Sorin Capital – Retail Contrarians

**Patrick O'Shaughnessy** (0:00)
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Hello and welcome everyone. I'm Patrick O'Shaughnessy and this is Invest Like the Best. This show is an open-ended exploration of markets, ideas, methods, stories, and of strategies that will help you better invest both your time and your money. You can learn more and stay up to date at investorfieldguide.com.

**SPEAKER_2** (0:59)
Patrick O'Shaughnessy is a principal and portfolio manager at O'Shaughnessy Asset Management. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of O'Shaughnessy Asset Management. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of O'Shaughnessy Asset Management may maintain positions in the securities discussed in this podcast.

**Patrick O'Shaughnessy** (1:21)
So far, I've spent no time in this podcast discussing real estate. So I was excited to get the chance to talk to the team at Sorin Capital, a billion dollar hedge fund which specializes in commercial real estate, REITs and commercial mortgage backed securities. Sorin is led by Jim Higgins, who founded the firm and Tom Digan, who coincidentally was a college classmate of mine at Notre Dame.
This conversation has two angles. The first, which starts about 20 minutes into our talk after we introduce the sector and the opportunity set, is a deep dive into a specific trade, a fairly contrarian take on the retail industry, specifically comparing different types of retail real estate. As you'll hear, the dispersion of mispricings in the sector may be huge, creating opportunities for specialists to earn real alpha by doing bottom up work. The second angle we explore is what I believe to be a strong model for the future of asset management businesses, that is tailoring products, strategies and even specific trades to the needs and risk return profiles that clients want and need, instead of just selling a one size fits all co-mingled fund.
You probably heard me joke that this podcast should be called, This is Who You're Up Against, and this episode is a good example of why. I always enjoy exploring a niche part of the market, and this conversation on real estate is a perfect example of the type of work that firms do on behalf of their clients. Please enjoy my conversation with the team from Sorin Capital. All right, Tom and Jim, this is going to be the first time that I've spent any time on the podcast exploring real estate specifically. We've done a decent amount of quant research into just REITs, which I know is just one component of the real estate world.
For my own edification, I thought the best place to begin would be for you both to outline this world broadly speaking. It's a nice one because the underlying assets here are something very tangible that everyone can appreciate, office buildings, residences, real estate of all kinds. But it would be great to get a summary of the topography of the space. What does it look like? What kind of assets are there? How can you access them? And then we'll use that as a jump off point.

**Tom Digan** (3:22)
Yeah, I think that's a good place to start. I think just to start out, it's a big space. It's a big space for sure. When you look at the numbers, the US commercial real estate market cap, if you will, is around $7 trillion.
So to put that in perspective, the single family home market is around $22 trillion. Obviously, the housing market is going to be bigger. But $7 trillion is obviously a massive asset class. The New York Stock Exchange alone also just put in perspective is around $19 trillion was the last number I saw. So it's a big sector. But I think that while people can really appreciate commercial real estate and that it's at the center of most every economy, it's not something that they always feel is accessible in the way of actually trying to access some of those returns, as you put it. So just to kind of break that down and talk about how that $7 trillion is really broken out or more importantly, I guess, how you would get access to some of those returns. There's really four ways. One would be going out and buying a building. The other would be originating or participating in some way, lending on a commercial real estate asset. And then the two liquid ways to access it. The liquid commercial real estate that we really focus on would be the commercial mortgage backed securities market, also called CNBS, and then the REIT market. The REIT market is broken up into the actual property REITs are the bigger of the two groups. The second group would be the mortgage REITs. The property REITs actually own and operate buildings, whereas the mortgage REITs are either investing in commercial mortgage loans or financing them in some capacity.