← The Investor With Joel Palathinkal
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- [00:02]
A
Okay, back in New York. Excited to have my guest today, Mr. Wenchow. He's the founder and managing partner of Cypress Capital Group which is a single family office. They invest in real estate, macro trading and venture, mainly software on the venture side, no crypto, so software, I'm assuming B2B, SaaS, consumer. And then he's also the general partner of a private equity real estate fund which invests in residential assets, single, multifamily and US tech centered cities. So I think there's a lot of development with the cities that have, you know, the gigafactories and the, the tech emerging corridors. So excited to talk a little more about that when and then, you know, just a little more background when I'll, you know, kind of go through a couple more bullets. When began his career, 25 year career in institutional fixed income at firms such as Credit Suisse Lehman Greenwich and he rose to the co head of Asia Pacific sales and trading from New York, Hong Kong and Tokyo, overseeing 31 billion in assets and 100 person trading floor. So excited to talk about that. And he's trained as a global macro investor, multi currency, multi asset class investor and just have a lot of insights when it comes to macro investing. And his real estate investment strategy has been measured in decades, multi generational and he's looking at kind of these vibrant economic centers and specialties again, private equity, real estate alternatives, geopolitical risk. So when hopefully I did a good job kind of doing a quick overview and welcome to the show. Excited to have you talk about all things venture real estate. I think what's really interesting is how family offices later have a multi asset strategy. Right. So some families have a public and private strategy plus real estate. And as we know there's tax advantages to investing in real estate as well, along with leverage advantages. But before we jump into all of that and just kind of go into the market and talk about the west coast versus the east coast, maybe in your own words you can just kind of give us a quick overview on your early career. You know, your family, you know, what did your parents do when they started out in their career and what was their influence on you as you were kind of, you know, developing your education, developing your career. And we'll start with that and then we'll just continue on and, and you know, kind of go back and forth on just insights and opinions.
- [02:42]
B
Great, thanks for that intro, Joel. You know, I think it's always good framework to ask where are you from? Because from that basis really back in high school is the kind of formation of what leads you to be an adult life. And so I kind of go back and say my wife would say that she's from the Upper east side of New York and I'm from New Jersey. So that means I love Bruce Springsteen. I went to high school in New Jersey. I went to Cornell where I was a math and computer science major. Graduated in 86. And back in the dinosaur age I was a theoretical AI major within computer science. And we certainly didn't have the compute power to do what we do now. It first started with Bell Labs, the original temple of R D in Murray Hill. This is where they heard the Big Bang. This is where the transistor was invented. And I worked in the speech synthesis and recognition group. So this was AT and T trying to create a moment when you could say hey Siri, what is the weather today? That would have been impossibility back in 1982. And it's amazing how far we've come. So from that intro to technology was my love for IT work at Bell Labs, majored at Cornell. And when I graduated from Cornell I could have worked on Silicon Valley, in Silicon Valley or Wall Street. And I thought the problem of solving how to be good investor was a very good intellectual problem. And it never goes away. It isn't like you mastered it and then you know everything. You're always learning with technology. Once you know how to do it, the problem solved and it's not ongoing is interesting. R and D is very different from application.
- [04:51]
C
Right?
- [04:52]
B
So that's what I've done using my technical skills and so forth. And I worked on Wall street and fixed income. I, I was one of the first mortgage backed securities traders back in the day of 1986 at First Boston. I was there for about 15 years in total. First boss and becoming Credit Suisse. First boss in the Credit Suisse. That career led me to work from New York to Hong Kong to Tokyo. So that was kind of my first 20 years of investing. Working for investment banks, being a trader, being in sales, learning all asset classes and being global. I think one of the things that was a lot of fun from 1980s to early 2010 was the global expansion of American investment banks. I was the first expat employee for Lehman Brothers in their Hong Kong office. And that was a lot of fun. And to see the growth of Asia financially to the powerhouse it is now was in a once in a lifetime, once in a multi generational lift. So that was exciting. Then in about 2006 I stopped that career, moved back to the US to California. And I wanted to face Asia, not move back to New York to face Europe. Given my, my professional career and given my engineering background, I thought Northern California, Silicon Valley was going to be a better fit than SoCal. So from 2006 to now, I've been a full time investor through our family office and also as a GP of our real estate funds, investing in very thematic thesis of what should we be doing in, in real estate. But let me pause there, Joel, to see if there's anything there you want me to highlight.
- [07:04]
A
You know, my only reaction is when you said, you know, trying to be a good investor. And you know, the only reaction to that is, you know, we sometimes we don't even know what good means. Right. So good for us could be a different definition for like your LPs obviously. And then it could be different to your different when, when I'm talking to your peers about it. So, so I think there's tools that we can use when we think about good. We can use benchmarks or when you think about public markets, you can benchmark yourself around, you know, obviously the S and P or nasdaq. What, what would be really interesting is thinking one level higher at the family office level. How do you think about, you know, your portfolio theory, you know, as a multi asset strategy, you're looking at real estate, you're looking at, you know, venture. How do you balance both of those to holistically know that you're good. And I don't know if there's tools out there yet that can actually tell you, hey, you know what, like your family have all these different holdings, you know, you've got some direct deals, you've got some fund investments, but overall your score is green. Right. So how do you think about that as a family office, you know, having a, you know, similar to myself, having a multi asset strategy and kind of have that aggregate view and, and benchmark yourself against that.
- [08:29]
B
No, that's a classic problem. Classic question, how do I have create a good portfolio? And this is a 5,000 year old question.
- [08:39]
D
Sure.
- [08:40]
B
The answer has already been provided, so we don't need to reinvent the wheel. It's very classic Sharp ratio. Sharp won the Nobel Prize for the Sharpe ratio, which is basically the best risk adjusted return.
- [08:55]
C
Right.
- [08:56]
B
And so what you want is the highest absolute return with the lowest volatility. Now you can quibble about what's a good measurement of risk, but volatility is as good as there is for now.
- [09:10]
C
All right.
- [09:11]
B
And therefore what you should ask yourself is what asset Class gives you the highest Sharpe ratio.
- [09:20]
A
So, and you kind of. So, so I've always heard about the Sharpe ratio mainly for, you know, hedge fund managers Right. On the public market side. But what you're saying is you can kind of integrate the fundamentals of a Sharpe ratio even for your real estate and alternatives. Okay, got it.
- [09:35]
B
So there's, there's individual component of a Sharpe ratio of that asset class. Okay. Okay, let's go holistically first then what you should do is take a look at of the asset classes as across a diversification strategy. So that theoretically you should get one plus one equals three.
- [09:56]
C
Right?
- [09:57]
D
Sure.
- [09:58]
B
So one of the things that we do in real estate that a lot of investors in real estate don't do is they don't answer the question why are you here and why are you in this asset class? So let's, let's, let's use this as an example. We are global investors. I could invest in London, I could invest in Hong Kong, Tokyo, wherever. I could invest in Brazil. Why should I invest in usa? Just because I'm a US citizen, my capital should be global. So you need to answer why you should be in this country in this currency and in this geography.
- [10:43]
C
Right.
- [10:44]
B
And that's a classic top down approach. So that's one. Then the second question should be within real estate. Should you be an office hotel multifamily? What asset class should you be in? And if you take a look at real estate which is illiquid and it's not so easy to look at the Sharpe ratio. All right, that is not correct. The high Sharpe ratio within all real estate is multifamily. And that's why we're investor in multifamily. Not because we grew up in multifamily, but we say that from an asset allocation approach it's the best asset class to be in.
- [11:27]
D
Sure.
- [11:29]
B
So as an example, stocks has a very, very high Sharpe ratio. Stocks and real estate are the two best asset classes for Sharpe ratio. And the interesting story is what's the worst asset class to be in where you have the lowest return and the highest volatility. Two things you don't want and that's commodities.
- [11:52]
D
Sure.
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B
So these guiding principles help you create a holistic portfolio. And that's what I was trained to do.
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C
Right?
- [12:00]
A
Yeah, absolutely. Yeah, no, that's helpful. And then, you know, I'd love to hear a little more about how you think about investing globally. Like if someone were kind of come under your wing and, and you're thinking about your portfolio theory, you Know, what are things to think about as you're allocating to Asia versus Europe versus North America and you know, are there certain asset classes? I mean, I'm assuming when it comes to real estate, you, you'd rather probably do it maybe in, in the U.S. because you just kind of have more control of, you know, the governing laws and kind of just, you know, tenants and stuff like that. But, but again, you know, you know, more than me. So I would love to learn a little more about how you think about that. You know, just in terms of international, when it comes to securities, as much more controllable because it's all within kind of like the, you know, the, the investing terminal. But when you're thinking about, you know, real assets, hard assets, you know, multifamily assets, it's outside of something that you can just log into. Right. It's an actual physical asset. So how do you think about that?
- [13:09]
B
Well, let's look at the data. The economists. Probably one of the best, if not the best, you know, periodical that you want to read about a few years ago had a head headline cover and it said over the last 40 years what country did the best. Mm. And that was very interesting for me because I have invested for the last 40 years so I can personally relate to that article. And I was, I would be curious to look at my own portfolio versus what the article said.
- [13:50]
D
Sure.
- [13:51]
B
And I remember back in 1991 when I applied to business school to tuck and I wrote as my application, I said it is my belief China would become from the 20th largest economy in the world to number two, but not quite number one. And I've put the reasons why. And I said this is not a once in a generational shift. This is once in a 200 year event and I certainly want to be in China. China right now there's a lot of conflict this and that. Back in 1991 there was a lot of goodwill between US and China.
- [14:29]
C
All right?
- [14:31]
B
And so I said for sure I want to work in Asia. And I would have thought when I saw the economists cover said what country did the best as per their public market equity index. Right. As a proxy. So the S P 500 versus the Hang Seng Index versus the Shanghai Index versus the European Stock Market Index versus Brazil, Russia, Etc. I thought in my mind Hang Seng would have crushed a very stable mature s P500.
- [15:07]
C
Right.
- [15:08]
B
We're a very large stable mature economy. Over the last 40 years the US was number 1s P500 return and even beat the Hang Seng Index that was undergoing a 200 year event and it crushed Europe at the end. The S&P 500 was 5x500% more return than Europe, let alone Russia, Brazil and everything else. So the short answer is the data over the last 40 years is that US was head and shoulders above every other country. Now it'll be a lot more explanation about why this, this is not. But that's the data.
- [15:59]
C
All right.
- [15:59]
B
You can talk about rule of law, we have technology, we allow a lot of immigrants to come in here.
- [16:06]
C
Right?
- [16:07]
B
The Sergey Brins of this world, the Elon Musk's of this world. It isn't just America and Americans, it's our system that is exceptional and that has allowed capital to grow and S P500 to beat the Hang Seng index of this world. So as a simple answer, you want to be in the US for all the things that you can talk about, it's the place to be, right?
- [16:33]
D
Sure.
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B
Then within the US you ask yourself, well is it, is it? We have 50 states, where in USA.
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C
Right.
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B
And that's another top down analysis. But you can take a look at the public equity markets for indications of where the growth is.
- [16:50]
C
Right?
- [16:52]
B
Shorthand would be where are your trillion dollar companies?
- [16:56]
C
Right.
- [16:57]
B
These are the clearly successful Nvidia, Googles, etc of this world. And you ask yourself, at least since 2000, every country and every city in the world wants to be the next Silicon Valley, right? Sure. We've got tech economy, we've got tech, whatever, whatever. But 20 plus years later, 25 years later, you ask yourself, where's your trillion dollar company? In China, in India, in Dubai, in Europe?
- [17:32]
C
Right.
- [17:34]
B
They're all here. And they're not just all here in the usa. They're all here within five square miles of where I live, right here in Palo Alto. And that really tells you where the growth engine is.
- [17:48]
C
Right?
- [17:50]
B
And so where we go with our real estate is a very, very simple thesis that dirt goes up in value. When the wealth is being created, new wealth is created. Not where rich people are.
- [18:05]
C
Right.
- [18:06]
D
Interesting.
- [18:07]
B
For example, plenty of rich people there. You can go to Jupiter, Florida, plenty of wealthy people there. But what you want to see is new wealth being created and new demand. And that's the marginal demand to lift the price of dirt. Now the price of dirt you can say, well, should I be an office, hotel, residential? Right, that's another discussion. But this is a kind of top down analysis you want to show to answer the question, should I be in Silicon Valley, Should I be in Scottsdale? Should I be in Idaho.
- [18:42]
C
Right.
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B
Because if you pick up the newspapers, you would have thought that technology has been diffused throughout the whole country.
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C
Right.
- [18:56]
B
You can say, well, hey, listen, don't I read from the Wall Street Journal every day that everybody's leaving California, New York to go to Florida and Texas. Isn't that a popular narrative?
- [19:07]
D
Right, sure.
- [19:10]
B
Well, let's look at the data. The Venture Capital association of America, that's based in D.C. publishes every year where they invest. So here's an interesting data for you. In 2000, New York and Silicon Valley, the two largest hubs of technology, unsurprisingly represented 40% of all VC dollars invested in the country. All right, and you would think 20, 25, that 40% would be, let's say, 30%. Correct. Because there's venture in, in, in Denver, in Miami, in Austin, blah, blah, blah. That 40% as of December 2024, the latest data is now at 65%. So the strong get stronger. These economic centers do not weaken. They get stronger. And it's called an ecosystem.
- [20:14]
C
Right.
- [20:16]
B
And that's what happens in technology and everything else.
- [20:22]
A
When you say tech and when you say the dirt rises based on tech development, can you share a couple examples? There's a few managers that I've met in the past, specifically a real estate manager that made a bunch of investments in primary and also, you know, secondary tertiary cities that were developing like a, you know, a Tesla Gigafactory or they're, you know, like. I think there's a couple. There's a location in North Carolina where there's like an Apple manufacturing facility. Right. So it's not the richest area, but that, that's an epicenter where there's going to be more development, there's going to be more jobs. Those jobs are going to create other surrounding neighborhoods. Right. There's going to be a whole food. So is that how you're thinking too, in terms of like, tech development facilities that are getting created? We'd love a couple examples in terms of how you define the. The developmental areas where the wealth is eventually going to be created to get that margin.
- [21:21]
B
So we like to talk about the meat of the market, the 8020 rule.
- [21:26]
D
Right, sure.
- [21:29]
B
So we like to think that 80% of that population, the median dollars per square foot, the median wealth in that area is growing much faster than anywhere else.
- [21:43]
D
Mm.
- [21:45]
B
That's what is important to us, not the 20%. And the 20% means that you could buy a land anywhere in this country and do really well.
- [21:55]
C
Right.
- [21:56]
B
If you buy a piece of Dirt low enough value, you're gonna make good money.
- [22:00]
D
Sure.
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B
But the thing that you want to do as an investor is, is it repeatable? Let's say you bought a piece of land in XYZ State, right? Fantastic. You're going to do great. Can you do 100 more of those in that location? That's the difference between a one off, doing well versus I can repeat this. It's sustainable and I'm going to be able to do this for the next 10, 20, 30 years. Now that's a business that's called investment management.
- [22:32]
C
Right.
- [22:33]
B
That's when you can build the Blackstone's $100 billion firm. This is not a one off. And so to do that, you have to look at where the economic engine is, right? Where is the most vibrant part of the U.S. economy. And so you could buy a piece of property in Miami, in Austin, in Dallas, anywhere you want and do really well. That's not my point. My point here is, can you do 100 of those transactions in that? And also, you know, we get paid for specialization. You cannot say credibly, I'm going to buy, you know, dirt and build in 20 different locations of the U.S. what's your edge?
- [23:25]
C
Right?
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B
We talk about that in trading. Where's your economic moat? I can say I've lived in New York since 1986. I've lived here in Palo Alto since 19, I'm sorry, since 2003. So I really know my backyard. But I'm willing to move to XYZ City if that is the next economic engine.
- [23:57]
C
Right.
- [23:58]
B
And I'm proving that by moving to Tokyo and also to Hong Kong. And Trust me, from 1991 to 2006, it didn't matter what you bought in Hong Kong, it went straight up vertical.
- [24:11]
D
Sure, right.
- [24:12]
B
Don't. You don't have to get too fancy about today's an office, today's a hotel, everybody's getting rich and the correlation becomes 1.0. And that's what you learn in trading. And when it's a bear market, it doesn't really matter what your asset allocation is. An office of retail or whatever, you have a correlation of minus 1.0 and everything's going down. And so it's very, very important that you don't, as we say, get carted out in that bear market. And so I talk about, let's say, for example, Palo Alto real estate here in, in the last economic shock of 2007-2010, peak to trough, how bad was it in Palo Alto versus, let's say Vegas or Scottsdale. In, in Palo Alto, peak to trough was minus 20%. In Vegas it was minus 70%. And that's the difference between tier one versus tertiary market, right?
- [25:15]
D
Sure.
- [25:16]
B
So it isn't just the upside you're looking for, but you're also looking for the downside risk. And so that's what we call hedge funds, a sortino ratio. What is your upside potential? Also your downside. So one of the things that bothers me about crypto is the volatility of it. I could be up 100%, but I can also be down 70%. And so that kind of volatility does not allow me to put real capital as a family office into place.
- [25:48]
C
Right.
- [25:49]
B
I mean it's a nice talking point around a cocktail party. But even the most ardent crypto person says don't put more than 1 to 2% as an asset allocation into that. Then I ask you, what am I going to do with my other 99% of my family wealth?
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C
Right.
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B
I got to solve that problem. And then within venture it's 10 to 15%.
- [26:13]
C
Right.
- [26:14]
B
So this asset allocation approach is a key driver of what you should be doing. And one of our key thesis is this, is that we don't talk about investing in multifamily because that's what we did since high school. We're multifamily because it has a high Sharpe ratio. We are in Silicon Valley and New York because it is the most economically vibrant engine of the US which is the most vibrant country in the entire world.
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C
Right.
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B
And that's why we do this top down analysis. Then we go hunting for what is the best lot to buy. Correct. Because you still have to do analysis and that doesn't go away. But I think what the extra layer that we do, which is the extra 50% analysis, we do the top down macro trading approach, very thematic, really helps us on the downside because we can all talk about, hey, we made a, a killing on this single project in anywhere in the country.
- [27:21]
C
Right.
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B
But can you do that 100 times? And that again is a thesis I keep going back to. Because when you want to build a money management machine, it's got to be repeatable. And for yourself as well as an investor, you can't be hopping around all over the country.
- [27:37]
A
Yeah.
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B
Because you haven't built up a core expertise.
- [27:40]
C
Right, sure.
- [27:41]
A
No, it makes sense. I mean, when you think about multifamily, you know, a common saying is, you know, marry the price, date the date, the interest. Right. So with, with Silicon Valley and obviously we you know, we invest in New York, you know, the price is high. Right. So some people are seeing opportunity in the developing areas a little outside of, you know, the prime, you know, Knob Hill of Silicon Valley. So, you know, would love for you to educate me a little more on some of the neighborhoods or just opportunities and just, you know, Palo Alto slash Silicon Valley, and then maybe just secondary tertiary opportunities that could be good to think about long term, that maybe you can get a better price and, you know, just long term, maybe the next five to 10 years, those would be developed. I mean, you know, the area here in New York, by any means. People bought in Brooklyn 10 years ago. Right. And now it's impossible to get into Brooklyn. Right. People that are investing in Buffalo. There's other tertiary areas of Buffalo that are having some economic, you know, opportunities as well. So. But again, you know, we'd love a little more insight in on the west coast and just some of those neighborhoods as well.
- [28:54]
B
So we look forward not only the most vibrant part of the neighborhoods and gentrifying and all things that real estate people talk about, but we talk about depth and breadth of market. Why? Because we all know when you need liquidity is the worst time that you need liquidity. You need liquidity when. When there's a margin call, when things are all going down and you can't get out.
- [29:24]
C
Right.
- [29:25]
B
So you can't hit a button. Just get to have a. Get me out of this position.
- [29:31]
C
All right.
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B
So I went to Cornell. It's in a nice, beautiful place called Ithaca, Finger Lakes. You're from New York, and so you may know upstate New York. Yep. If I built something there and I need to get out and it's 2009 and 10, I could drop my price by 50% and there may be no bidders.
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A
Yeah, it's a good point.
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B
So there's no get out button there.
- [30:06]
D
Sure.
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A
You can't. Yeah. You can't sell your shares like you can in the market in New York.
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B
With so much liquidity and so many sophisticated market. The depth and breadth of the market. If I drop my price, somebody will come in to buy. That's so key. So that's a key cornerstone of money management for us.
- [30:30]
C
All right.
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A
The thing is, though, with co ops, one thing I'll say with co ops in New York, though, is, you know, if you drop the price, you got to get approved by the board. Right. So that's the only, you know, and.
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B
We believe co ops are uninvestable.
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D
Sure.
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B
We would never buy. I don't own It.
- [30:47]
A
Yeah.
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B
I gotta own it. So that's a key criteria.
- [30:52]
A
Yeah.
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B
And so how does that define for me where. What specific neighborhoods that you're. You want me to answer? We love. Yes. Ten years ago, it. Every blind person could see Brooklyn was up and coming.
- [31:14]
C
All right.
- [31:14]
A
Yeah.
- [31:15]
B
That was an easy trade.
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A
Is Oakland kind of like the Brooklyn of San Francisco is kind of like the. No. Okay.
- [31:21]
B
No, there. There. There is. There's too much violence there. And so if. If you don't feel safe, you can't invest.
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A
Yeah, right.
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B
You. You don't want to be that early and ducking, you know, gunfire.
- [31:39]
A
So it hasn't. It hasn't gentrified to the. To the level that it. That that would be expected to invest in. So it's still not for me. Okay, got it.
- [31:49]
B
I'm not answering for other people.
- [31:51]
D
Yeah, sure.
- [31:51]
B
Where we want to be. When I drive around the neighborhood. And it can be middle class. Okay. Solidly middle class, but safe. Mm. When you are seeing joggers in the morning, when you're seeing baby strollers in the morning, that's investable.
- [32:15]
D
Sure.
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B
Okay. That. I mean, you want to make it dumb enough, that's what I look for. Yeah.
- [32:22]
D
That's fair.
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B
Upper east side is absolute value in New York. It's my favorite market. Okay. It's not going to be the pricey Tribeca, West Village, all of that.
- [32:35]
C
Right.
- [32:36]
B
That's where you're going to move there for a lifestyle, because you can afford it. You can.
- [32:42]
A
They put in the new subways a couple years ago as well, so I think that's definitely helped with some of the development there too.
- [32:49]
B
So Second Avenue, you know, when I was growing up was Prestige, tier one. And then everybody got hip, moved down to Brooklyn, moved to the Lower east side. You know, the soho, West Village, all that has always been cool. But Upper east side now has always had good schools, and one day you may have children, and school is going to be important. And right now, it's fairly inexpensive. You, of course, know about the. You know, the train line on Second Avenue. That's huge. So we like that a lot in terms of value. So that's probably our most favorite market in New York. Here in Silicon Valley, our favorite markets are probably Redwood City and Sunnyvale.
- [33:42]
D
Okay.
- [33:44]
A
Yeah, mostly. I mean, I'm in Murray Hill right now, so most of the people in Midtown, they'll. That once they need more room, a lot of them will go to, you know, the Upper east side. I got a couple friends out there, and you just get a little More for what you pay for. It's definitely safe. And I, I probably, I'm assuming you'll know better than me, but I'm assuming you probably cap it out at probably like the 90s. Right. Is that when does it actually exit the Upper east side? Is it like the.
- [34:10]
B
I think you're right.
- [34:12]
A
Yeah.
- [34:12]
B
You know, we like to be in the segment. Everybody carves out their segment.
- [34:18]
C
Right.
- [34:19]
B
We're in the affordable luxury segment. And for me, affordable luxury in New York, anything under $2,000 a square foot.
- [34:29]
A
Right, got it.
- [34:30]
B
Between 1800 to $2,000 a square foot.$ Here in Silicon Valley, affordable luxury is 6 to 8 million dollar homes, single family homes. And so we don't want to be building 400 million dollar condos sold to the ultra wealthy. That for us is not a repeatable business. That is not, you know, what we want to be doing. We want to be in, I would say the top five, 10% of the, the buyer pool in the market. And you know, right now New York is clearly in the headlines with mom Donnie.
- [35:10]
C
Correct.
- [35:11]
B
I mean, we should talk a little bit about that and how that's impacting real estate. The way we look at that is without getting into politics. Okay, that's a whole new kettle.
- [35:27]
A
That's a whole separate podcast.
- [35:29]
B
Throw another podcast. But how we would work with good and bad mayors is this. We never invest because of tax incentives or whether it's a Joe Biden or Trump in the administration, we look at the economic data.
- [35:47]
A
I agree with that.
- [35:48]
B
AI driver, right? You could say, hey, I love Biden or I hate Trump. It doesn't matter to me. What I care about is the AI wave.
- [35:59]
C
Right.
- [35:59]
B
Microsoft is spending $85 billion a year just on AI.
- [36:04]
C
Right.
- [36:05]
B
Where's that going? And, and where's the wealth being created? So how we carve out a niche for people like Mamdani is he wants to, you know, impact potentially the rent stabilized, rent regulated.
- [36:21]
C
Right.
- [36:21]
B
We know that he wants a 0% increase, but hello, there has been 75 years now of rent regulation in New York. And all of that is not new, obviously, but what has that produced? That has produced a 75 year historical low of vacancy of 1.1%. So the public policy in New York of 75 years have destroyed the ability for middle class citizens to afford because they do not have enough supply.
- [37:00]
C
Right.
- [37:01]
B
It's still back to the supply demand situation. You restrict supply because you don't let people build. Then rents are going to keep going through the roof. Prices will go through the roof.
- [37:14]
D
Sure.
- [37:15]
B
And it's such a classic problem. So. But it's not a new problem. So what we're having and seeing is explosive growth in the rent. So, for example, from 2021, right after the COVID to 2025, we've seen a 45% increase in rents in the free market stuff. And that's directly an outcome of the inability for more supply in the totality of New York.
- [37:49]
D
Sure.
- [37:50]
B
And that's a problem. You know, you get the headline news of I'm going to give you a free bus fare, I'm going to give you zero rent. But then the, the markets, the private markets does not come in to give you supply. So we actually think perversely where it is hard to build, either because of lack of supply of land or difficulty of zoning laws and all that. So if you put New York and California as areas that are difficult to build.
- [38:23]
C
Right.
- [38:24]
B
Most people would say that. That is what I would say. Warren Buffett says that's our economic moat where it is hard to provide supply is exactly where I'm going to get paid an excess return. So let's talk about Austin. Austin has been for the last 15 years, probably one of the number one favorite markets to build for real estate.
- [38:48]
C
Right.
- [38:49]
B
You have infinite supply of land because Texas is flat land. So you got a lot of supply of land and very, very little zoning laws. So now in 2025, you're down 25, 30% on average from 2022 highs. So where it is easy to build is not necessarily where you want to invest. So if New Yorkers want to see a 25% reduction in their cost of living, maybe they should copy Austin, which is let them build. So these are the kind of government policies that are really producing adverse effects that are contrary to the desired effect.
- [39:35]
C
Right.
- [39:35]
B
And this is nothing new. You don't need to be a college graduate to understand this because everybody sees it. But what it surprises me is the kind of public policy they throw at the table that is continuation of last 75 years.
- [39:51]
C
Right.
- [39:52]
B
So it is not a new policy that we're trying to see if this works or not. It's not a new experiment.
- [39:59]
D
Sure.
- [40:00]
B
Those are the things we actually look for. We look for places that are hard to build. So we have the knowledge through our architects, through our work with the planning department in Silicon Valley, we know where it's easy to build. We have built credibility with them. They know when we present them with our plans, we are credible people and so that we're really proud of that. So being good I would say part of the community is very key to part of our success.
- [40:31]
C
Right.
- [40:32]
B
It isn't just showing returns to the LPs, but building neighborhood consistent homes and lifting the value of that. Increasing the tax base.
- [40:44]
C
Right.
- [40:45]
B
I would think that every politician would want a higher tax base because once you get the higher tax base, you can do what you want with it. You can build better parks, better schools, better everything. But if you don't have that tax base, there's nothing you can do. So I think really having a great public private partnership is what is going to get everybody happy.
- [41:11]
C
Right?
- [41:12]
D
Sure.
- [41:12]
B
And so you see a lot more that in Asia that the private enterprises with the, with the government officials, they know they want to build that tax base. You got to let businesses do their business. It doesn't help anybody if everybody's bankrupt. Now that sounds very, very political, but I think that's really the path where people have to be much more realistic and take a look at the evidence of how do we encourage this?
- [41:46]
A
Yeah, no, totally fair. I want to switch gears a little bit to maybe talk about private markets and also delineating between investing directly versus into funds. So what are some things that you look for on the venture side? You know, we talked about software, which is where I invest as well. Everybody's talking about AI, right? Yeah, but you know, and you did too, you know, heavily when we were talking about Microsoft. But how do you think about building a venture strategy? We've had several family offices on our podcast that have had differences of opinion and I'll start. Right. So when it comes to fund investing, especially if you're thinking about investing in like, you know, breakthrough fund managers, you know, definitely the specialty is super important. And you talked about that as well. Right. Being a specialist and an expert in a certain area to really be a market leader. And that gives you some type of unique edge to be able to, you know, hopefully co invest with man with Allocators and then also possibly bring them on as an lp. So how do you think about venture building a venture strategy? And you know, what would you advise other family offices to do that may not have dipped their toes into venture yet? Maybe they're a real estate family or maybe a manufacturing family that want to learn about venture, obviously you're in the Valley, I'm in New York, which are two of the big vibrant ecosystems. So just from being here, you know, there's probably just outlets and then just, you know, double clicking on, just kind of thinking through the fund versus direct strategy.
- [43:25]
B
Sure. There's two Points that I want to make. One, everybody knows about the all in podcast, number one podcast out there. And just two weeks ago Freeberg said this statement, which I knew about because I know the data. But he said that he, in technology, most of the value of these companies are created after they go public. And he showed a slide of all of them. And that's amazing statement because a lot of people go like, well, I'm in venture because I want to be seed precede and get that early stage lift. But obviously you know that there's a 90% plus failure rate.
- [44:14]
C
Right.
- [44:15]
B
And so the risk adjusted returns for venture is actually not very good. And specifically, if you thought that you should have invested in Palantir as one of the most recent success stories, it is much, much. It's like 20x bigger, I believe from the charts I recall in the public markets when it came public versus during its time as a private company.
- [44:43]
A
You know, it's interesting, there was an article that I just saw on my feet. There was, I mean, it was something I totally agree with. Right. I mean there's, there's the power lawn venture. When you get into the public market. Yeah, yeah. So there's a power law. You know, you can get, you're not going to get a 5000x right. Like as a early investor in, you know, in, in like these Ubers or you know, Airbnb companies. But you know, you could get pretty decent multiple just coming in.
- [45:13]
B
Right.
- [45:13]
A
When the company went public. Right. So we, I don't know what's going to happen with Figma and you know, maybe, maybe you have some insights into that. But like, you know, companies like that that are coming in, their share price is maybe like 18 and then, you know, within the first couple weeks it goes up to 100. Right. So is that something that, you know, you could possibly get a power law? Maybe there is. You know, so kind of looking at that data and I didn't read the whole article, but I saw the chart and I was like, I totally agree with that because there's been, there's been some significant upside from just holding instead of just kind of cashing out and, and not getting the tax implications. Right. Of kind of selling or trading into something else.
- [45:51]
B
So there's the other thing, a couple of things to add to that is if indeed it is true that you didn't miss anything by not being in venture, then why the hell am I in venture then?
- [46:05]
C
Right.
- [46:06]
D
Sure.
- [46:06]
B
I invest in venture because I want an edge in insights into the technology.
- [46:11]
A
Yeah.
- [46:12]
B
Because that insight Helps me with my public market investments. So for example, I'm invested in a cyber security company and it's, you know, it's a great company funded by some of the best people, blah, blah, blah. By me knowing how that investment's going and whom are they bumping into as a competition, you know, is it crowdstrike, is it this or that Helps me understand that technology more so that I can make a better investment in the public markets. So I like that technology insight.
- [46:54]
D
Sure.
- [46:54]
A
No, I totally agree.
- [46:56]
B
So that's what I gain from it, not necessarily the returns. Okay. Yeah, it helps my returns in the public market. Number two, we work is a great example of why public markets are much more efficient. Because public markets, you can obviously short.
- [47:14]
C
Right.
- [47:15]
B
In the venture world, you could say a company's worth a billion dollars, but just put in $10 million.
- [47:21]
C
Right.
- [47:23]
B
So it's a highly. What's the right word? It's a small little private market that almost controls the outcome. It's not efficient. And therefore a new buyer that puts in very little capital can dictate where that valuation is. Yeah, but that valuation really isn't there. And we work was a prime example of that.
- [47:48]
C
Right.
- [47:49]
B
It went up to the moon and they couldn't even do an IPO because people did not believe it was a tech company. At the end of the day, it was just a real estate leasing company. And so I love the transparency, the ability short and the scrutiny of public markets. That's where it's real for me. So I'm not here to debunk Venture. And all the people have done well with that.
- [48:19]
D
Sure.
- [48:19]
B
You how I look at it. And then relative to venture, given my background in software, there's one thing I love about software. If you own the software and you own their data, you got a captive audience. Look at Microsoft, right. Hardware companies come and go, the Nokias, the blackberries, whatever. But with the software and the data you will have. IBM still exists because it's a software company still managing legacy mainframes. So I love that stickiness of the software and the margins.
- [49:06]
C
Right?
- [49:06]
A
Yeah.
- [49:06]
B
What's the marginal cost of doing one More subscription to Microsoft360, for example? So the margins, the stickiness, longevity really. I love the software side of the business and not the hardware.
- [49:27]
A
Yeah, no, that's how that's helpful. And when I think about stickiness, I think of software that has all of your data ingrained and then there's a level of intelligence on top of your data. So it's just super sticky. Right. Because if you got to switch out of that and go to a different platform, it's much more expensive than just paying the annual subscription fee. So that makes it super sticky. But what are some other traits of stickiness that you've seen to kind of stick people? Just, just kind of have people just stay in the, in the software and just kind of continue to, to contribute to that annual run rate.
- [50:07]
B
Could you rephrase that question? I'm not sure I understand.
- [50:10]
A
You mentioned software and being sticky for their, for their clients.
- [50:14]
B
Yes.
- [50:14]
A
So, you know, one example I mentioned was just kind of like, you know, if you think about like the, the Bloomberg terminal or like the next financial terminal, right? Like you've got all of your holdings in there and then there's some interesting insights on top of your holdings along with maybe some predictions of what your holdings might do, right? So if you get out of there because of, you know, the, the fact that you don't want to pay that subscription, you want to go to something cheaper, it's just much more expensive to do that, right? So that was just one example of me observing stickiness within a platform. So this is wonder if you saw some examples of just kind of the stickiness with technology, you know, doing the same thing, just kind of making people say, hey, you know what, I, I don't want to cancel my subscription because it's just too much work. I might as well just stay, you know, using the like. For example, if using Stripe, right? Like all of your history is, has been there and all those analytics have been there for the last 10 years, right? So the fact of you possibly saving like 1% to use a startup payment processor, it may not be worth it, right? It's already super sticky using Stripe, you trust, right? So it's a trade off, right? Versus the cost, versus the, the quality.
- [51:23]
B
So I think what I've seen and it all comes out in the numbers, right? In the data is Palantir. Palantir is one of my top three holdings and it uses, I think it is the perfect convergence of software and AI and helping you understand your data and make smart decisions and insights that you didn't have before. That, that is magical. All right, this, we haven't really talked about AI and I think where a lot of people worry about AI is what inning are we on in, right? With all the hype machine, am I in the first, second or fifth inning? Is it over? And all of that AI for me, and I think it's rightly true, it's an all in thing. Either you own it and you're the winner. And the winner takes all.
- [52:38]
C
Right?
- [52:39]
A
Yeah.
- [52:39]
B
Loser.
- [52:40]
C
Right.
- [52:40]
B
There's one Facebook, there's one Google search, there's one Apple. There's not five top companies that share equally in the pie.
- [52:53]
C
Right.
- [52:54]
B
And so all these hyperscalers must be all in because AI can eat the lunches of everybody's business. So whoever owns that AI will win the race for everything. And so they have no choice except to throw every spare penny they have at it. And that's not only the companies, but also the countries.
- [53:25]
C
Right.
- [53:28]
B
I mean, this terror thing takes up all the oxygen in the room, but it means nothing.
- [53:34]
D
Sure.
- [53:34]
B
The only thing that matters is does China or the US win the AI race? And like Jensen Wong said, this race is not. Doesn't have a finish line.
- [53:44]
C
Right.
- [53:45]
B
It's continuous. So this race doesn't matter. We're in the first inning or second or third. Everybody has to throw every dollar at it. And therefore you must capture, you must belong for this because no one has a choice to pull back.
- [54:03]
C
Right?
- [54:04]
A
Yeah.
- [54:05]
B
And I think that's a profoundly different thing to. And not worry about the cycles of investments.
- [54:12]
D
Sure.
- [54:13]
B
And so I think investing in software is going to be the key for me right now. You want to invest where the bottleneck is, right?
- [54:25]
A
Yeah.
- [54:26]
B
And so where energy is a big part of that.
- [54:29]
C
Right.
- [54:29]
B
So 40% of the cost of, of a data center is for the. Cool.
- [54:36]
C
Right?
- [54:37]
B
Sure. So you have stocks like BRT that owns 80% of their revenue based on their cooling ability.
- [54:45]
C
Right.
- [54:46]
B
So those are good companies to look at. So you'd want to look at bottlenecks of where it is in this AI food chain where you can invest in where they can control that bottleneck. So those are things we look at. And just as a small correction, I spend about 40 of my time in New York. We do about 40 of our real estate investing also in New York Bicoastal. And these are two great cities that I think will grow in their dominance not only from 40% to 65%.
- [55:25]
C
Right?
- [55:25]
A
Yeah.
- [55:26]
B
In my lifetime, for example, there used to be a Pacific Stock Exchange in San Francisco. There used to be a Chicago Board. Everything just migrated to New York as the number one and only financial capital. And in fact, not only is it the financial capital of the US it's now the financial capital, the only one of the world. There used to be a London, there used to be Hong Kong or Tokyo. Those places run away. So there is no way. The only financial capital in the world of New York is Not a place you would want to avoid.
- [56:03]
C
All right.
- [56:04]
B
Whether it be Mamdani or not.
- [56:06]
C
Right.
- [56:06]
B
Those economic forces are way too strong. And you want to be. You want to have exposure to New York.
- [56:15]
A
Yeah, no, absolutely. Well, hey, this was really helpful when, I mean, really appreciated your background, appreciate that you're, you know, from Jersey. And it's interesting to kind of have a broader mindset and view, not only across the US but just across the planet. Right. Just kind of looking at where the opportunities are. And I think for the audience, it's interesting to really just look at everything from the risk adjusted return, the Sharpe ratio. So that was a good learning for me and just a good way to think about things holistically. Right. I mean, instead of just public markets, thinking about how your alternatives can deliver a Sharpe ratio as well. I got one last question. What's a piece of advice that you would share with us to take away with us, whether it's professional or whether it's from a mentor or a family member? What's that? You know, one piece of wisdom you got for us?
- [57:07]
B
Well, I. I love being an investor, so I apologize if my, my one piece of advice is going to be on investing. If you want to generate excess returns, and we all do, yeah. You must be a contrarian because you cannot follow the herd. Because if you follow the herd, you're just going to buy the index return.
- [57:32]
C
Right?
- [57:32]
B
That's the best you can do. So you need to be a contrarian investor. And here's the second important thing. You must be right. Because sometimes the crowd is right and you are contrarian and you happen to be wrong.
- [57:49]
A
Right.
- [57:50]
B
And you're gonna lose money. Yeah, you can lose a lot more than your money. But the key here is you must start out to be a contrarian and ask yourself, where is everyone investing in? And then you say, I will not invest in that. So people telling me they want to invest in certain areas because it's easy invest like the smiles of the south and workforce, housing and multifamily, you already know you should not go there. You're not generate excess returns. Then two, you must be right about that. And that's the second thing that's hard. That's something I always ask myself. Yes, I'm contrarian. It's good to know I'm contrarian. But am I right? And what signs do I need to see to validate that I'm right as I walk down this path?
- [58:40]
C
Right.
- [58:42]
B
And always know. I would refer everyone to Roger Federer's speech for the AT Dartmouth because I went to Tuck. So Roger Federer gave a very famous speech about how he performed as a tennis player, and here's two data points. He said he only won 55 of all his tennis points, but he won 80% of his matches. And that's very, very true of for investing as well. You're only going to win 55% on average of all your investments. So how do you turn a 55% slightly winning percentage into a huge win in your portfolio? And how you do that is how you size up your investments. When they're high conviction.
- [59:30]
C
Right.
- [59:30]
B
When it's a high conviction trade, don't put a dollar into it, put a hundred dollars into it.
- [59:36]
C
Right.
- [59:37]
B
And that also means, on the contrary, 45 of the time, you're wrong. And we must really be humble as investors. That 45 of what I tell you, I'm going to be wrong.
- [59:49]
D
Sure.
- [59:50]
B
And. And that's scary.
- [59:54]
A
Yeah. Well, hey, that's really helpful advice and very practical advice when so appreciated and. And looking forward to catching up when you're. When either of us are on either coast. So appreciate your time.
- [60:05]
B
Thank you so much, Joe. You take care. Thank you. Yep.
- [60:08]
A
Take care. Have a good one.
- [60:09]
D
Bye.