Transcript: Jon Litt



The transcript from this week’s, MiB: Jon Litt, Land & Buildings, is below.

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ANNOUNCER: This is my Masters in Business with Barry Ritholtz on Bloomberg Radio.

BARRY RITHOLTZ, HOST, MASTERS IN BUSSINES: This week on the podcast, I have a special guest and really quite fascinating. His name is Jon Litt. He is founder and Chief Investment Officer of a firm that invests in public REITs called Land & Buildings. And there aren’t a lot of companies that have this sort of unique ability to express their views on real estate and interest rates and the state of the economy and where people are living, working, shopping, et cetera, by purchasing companies and REITs in the public space. It’s really kind of unique and interesting. We see a lot of private equity making investments into either individual houses or multifamily or whatever, but to see a public company, to specifically look to identify underpriced REITs because of their underlying assets being undervalued, kind of interesting, quite fascinating.

If you are at all interested in real estate or REITs or anything related to the topics, you’re going to find this to be a very interesting conversation. So, with no further ado, my conversation with Jon Litt.

ANNOUNCER: This is my Masters in Business with Barry Ritholtz on Bloomberg Radio.

RITHOLTZ: My special guest this week is Jon Litt. He is the founder and Chief Investment Officer of Land & Buildings. Institutional Investor ranked him as the number one real estate analyst for eight years running. He comes to us with a background undergraduate at Columbia. He got his MBA from NYU Stern, Jon Litt, welcome to Masters in Business.


RITHOLTZ: So, like so many in Wall Street, you began your career as an analyst, but you started in 1987, what was that like?

LITT: So, I always wanted to be in real estate. And first, I thought I was going to be an architect and along the way, I realized I was probably better on the investor side. In 1987, if you remember there was a minor stock market crash on …

RITHOLTZ: A little hiccup.

LITT: … October 18th, down about 22 percent. And I always wanted to be in real estate. I got into it. I worked for a private buyer syndicator of real estate and when I started my career and we went right into the recession of the early 1990s and the — and what I learned very quickly was that as a private sponsor, a real estate transaction, we always made money whether our investors made money or not.

And we went from buying, shopping centers to doing workouts and bankruptcies and around that time, in the early 1990s, the legislation that govern the REITs was changed and it allowed REITs to be internally managed and internally advised. And so, there was a real alignment of interest in the public market where management’s interest were aligned with other shareholders and I looked at my position on the private side where there clearly was not an alignment when I was young analyst at time on the acquisition’s team.

And I looked at the REITs in 1992, and I said that’s a better mousetrap. That’s a better mousetrap as an investor to make money in real estate. And I switched and went to work for one of the leading buyers of REITs at the time. The industry was all of 15 billion.

And I went to work for them and ended up being that that change in the legislation in the early 1990s open the doors to today with a $1 trillion industry of public companies and I got a great front row seat right in ’92 as the IPO machine started in earnest.

RITHOLTZ: So, how significant were the — I don’t know if you were — you can recall the era in the 1980s when there were all these huge tax incentives to use real estate as a write-off. When did that change and the move towards public REITs, was that related to taxes? Everyone always had a headache with the K-1 filings, how has the legal structure made it easier to be a public investor in real estate?

LITT: Right. So, now, I have to really date myself. So, Ronald Reagan was president and he put through on the Tax Reform Act eliminating many of the benefits of owning real estate in a private structure to the — as you mentioned through the tax benefits.

And so, you went in to a bit of a real estate depression because the valuations of real estate and the leverage on real estate no longer made sense. And in part, the firm that I started my career at was impacted by that. They were still able to continue to raise money and invest, but that was a real sea change.

And of course, we then went into the recession in the early — early ’90s which was quite painful in real estate. I would say we had the recession, I recall calling the early ’90s depression for real estate. And it took it a long time to recover.

And frankly, many companies that went public really didn’t have a choice. It was go broke or go public. And it coincided with the time when this legislation was changed and that really opened up the doors to what I believe is a much better mousetrap for investing the real estate by investing in the public REITs.

RITHOLTZ: I have a vivid recollection of graduating grad school in ’89 and all my colleagues who ran out and bought condos or co-ops in New York City that year, it took them almost a decade to get back to breakeven, that real estate depression you — you referenced was very, very significant in the ’90s and it was almost like the boom in the early 2000s was making up for lost time. How do you look at that era of the ’90s to the 2000s, how significant was that prior lost decade?

LITT: It’s interesting. And if you read the papers today about how long is it going to take us to recover from the corona, COVID-19, how long (inaudilbe) let’s get the jobs back, et cetera, once you have the reset which we’ve now had with the 30 million unemployed or with the bottom in real estate which is probably ’91-’92, you then had growth. And you then looked at not when do we get back to peak but what it’s going to look like in the next 12 months, 24 months, 36 months.

And that’s really what we were focused on at the time, supply got largely shut off and you’re able to see the economy slowly coming out of the recession and demand building. And I remember the hotel business which was fairly decimated during that period was really the first to come back.

As people got back out on the road and we started to see healthy increases in occupancies and rents, so — and nightly rates and it’s gradually built over the balance of the decade, not without its bump but we saw steady growth.

And in fact, if you look back to 30 years, there’s been steady growth with a few major interruptions but there’s been pretty steady growth and demand for real estate.

RITHOLTZ: Quite fascinating. So, Jon, you had a really fascinating quote. I have to ask you about, quote, there’s a big pile of private capital that wants to own real estate and a big pile of real estate trading at a discount. You said that’s of “The Wall Street Journal” in 2018. Has real estate really been trading at that much of a discount for that long pre-pandemic lockdown?

LITT: You know, it’s an interesting question. What we specialize at Land & Buildings is buying heavily discounted real estate in the private market. And that exists almost all the time, not REITs as a group, but there’s always a stock or sector where you can buy it at very substantial discounts to private market values.

What’s always fascinated me is the private capital that is piling up on the sidelines is putting the money out at the private pricing which is often in the — it involves (ph) the stocks were buying materially higher valuation than who we’re buying it for in the public markets.

And I think some of that private capital in ’18 was looking at the valuations on some property types and saying, you know what? We can’t put this money out right now because the return’s not attractive enough.

And our argument is you should be buying the companies a big discount rather than — and going out and buying it in the private market where you’re paying essentially net asset value or where the assets will trade.

RITHOLTZ: So, here we are where — I don’t know this is Day 93 of, it feels like, of lockdown. You have more than 41 million people who have applied for first time unemployment benefits. The GDP feels like it’s been cut in half, what has this done to the price of both real estate in the private market as well as the public markets?

LITT: So, COVID-19 really turned real estate on its head in certain property types. And we’ve been spending very intense period, March and April, trying to figure out what the landscapes going to look like. The last time I remember this type of an intense impact on real estate was after 9/11.

And of course, the predictions that occur in the days, weeks, after a crisis like this and some — some are going to pan out and some aren’t. And so, it’s important to use that period as a lesson for some of the things that might occur in the future.

I would say we’re not saying a lot of priced discovery in the private markets on real estate because it’s too soon. And it’s hard to close real estate. We’re talking to private equity guys and getting a deal closed if you need government approvals and notaries with the stay-at-home orders is quite difficult.

But I’d suspect, we’re going to start getting price discovery in the next three to six months where the private equity guys are going to be buying real estate. As Jon Gray, Head of Blackstone, follow and march, they could buy on the screen but they couldn’t buy in the private markets and they bought $11 billion worth of securities on the screen, so they clearly were opportunistic in buying at the time.

The big changes that occurred were to work from home — worked better than people thought. And the bosses of the big companies saw that it worked better than people thought and many of them lived through 9/11 and it was very poor to work from home for the week or so after. But this time, it’s really working smoothly and whether it’s (inaudilbe) Morgan Stanley, think of BlackRock, commenting — particularly as it relates to New York at how the productivity is quite high, and the office used is likely to decline in the future.

And so, office was already soft in New York and I think this is going to really accelerate a downturn in office in New York and it’s going to accelerate a downturn in major urban office markets and major urban residential markets because I think as people discover that they can work from home and maybe go to the office one or two days a week, they’re going to move to burbs and as they move to the burbs, they’re going to move further out.

And so, this dichotomy of urban cores being adversely impacted and suburban markets being positively impacted, I think is with us for the next 3 to 5 years. Some of it was already in place because you had the millennials getting to the age where they were starting families and wanted to move to the burbs and we already saw the population decline in the past two years in Manhattan.

And this is — this is going to accelerate it. I think single-family, whether it’s for rent or to buy, is going to be a strong place in the real estate market. I think New York City office is going to be difficult over the next several years.

RITHOLTZ: So, let me push back against that because you’re not the only person making that suggestion and here’s the counterargument. Cities and urban centers have been the dominant source of economic growth and cultural creativity and entertainment and go down the list for 500 years, once we have some form of treatment and some form of vaccine for COVID-19, why wouldn’t we just returned to that five century long trend?

LITT: I think that the reason why New York will always be a major market is you have a brain trust. People in Manhattan and their Tri-State area, so if you want to be an employer, you could come here and you can access that brain trust.

I don’t think that’s going away and we’re not saying New York’s going to see a fairly recent population decline. We’ve been seeing the population fall about one percent naturally. Then, if you just look at demographics and a lot of investing in real estate, just looking at demographics, where is the pig and the phyton going to be?

And right now, the millennials are that prime age to start a family and they’re moving out of urban cores and they’re moving to the burbs. And that’s going to happen with or without COVID. It’s been accelerated because of COVID.

I think New York, like myself, I’ve been working in Connecticut for 12 years. And you I make sure I’m in the city one or two days a week and I set up external meetings and sort of internal meetings with colleagues and the excitement and the energy in New York will always be there.

But I think what’s going to happen, there’s going to be a hybrid model that’s going to develop. And that is if you had a 1,000 people that worked in an office every day, you’ll probably go to 750 people.

With that other piece being they’re in two days, somebody else is in two days, and that’s not going to go to 50 percent or zero in my mind. But you’re going to have that hoteling of office space. You have your laptop, you come in, you could have the office, you could have a desck, whatever your paygrade is you set up your appointments and you have conference rooms and you had meetings and lunches and other colleagues coming in on those days.

I think that’s likely how it’s going to play out and I think that’s facilitated by technology. The technology didn’t exist 10 years ago where that was really feasible. But the technology exist today and people want it.

RITHOLTZ: Yes, in fact, the SEC, after 9/11, mandated that every security firm and ever asset management firm not only had a backup plan but had had an ability to flick a switch and relocate if they were to have lost their headquarters. So, the — one of the end results of 9/11 is that the work from home, the work remotely is much more easy to perform these days than pre-9/11 days, not just because of the technology but because people have thought this through in advance.

LITT: Well, absolutely. I mean, we (inaudilbe) recovery plan on immediately. And because we were, one, required to by the SEC have a plan but we were regularly testing it, and you were up and running the next day. We didn’t have to buy anything. It really was a go.

RITHOLTZ: Quite fascinating. So, Jon, you picked quite the auspicious year to launch a real estate investment company. You launched the firm in 2008, is that — is that correct?

LITT: That is correct.

RITHOLTZ: So, you start in ’87, you launch your business in ’08, you have to let us know the next time you’re going to do something significant, so we could all hide under our desks. What was it like launching the firm right into the teeth of the crisis?

LITT: So, it’s funny. I guess, when you look at it in the hindsight, the time I got in to the real estate business to buy real estate and I did it privately and then I did it publicly and then the Wall Street firms became very aggressive as a buy-side investor when these companies were going to public and reviewing the prospectuses and challenging the CEOs, why they’re restructuring the deals in a certain way and the Wall Street firms that were taking the companies public said, hey, we rather have you in the pissing out than outside the tent pissing in.

And so, I accidentally became an analyst and went to Salomon Brothers. I’ll it to kind of digress for a second. So, Sam Zell was taking his first REIT public and he came to the office in — I was a young guy and I had my legal — yellow legal pad and I had, like, four pages worth of questions and I sat there with Sam and Sam comes in with his motorcycle helmet and he plops it down on conference room table and he introduces himself.

And I said, Sam, look, I apologize in advance but I’ve read this prospectus cover to cover and I have like four legal pages worth of questions and some of them are going to be a little tough and a little (inaudilbe) and he looks at me and he goes, Jon, I’m shaking to my boots. Fire away.

Very classic Sam. And I’ve stated such ever since and it’s been a great mentor to me throughout my career. But so, I did that and then I accidentally became a sell-side analyst and I have built a great franchise. We were the number one ranked group for the majority of the time I was there and we were very focused on making sure we have advocates for the investors in REITs and not a shill for the investment bank and so we pursued our research quite aggressively, picking stocks and calling out misdeeds on the part of management.

And I loved it. I had a blast doing it and I had a great group of folks that I worked and a great team and I ended up running not just the U.S. but I was the global property strategist to the group and it was a great fun. But around 2005, I wanted to get back to the investing side. But at that time, we also said bubble gum machines down to our clients suggesting there was a bubble forming in commercial real estate.

Prices were flying higher, interest rates were low. And I said this isn’t the time for me to go out and start a firm because I think there’s a bubble and it’s going to break. I rather wait for the bubble to break and then get out and start a business as investing in these stocks.

And so, we sent the bubble gum machines out. By June of 2007, it’s actually this wee in 2007, I was at a REIT conference and we met with 50 CEOs and at the end of the conference, we were debriefing with my team. And there was a common theme that we found from every company.

Demand was slow. Supply was high and financing was difficult and I was — the opinion (ph) in our view was it was over. The bubble was breaking and it was — it was — that was our view on the real estate market. But it was also that time, my view that there’s going to be an opportunity for me to start the investment firm that I wanted to start back in ’05.

And by the first quarter of ’08, I spoke with the folks at Citi and told them what I was looking to do and they were very supportive and they gave — they shielded our fund, they allowed some of my folks to join me and we launched the business of August of 2008.

Fortunately, we were quite bearish and we were able to make some money in 2008 on the market. But it was wild. I remember there was one day when our group of stocks, REITs, traded a 40 percent range in one day. It was just mind-boggling and the key was really to have low nets and tight risk controls during that period.

And I’ll never forget that song, the REM song, “it’s the end of the world as we know it,” kept flying around in email boxes. And of course, we all got through it and real estate gone on to be a great place to be.

I remember that song and I remember Tom Petty’s “Free Fallin'” also being heard in various trading rooms. So, you have a reputation as occasionally taking activity positions, how is this different with what we think of as traditional operating companies versus being an activist with REITs?

LITT: We like buying cheap real estate public markets. And sometimes, those stocks are dislocated because people don’t like the fundamentals and they don’t like management or something, but they’re not fundamentally broken companies. And in those cases, where there’s something that’s broken that can be fixed and you can unlock the value and get back to net asset value, you can work with board, you can work with the management team, you can work with the other shareholders to unlock the value, we’ve been involved since 2012 in 29 activist campaigns and we’ve seen company sold, we’ve seen the management team’s new boards, assets spun out, companies fixed.

And it’s been a terrific way to unlock value in the — in the public markets and realize that net asset value. I’ll tell you just one story from last year and I was thinking about you this morning because this — there’s a big REIT conference going on today and tomorrow and as it was in 2007, (inaudilbe) event for me, and that might be what real estate here (ph), there was a major announcement by Blackstone and Blackstone was acquiring a warehouse portfolio for nearly $20 billion as an all-time high valuation.

Now, we had an activist campaign going in a warehouse company and warehouse is a hot property type, very strong demand, rents are going up quickly, valuations are going up quickly as we saw with that Blackstone and we had started an activist campaign about nine months before this conference in June of 2019 in Liberty Property Trust which is a warehouse company and it was trading at a substantial discount to the value of its real state where as the other publicly-traded warehouse companies were trading at premiums.

And we thought the reason it was trading at a discount was because it had an office which people don’t like office, investors don’t like office, and because the company and the manage team had made poor capital allocation decisions. So, when people wanted to weigh (ph) warehouses, they’d buy one of the other companies that wouldn’t buy liberty and we began a discussion with the board and the management team and we said, if you just sold the rest of your office portfolio, we think you could close the gap to NAV.

And we also think you should develop a succession plan and refresh the board. And i got to say, our activist — my career as an activist, this board was very professional and listen and responded. They announced six weeks later, they were going to exit office and the stock moved nicely. We got somebody on the board, maybe six months after we started our campaign.

But then what happened at this conference a year ago was Blackstone did that transaction. And I ran into the CEO in the hallway. And I said, Bill, what do you think of the Blackstone transaction? And he said, my portfolio’s better than not portfolio. That portfolio is worth that valuation. My valuation is even better.

And I said, well, give me a second. Your stocks hit 50 and I did the math in my head and I said, so like, 63 bucks a shares is what your worth? He goes, yes. And I was like, OK, so, how are you going to get to 62? And he realized he probably shouldn’t have said that to me.

But we had a nice call with the board a a few days later and said, look, if you have a way to get to 62 without failing (ph) the company, don’t sell it. But these guys are paying big prices and making a lot of money to put out you should call Blackstone, you should call Prologis, you should call Brookfield and (inaudilbe) by the company.

And again, to their credit, they — a little reluctantly, but they did engage with the three big buyers and Prologis ended up buying them for $61 a share evaluation that this management team was unlikely to ever get the stock to on their own.

And so, I think the activism is a great way to find these diamonds in the rough in the real estate market and work with the boards and management teams to unlock the value and we don’t like to see companies going away in sales, we much rather see companies fixed.

In this case, it was likely the only way it was going to get there to that kind of valuation. So, we think it’s a great way to buy cheap real estate in the public markets and when we see these pension funds buying the private market a full value, we think they should be doing it in the REITs.

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RITHOLTZ: Quite fascinating. Let’s talk a little bit about a comment you had that I’m somewhat intrigued about in your most recent whitepaper, COVID-19 has supercharged the American dream of living in a single-family home. Discuss.

LITT: So, obviously, the American dream, we all know, live in a home and with COVID-19, it accelerated the movement of the millennial out of apartments in the homes in our view. And we talked to folks that are living in apartments now that are like cooped up and they’re afraid to press the elevator button, they don’t want to be on a high floor, all the cultural benefits of being in an apartment in an urban setting had dissipated during COVID-19.

And they were thinking of moving anyway. They were at that age. And so, what we’ve seen is that the public companies that own homes rent them out and the companies that build homes saw, much to our surprise, a real pick up in the demand the second half of April and throughout May.

And one of the things we love and I always tell my investment team, we have to know our company’s call (ph), we don’t know when we’re going to get the opportunity to buy them because they’re cheap enough, but when that happens, the market goes against the down or goes against the company, we want to be ready to move.

And in the midst of the crisis in March, we saw the home builders in the single family for rent guys get really cheap and we started buying them and we were calling every day, anybody we can call to find out what what’s going on with new home sales and what was going on with the ability of the tenants and the homes to pay rent and we got comfortable that it was not going to be a total disaster.

But then, there was a real surprise that happened in mid-April where we started hearing that the rental guys were able to push rents and occupancy and the home sales started picking up and that’s only been accelerating. So, trend out of the cities which has been going on pre-COVID has accelerated.

And an interesting fact, one of the things we didn’t talk about with — talked about New York is the inability to deduct the state and local taxes is a bad outcome for places like New York. And one of the homebuilders said they’ve seen the most — the greatest increase in demand in Texas and Florida, two states with no estate tax.

And so, I think we’re going to continue to see both financial incentives to move out of certain states with high taxes to states with low or no taxes and move in to homes. And I don’t think that’s going away.

I think that’s, again, demographic. It’s generational, it will ebb and flow, but I think the next two to five years, you’re going to continue to see that movement to single family homes, wanting to be in a good school district, having a backyard for your family. Typically, you have two wage earners versus one wage earing in an apartment.

So, I think those trends are set in motion and are likely to continue. I think the spike we’re seeing right now will abate and become a more normal steady growth. But what we’re seeing out of the apartment owners in the urban markets is a real challenge on occupancy and rents. Again, we’re at this Navy conference today and tomorrow and so all the companies are giving this update (inaudilbe).

Occupancies are down 200 basis points and rents are at down anywhere from four to seven percent in the appointment. And so, there’s a real movement out of apartments and into single family homes, whether you’re renting it or you’re owning them.

RITHOLTZ: So, we’ve been hearing that housing demands is outstripping supply especially for single family homes in the suburbs but we’ve been hearing for a long time. When does this reach the point where it really becomes problematic and we begin to see a significant increase in real estate prices?

LITT: So, the single-family home prices bottomed — I’m going to say the end of ’18 and have been accelerating and they’re now going up about four percent a year. I don’t think that’s terribly concerning it’s not like we saw in the housing bubble where they were going up much, much more dramatically.

The other advantage that we have in the single-family market post COVID is 30-year mortgage rate is probably going to decline, I mean, down 60-70 basis points now but we’re probably going to see that it’s going to be down over our percent.

And so, the individual and the couple that was living in an appointment or somewhere else, now has the ability to buy a home because it’s more affordable because they interest rates are so low.

And so, I think that the demand will continue, the prices probably won’t get out of hand because the builders will build, new homes and sellers will put their homes back on the market, and the inventory will clear. And I think it will be much more rational. But time will tell the key thing about being an investor in public real estate is you can’t just have a thesis, put it in the bag, and forget about it.

You have to be in the market every day talking to as many folks as you can to see if those trends that are underpinning your investment thesis are changing. And when they change, you got to reevaluate.

I talk a lot with my team about the offramp. It’s easy for them to come with their investment thesis and their presentation about why we should buy stock but it’s much harder to say when should we get out? And so, when we go in to a name, we have clear offramps. If this doesn’t play out the way we expected, whether it’s in the first six months or in the third, fourth, or fifth year, we’re constantly monitoring the offramps for not working.

So, I think the key, as we’re looking at the housing space that you suggested, we may have an undersupply and prices going up too quickly, we just got to keep our finger on the pulse of it and make sure we’re aware of what’s going and then reassess our investment at a rationale.

RITHOLTZ: Let’s stay with that question of supply because I’m intrigued by the concept that nimbyism, the not-in-my-backyard regulations that not only are in cities like New York and San Francisco but all the surrounding suburbs have really kept density low and have kept lower income housing out. Are we going to see any change in NIMBY laws and how might that affect housing supply and prices?

LITT: So, most new construction in single-family homes on the outskirts of town. That’s maybe an overstatement because it sounds too remote. But inside the, let’s say highway circle, the first circle is pretty well developed.

So, there’s not going to be a lot of room for a national homebuilder coming in by 100 acres and built the homes. So, they’re going to have , to go a little further out.

Now, what’s interesting is with the work from home, the individuals are willing to go a little further out as well because they don’t have to commute every day. So, we got to monitor that supply and make sure it doesn’t oversupply which right now we’ve been underbuilding the single-family market for — since the financial crisis.

And so, I don’t see that as an immediate challenge. Clearly, when I gotten this business 30 years ago, the beautiful thing about New York is high barriers to entry. You can’t build. No new supply and we have all this demand.

What’s fascinating about New York is we’re overbuilding the office market, we’ve overbuilt the hotel market, and we’ve also seen overbuilding in the for rent and for sale apartment market in New York and this is in a market which is supposed to have high barriers to entry.

So, what happened in the apartments, particularly in New York, is there were tax benefits that were granted to build an apartment building, those tax benefits were expiring. And so, a lot of developers rushed to get as many deals approved as they could and that resulted in oversupply in Manhattan.

I think what’s really — to your point, we talked about this a bit earlier about the cultural and economic and excitement that goes in New York City, one of the challenges to that for many people is the cost of living in the city.

I think the cost of living in New York City is going to be lower in the next several years. I think as we look (ph) cheaper to have an office space, it’d be cheaper to have a storage, it can be cheaper to rent an apartment, to buy an apartment. And some of that will keep some of those millennials in the city, but it doesn’t take a big change, right? It doesn’t take 30 percent of the people moving out of the city to casue a ripple in the market.

If we see a one percent decline in population each year, for the next three or four years, that’s going to be a real challenge and that will make it more affordable for folks.

RITHOLTZ: I want to stick with the idea of the edge of town or the suburbs. Just yesterday, my wife and I found it ourselves, we — we live about 40 minutes outside to the city and you go 20 or so minutes east and suddenly it’s what you used to think of as not a commutable distance to the city, but as you suggested, if you’re only going into or three days a week, well suddenly there are big areas and I have to assume this is true for Philadelphia and Boston and Seattle and wherever you look.

But I have to assume there are large areas that are now potential bedroom community — communities for job centers and urban location like that, that weren’t thought of that way three months ago.

LITT: I think it’s going to open it up and I think it was already opening up wih the ride-hailing services like Uber.

And like you, you go in you car, I do a lot of cycling here in Connecticut with a group of guys and we’ll go 30 or 40 miles out from where we live in Connecticut and we’ve been commenting in the past three or four weeks how there’s all these cars with New York license plates driving around in these communities, clearly, looking to escape either renting homes or looking to buy homes and we’ve been riding here for 20 years and it was a real noticeable uptick to see all these New York plates hanging out in Connecticut.

So, and I think the work from home, you don’t need to be five minutes from the train station. If you’re going to take the train then.


LITT: And you don’t mind the — a little longer commute if you’re not going in as often. And what are the arguments that I’ve heard and we’ll see if it will play out. But as we get to autonomous cars or ride-hailing, the Ubers of the world, becoming more ubiquitous, will the commute be as troubling for folks?

Because right now, if you live in the burbs, you go to the city and you use mass transit, you got to take your car to the train, you’re going to get on the train platform, you’re going to take a train in and you got to get on the subway and then you have to walk to your office. If you start eliminating some of those steps for making that process easier with autonomous cars, the view is that that’s going to change where people live. And now with work from home, that’s going to clearly accelerate.

An interesting point on this which you didn’t bring up but I think is related is some of the homebuilders are thinking about what happens when we don’t need two car garages? Because people don’t have the second car because they’re using autonomous or ride-hailing services? So, how do you redesign the home?

What about Amazon deliveries and other deliveries are becoming a bigger part of what happened at the house, do you need a vestibule built in to the home so that the delivery guys can put the things inside but not be able to get in to your home.

And now with work from home, had pandemic, we have four kids, the six of us living in this house, maybe our thoughts of downsizing empty nest was premature. And maybe you’ll feel that downsizing and you’ll see less of the sort of end of life of the homes and the downsizing being postponed or not done at all. So, it’s going to be really interesting to see how this evolves.

But I do think it was ushered in by technology and the productivity that employers like myself are enjoying as people working from home.

RITHOLTZ: One last thing I didn’t ask you about that I want to get to, and I know you don’t have a crystal ball, but you have to look at the suburban malls and other retail REITs as being somewhat problematic, what is going to happen with that space, is there (ph) a Hotel Renaissance in our future or is that waiting to be converted to high-density housing at some point in the future?

LITT: The — there were 2,000 regional malls in the U.S. 10 years ago. There’s going to be a fraction of that in the future. And how you repurpose those malls that are no longer viable is going to be a real challenge and I think it’s a challenge for the towns where they’re in because they were big taxpayers and tearing down a mall is not an inexpensive proposition. And if its population has moved away from that location, it’s a challenge as to what you can put there.

I don’t know that there’s a clear — a clear answer. These things might just sit empty if you remember Bloomberg took over the old Alexander’s Department Store building in its current location, that sat empty for 10 years before Vornado built what is today the Bloomberg building.

And I think it’s going to take a long time. But I do think that that fraction of the malls that remain open are going to be very successful. We’re going to have a much smaller footprint for many of the retailers. Those malls are going to see high traffic, people still want to go, I was on the board of Taubman Centers and when you go to some of their assets and they have the best mall portfolio in the U.S., you go to some of their assets.

I remember one down in Florida, Dolphin Mall, there was somebody following me around and I’m like why is this woman following me? And she was following me to get my parking spot and then she called her husband so he drove over and she just asked me to wait because there were no parking spots available in the lot.

And that exact scenario was in true with many of their malls but it is true. They are full and people want to go out. So, I don’t think they’re all going away but a lot of them are going to be really challenged.

You would ask me a question earlier about valuations and how real estate will be valued in the future and I don’t think I answered it. I think one of the fascinating things that going to come out of COVID is the Fed drop rates from, call it, two percent to two and a half a percent or Fed didn’t — 10-year treasury yield, away from the almost two percent, two and a half a percent.

Interest rates going down means that financing costs are going down, that means that the valuation of real estate is likely going up but not all real estate is created equal. I think warehouses, datacenters, cell towers, single family for rent are going to see valuations of their real estate go up materially over the next several years whereas the valuation of the malls, the shopping centers, the hotels, the casinos, the office buildings are going to be more challenged because there are secular headwinds that are impacting those sectors. So, they may see valuations hold, they may see them decline, but I don’t think they’re going to go up as much as they could otherwise given the interest rate decline.

And if I look at my career, the one big surprise that I wish I knew before was that the 10-year was going to be a one-direction train down because if you knew that, you would have just loaded up on real estate 30 years ago and rode the train as interest rates fell and the valuations of real estate increased.

Thirty years, I’m going to tell you it’s 40 years back when Paul Volcker broke the back of the inflation. Quite fascinating stuff.

I know I only have you for a limited amount of time, so let me get to my favorite speed round questions and talk to you about our five favorite questions we ask all of our guests starting with what you streaming these days? Tell us your favorite Netflix show or podcast or whatever?

LITT: So, I don’t listen to a lot of podcasts. I’m going to listen to some of yours now. I see there’s some great speakers. But when we’re in the car, we have the kids, we listen to how I built it, we listen to some great episodes on Spanx (ph) and (inaudilbe) and how those businesses were created. We love those.

RITHOLTZ: What are your favorite Netflix shows? You give us a couple if you like.

LITT: So, we don’t watch a ton of TV but there’s this new Apple TV, I think it’s called “Defending Jacob.”

RITHOLTZ: Everybody loves that.

LITT: That is — it’s fascinating and we wait for each new episode to come out. We watch it and so that’s been a lot of fun to watch. But we’re not watching a ton of TV oddly enough.

RITHOLTZ: Tell us about — you mentioned Sam Zell earlier. Who are some of your mentors, who helped shape your career over the years?

LITT: Sure. So, Sam Zell is a big influence probably for me and many others and he’s always been incredibly gracious with his time that he’ll spend talking with me and speaking of conferences and he and I have done a lot of lot of fireside chats together, but — and I — so, it’s just fun during the last week (ph). And he’s just got his finger on the pulse. He’s very quick. He gets it and he’s really been a fantastic mentor to me.

The other one is a gentleman by the name of Steve Roth who runs Vornado.


LITT: And I mentioned him briefly before. And he’s the one that really focused me on buy cheap real estate in the public markets. And the big — when I met him, the big thing he had done recently was buy the Alexander’s Department Store chain. And he didn’t buy it because he wanted to be in the department store business, he bought it because he wanted the real estate.

So, he shot the department store down and then redeveloped all of the real estate that they own, obviously, they killer location was the full city block which is now the Bloomberg building and it took him 10 years but he was able to put in great retail uses on the ground floor and then Bloomberg’s office space in the middle and some condos on the top of that building and took something that was undervalued in the public markets and created billions and billions of dollars of net worth.

And throughout his career and my career alongside him, watching him do that over and over again has been enormously valuable. And is, frankly, something which we practice in — particular in the activist work that we do, but we try to find these undervalued real estate in the public markets and go about unlocking that value.

RITHOLTZ: Quite fascinating. If you’re not watching TV, tell us about some of your favorite books. What you reading these days and what books do you like to recommend to people who might be interested in real estate?

LITT: So, one of my favorite book I’ve read in the past few years is Malcolm Gladwell’s “Outliers.” The whole book, I reared it and I made all my kids read it. I made them (inaudilbe) about it.

And in that book, he has this concept of 10,00 hours. If you spend 10,000 hours doing something, you’re going to get good at it. And the people who really put in whether it’s the time in the pool or the time at work or practicing an instrument, if they — you put that kind of time and energy into something, you’re going — you’re going to master it.

And he has got a great people that he talks about in their cookie tasters and I didn’t know if it’s about cookies but or food tasters. But when they make an Oreo cookie, their cookie — they excess dough, I guess, they used to make the next cookie. And these two women who were food tasters could tell when they eat an Oreo cookie if it was the original or if it was the excess and the remade cookie.

And I think about that in my career and I’ve been doing real estate a long time and I think about the example I talked about earlier with liberty where I didn’t have the numbers in my fingertips but I was able — when I ran to that CEO in the hallway but I was able to sort of do the math, the rough math in my head and come up with $62 a share in value, I mean, that’s just something and then the company got sold at $61, that’s just something that comes with putting the hours in and I think that such a valuable and lesson and that’s why I had my kids read it and what they’re going through school and I keep reminding them about it.

The other book would be “Sapiens” …


LITT: … humanity. And I read that book, actually, twice. And you lose track as we’ve been here for like a nanosecond in the scheme of human beings being on the earth and the development. And I think it’s a wonderful book that puts our life into perspective — our lives into perspectives and really some of the damage that human beings have done to this planet and hopefully being able to get our ourselves out of it. So, I thoroughly enjoyed that book.

RITHOLTZ: Great suggestions both. Since you mentioned kids, what sort of advice might you give to a recent college graduate who was interested in a career in real state investing?

LITT: It’s funny that we just rewatched “The Graudate” from 1967 with Dustin Hoffman.

RITHOLTZ: So, you would say plastics, that’s your suggestion?

LITT: And — no, I always say to my kids because they listen to me or people that work for me, it’s content. Because technological advancements have eliminated a lot of jobs and I just look at my career, the trading floors emptying out, the sales floors emptying out, the people did all the stuff to get a research report ready to go out and those jobs are gone.

But I’m a content guy and if I look around at people who have long careers, if you’re content, like you’re a content guy, Barry, right? We got a content right here?

RITHOLTZ: Yes, for sure.

LITT: If you’re a content guy, you’re going to have a long career. And so, figure out how to create and develop content whether it’s picking stocks or spread and research or creating new technologies, I think that’s the answer to the future.

RITHOLTZ: Quite fascinating. And our final question, what do you know about the world of real estate investing today that you wish you knew 30 plus years ago when you were first getting started?

LITT: I wish I knew the 10-year was going to be at 60 basis points. That would have made investing a lot easier. All the wall (ph) of worry while rates have been coming down about rates going back up, you could have just dismissed and bought and finance short and held on for the ride.

RITHOLTZ: Quite fascinating. Thank you, Jon, for being so generous with your time.

That was Jon Litt, founder and Chief Investment Officer of Land & Buildings

If you enjoy this conversation, well, you can check out any of the other 300 such discussions we’ve had over the past merely six years. You can find that at all of your favorite podcast locations iTunes, Spotify, Google Overcast, Stitcher, wherever finer podcasts are sold.

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I would be remiss if I did not think the crack staff that helps put these conversations together each week. Tim Harrow (ph) is my audio engineer, Michael Boyle is my producer, Mike Batnick is my director of research, Atika Valbrun is our project manager.

I’m Barry Ritholtz. You’ve been listening to Masters in Business on Bloomberg Radio.


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