Podcast Summary: "Greatness is a Choice" with Ethan Penner

Podcast: Real Talk: Real Estate Discussions with Andrew Kirsh
Host: Andrew Kirsh
Guest: Ethan Penner (Co-founder, Mosaic Real Estate Investors; Author, “Greatness is a Choice”; Creator of CMBS)
Date: October 13, 2023
Episode: 35

Overview

In this wide-ranging conversation, Andrew Kirsh interviews legendary real estate financier Ethan Penner, credited with starting the Commercial Mortgage-Backed Securities (CMBS) market in the early 1990s and most recently co-founder of Mosaic Real Estate Investors. The episode explores Penner’s new book “Greatness is a Choice,” lessons from his groundbreaking career, changes in the real estate market post-COVID, insights into the struggles facing office and credit markets, and practical, candid advice for real estate professionals and newcomers.

Key Discussion Points and Insights

1. The Origin and Intent Behind "Greatness is a Choice"

[04:05–13:51]

• Personal Motivation:
  Penner wrote the book initially as a family heirloom, wanting to pass down his values and life lessons to his descendants.

  “I always thought that, man, that would be something I wish I had as a kid and I thought would be really cool to create for my own descendants.” (Ethan Penner, 04:42)

• Unexpected Journey to Publication:
  He wrote the first draft “in less than a day” as a holiday gift, then, after enthusiastic feedback and another revision, it was published for a wider audience.

• Broad Appeal:
  Though rooted in his finance and real estate background, the book is meant for anyone, evidenced by a story where a father reads chapters to his 12-year-old son as bedtime discussions.

  “What an incredible thing ‒ to be able to facilitate values conversations between a father and a son … makes me feel purposeful.” (Ethan Penner, 13:10)

2. Contrarian Thinking, Generational Change, and Observing Societal Trends

[08:55–16:15]

• Penner’s contrarian approach and “questioning of authority” shaped his career and perspective.
• He reflects on dramatic societal changes and the importance of transmitting generational knowledge, especially to younger readers who have grown up in different eras.

3. Time, Efficiency, and the Downside of Modern Office Culture

[13:51–23:40]

• Penner discusses the value of time and the inefficiency caused by urban planning failures (like commute traffic).

• He laments the societal changes that have “sucked the fun out of going to work,” citing increased HR/legal risks and loss of informal camaraderie, contributing to struggles in the office asset class.

  “The joy of coming to work today, it's a lot less than it used to be … the fun has been sucked out of work because of political correctness and all that stuff.” (Ethan Penner, 19:05) “If it were more fun, there'd be a lot more people who would say, ‘I'm in for, I want to go to the office six days a week because that's where all the fun is.’” (Ethan Penner, 20:09)

• Real estate professionals should pay attention to societal trends, not just financial markets, as these shifts have significant implications for asset values.

4. Mosaic Capital Event, Market Dislocation, and Waiting for Opportunity

[23:40–29:27]

• During COVID, Penner acted conservatively, gradually seeking liquidity for investors and merging the Mosaic fund into a public REIT before interest rates spiked.

• He emphasizes the danger of raising money for distress when transaction volume is low and prefers to wait for conviction and real opportunity before re-entering the market.

  “When there's a significant change in valuations ... there would be a period of non transactions. ... Nothing really happens.” (Ethan Penner, 25:16)

• Penner is now slowly developing new convictions as some opportunities begin to emerge in real estate credit and CMBS.

5. Prospects for Private Credit, Real Estate Debt, and CMBS

[29:27–32:19]

• Banking system contraction will yield “rewarding” private credit and real estate finance opportunities, primarily for tax-exempt capital.
• Penner predicts that the CMBS market will become attractive again as it becomes “highly dislocated and thus opportune.”

  “I like that it’s a complex area that requires this intersection of skills … not everybody has that. ... That barrier to entry makes it a pretty attractive proposition.” (Ethan Penner, 28:57)

6. Low Interest Rate Environment—Manipulation and Policy Response

[32:19–36:01]

• Penner’s thesis: Post-2008, the government has suppressed rates, creating a “non-free capital market.” He expects government suppression of rates to return after the recent spike.

  “We lived in … a government suppressed interest rate environment." (Ethan Penner, 30:21) “I believe it will be reversed ... soon enough we’ll see the government controlled interest rate suppression policies back in force.” (Ethan Penner, 31:36)

• On 2008 crisis response: He would have nationalized the banks and not allowed executives to remain or be rewarded after such failures.

• On inflation: Sees it as inevitable given national debt loads, and diverging experiences based on individual consumption baskets.

7. Real Estate Asset Classes and the Future of Office

[36:32–42:04]

• Penner doesn’t generalize by “asset class” but prefers to look at each real estate deal as unique.
• He’s very bearish on most office due to cultural shifts and generational preferences; revived office markets may depend on restoring fun, collaborative environments.
• Hotels: Likes destination hotels focused on health and fitness, but forecasts trouble for business-travel hotels post-Zoom.
• Housing: Continues to favor the sector due to strong supply/demand imbalance, but questions around young adults living with parents raise longer-term concerns.

8. Market Distress: “Extend and Pretend,” Patience Before Resignation

[42:04–51:28]

• Current downturn is characterized by “extend and pretend,” with banks and servicers avoiding foreclosures and being encouraged by regulators to exercise patience.

  “The system is organized to extend and pretend, it just is.” (Ethan Penner, 43:23)

• Unique differences from the Global Financial Crisis include higher obsolescence rates in collateral (e.g., central city offices with little value).

• Penner expects patience to eventually give way to resignation and more trading/distress, but the timeline is uncertain.

9. Advice to Borrowers Facing Loan Stress

[46:49–50:13]

• Lenders generally do not want to foreclose—a collaborative approach is best.
• Borrowers should:
  1. Demonstrate asset viability and the likelihood of recovering value.
  2. Prove their competence as operator/manager.

  “What I would tell every borrower is this: Lenders are not inclined to get rid of you just to get rid of you … you need to make your case of why patience is warranted.” (Ethan Penner, 47:51)

10. Politics, Media, and Societal Worries

[51:42–58:03]

• Penner accurately predicted Trump’s 2016 victory due to “pent up demand for a non political insider.”
• Expresses deep concern over the increasing use of government power to suppress rights and diminishing curiosity from the media—calls it “frightening.”

  “That is even more scary to me than the terrible choices we have in elected officials and worse, perhaps still, is the absence of broad media coverage…” (Ethan Penner, 56:23)

Notable Quotes & Memorable Moments

• Book as Legacy:
  “If I had that [a family legacy book] from my great, great grandfather...it would be my most treasured possession.”
  (Ethan Penner, 04:42)

• On Office Market Dysfunction:
  “We’ve sucked the fun out of going to work to a very large extent ... The calculus has changed because we’ve sucked the fun out of going to work.”
  (Ethan Penner, 19:05–20:09)

• Guidance for Borrowers:
  “Lenders don’t have the bandwidth to own and operate real estate...you need to make your case of why patience is warranted, which is — is the asset viable?”
  (Ethan Penner, 47:51)

• On Self-Esteem and Greatness:
  “The foundation of being great in your life is truly having self esteem. ... You can’t be great without self esteem.”
  (Ethan Penner, 59:53)

Lighting Round & Personal Reflections

[58:10–65:21]

• Greatest Success?
  “Happy marriage.” (58:26)

• Greatest Failure?
  Poor communication: “Whenever I’ve kind of done things ... that didn’t come out the way I wanted, the common theme was I didn’t communicate clearly or well enough.” (58:42)

• Most Important Factor for Greatness:
  “Self esteem ... and bringing your unique self to your encounters.” (59:53, 62:23)

• Advice for New Grads Entering Real Estate:
  Focus on self-esteem, authenticity, and humility. Don’t try to impress with technical knowledge—demonstrate a willingness to learn.

Timestamps for Key Segments

• 04:42 — Ethan Penner’s motivation for writing “Greatness is a Choice”
• 13:10 — Father-son reading anecdote underlining the book's universal value
• 19:05–21:14 — How “the fun has been sucked out of work” and its impact on offices
• 25:16–27:18 — Post-COVID market dislocation, waiting for real opportunity
• 30:04–32:19 — Government suppression of interest rates, outlook on monetary policy
• 43:23 — “Extend and pretend” as a defining feature of the current market
• 47:51 — How borrowers should negotiate with lenders during distress
• 56:23 — Deep concerns over government overreach and media failures
• 58:26 — What Penner considers his greatest success: “happy marriage”
• 59:53 — Why self-esteem is the bedrock of greatness

Closing

Ethan Penner’s episode blends market-level wisdom with personal reflections and contrarian insights, offering actionable takeaways and a thoughtful critique of societal and industry shifts. For both seasoned professionals and those starting out, the conversation offers perspective on navigating real estate cycles—and life—through curiosity, authenticity, and a keen awareness of broader societal trends.

“Greatness is a Choice” is available for pre-order and comes with Ethan’s personal money-back guarantee.

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