze (47:56):
So I think I had a chip on my shoulder there and wanted to do something at a high level and it certainly wasn't gonna be anything athletic. (laughs)
Auren Hoffman (48:04):
Is there anything you take to your own family now?
Tyler Henritze (48:07):
I've got three little girls, so very young and I think we're gonna stop there. So I thought we're gonna have quite the wild west that was the Henritze family growing up.
Auren Hoffman (48:14):
Tyler Henritze (48:15):
I think you gotta let kids learn lessons on their own. You gotta give them space to make mistakes. I think you can't helicopter parent. My goal is to love my kids, but to teach them how to think, not what to think and let them be their own people. And really, I would say blow air into their sales, whichever direction they're excited about going on their own. I never felt like my parents pushed me to do anything in particular other than to try my best and to be authentic and try to maintain a good rep reputation.
Tyler Henritze (48:48):
But I also, I never felt like my parents preached anything to me. They just, they themselves lived their life a certain way that for me was a great example. I think one of the big disconnects today amongst some parents and I think it's a real challenge now thinking about being a dad myself, is that I think kids see through empty words really quickly.
Tyler Henritze (49:08):
I think a lot of parents think you can preach one thing, but kind of live a different life. And I think that comes across as really inauthentic to kids. And I appreciate the fact that my parents were never particularly preachy. They just live their life a certain way. And I think we could sort of see from that, that it was authentic. And I certainly hope to live up to that standard with my kids.
Tyler Henritze (49:30):
It's a lot harder because it's very easy just to say things to your kids about what they should do and how they should live. I think the challenge to being a good parent is actually living and setting an example for them. That's a lot harder.
Auren Hoffman (49:44):
Okay. Well this is great. Okay. Last question we ask all of our guests, what conventional wisdom or advice do you think is generally bad advice?
Tyler Henritze (49:53):
I think this is an answer to your question, but I remember my ultimate boss, John Gray told me early on in my career, he said deference is overrated. I'm a big believer in that. I think that-
Auren Hoffman (50:03):
And he was saying that like, don't be differential to him. He was your boss. Don't be differential to me, that type of thing?
Tyler Henritze (50:09):
I think he was saying push the envelope. If you don't agree with your boss, if you don't agree with your teacher, if you don't agree with your politician, if you don't agree with your parents or whoever, I think there's a lot of people today who there's not enough challenging of the accepted narrative. And I think that there's too much kind of going along to get along.
Tyler Henritze (50:28):
And it worries me a little bit today. I think, Auren, one of the things I respect about you is you constantly are challenging kind of what is the accepted wisdom that's out there? I mean, it's no surprise, this is kind of your question. I think that again, maybe it's growing up in a big family and having a kind of constantly challenge and battle everybody. I really think that we should be encouraging young people and people in school to challenge the status quo, however uncomfortable that may be and debate it and argue issues, even sensitive ones earnestly and compassionately with an open mind and with an understanding that somebody else, what they might feel really passionate about, it might be entirely valid given their life experiences and your perspective you might feel just as valid about. And it might make just as much sense to you given very different life experiences. But I think just in general, deference is overrated and being too sensitive is overrated. (laughs)
Auren Hoffman (51:23):
All right, that's good. This is really good. Well, this has been awesome. Thank you Tyler so much for joining us on World of DaaS.
Tyler Henritze (51:29):
Absolutely. Thank you for having me. I appreciate being the, again, most under-qualified guest speaker you've had on a data podcast, but happy to do it and appreciate you guys inviting me.
Auren Hoffman (51:41):
Thanks for listening. If you enjoyed this show, consider rating this podcast, leaving a review. For more World of DaaS and DaaS is D-A-A-S, you can subscribe on Spotify or Apple podcast or anywhere you get your podcast. And also check out YouTube for videos. You can find me at Twitter at, @Auren, that's A-U-R-E-N, Auren, and we'd love to hear from you.
Tyler Henritze is Head of Strategic Investments at Blackstone Real Estate Americas. Tyler has been with Blackstone since 2004 and has worked on over $100 billion of transactions. Tyler and Auren dive into the history of Blackstone Real Estate and how it transitioned from investing opportunistically to investing thematically. They explore promising assets today that have high potential of generating alpha over the next decade. Tyler also explains the impact the Global Financial Crisis had on the real estate markets and how Blackstone persevered through turmoil.
Dan Doctoroff, Founder and CEO of Sidewalk Labs and former CEO of Bloomberg joins World of DaaS host Auren Hoffman. Dan was also formerly the Deputy Mayor of Economic Development for New York City during the Michael Bloomberg administration and Managing Partner at the private equity firm Oak Hill Capital Partners. Auren and Dan dive into how cities are formed and how they can leverage data about the physical world to operate better. They also cover Sidewalk Labs’ unique business structure (including its affiliation with Google’s parent company Alphabet) and how Dan thinks about incubating and forming new businesses.
This episode is dedicated to those who suffer from ALS. We encourage listeners to make a donation to Target ALS at: https://www.targetals.org/donate/
Emiliano Kargieman is Founder and CEO at Satellogic, a satellite and geospatial data company. Emiliano and Auren discuss the power of low-orbit satellites, how building and deploying satellites has become dramatically more affordable in the past decade. They also discuss promising technologies that will usher in the next generation of satellite companies.