The CEO of a $1.4 Billion REIT Explains The Surprising Year In Housing

Joe Weisenthal (0:11)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

Tracy Alloway (0:16)

And I'm Tracy Alloway.

Joe Weisenthal (0:18)

Tracy, one of the really interesting things about this crisis is that the real estate market hasn't exactly behaved as one might expect during a typical downturn. We have sort of depression levels of unemployment, a major plunge in economic activity, and yet not all aspects of the real estate market have done badly.

Tracy Alloway (0:40)

Yeah, I guess it depends on what you're looking at, right? So housing or residential housing has been surprisingly resilient.

You know, some of the stimulus has helped people actually stay in their homes, keep up with the mortgage payments. In some places, we're actually seeing a housing boom. But if you look at the other half of real estate, which would be commercial real estate, there are a lot of concerns out there.

Joe Weisenthal (1:07)

Right, so if you're a retail landlord in New York City, you have a lot of ground level tenants, that's probably trouble. On the other hand, if you want to sell your house in the suburbs, this is an amazing time to do it. And of course, it's further complicated because there have been all these temporary moratoriums on evictions for certain types of renters.

There's also been the stimulus, which has allowed people who haven't had jobs to maintain a good degree of their income. And so that allows people to pay rent. Lots of just weird moving parts, unpredictable nature, things you wouldn't just expect to see during a typical downturn.

Tracy Alloway (1:50)

Yeah. I mean, moving parts is the right way to describe it because one of the interesting things about the real estate market is all of these things are interconnected.

And if one person gets debt relief or some sort of moratorium on paying their rent, it means that a landlord out there is missing out on some sort of income and that can have knock-on effects for things like the bank. So it's not that easy to say, well, everyone's not going to pay their rent or their mortgage for the next few months. That leads to strains in other parts of the system.

Joe Weisenthal (2:24)

Yeah, exactly right. So in theory, it's great to have temporary halts to moratoria, to evictions and to foreclosures. And that's actually arguably been a big part of why the recovery hasn't been slower, why we have had this economic recovery because people who are out of a job have had more spending money, but it creates all kinds of issues. And obviously long-term, what we need is genuine economic recovery and jobs and income. So today we're going to break down what's going on in the real estate market with someone who really has a great view on all these moving parts.

Tracy Alloway (3:03)

Great, let's do it.

Joe Weisenthal (3:04)

All right, so I want to bring in our guest for today. He's Ivan Kaufman. He's the CEO and Chairman of the Arbor Realty Trust.

It's a publicly traded REIT on the New York Stock Exchange with a $1.4 billion market cap.

And they're in all different areas of the real estate market. So Ivan, I want to bring you in. Thanks for joining us. To get us started, why don't you describe the different areas that Arbor Realty plays in?

Ivan Kaufman (3:30)

Sure. Well, first, let me give you a little overview of Arbor Realty Trust. We're a mortgage REIT with a primary focus on multifamily assets. We originate loans for sale to Fannie Mae and Freddie Mac on the multifamily side. And we provide bridge lending and we have about a $5 billion balance sheet. And very fortunately, 80% to 90% of the business we do is in the multifamily sector. And as everybody's been reading, the multifamily sector has really outperformed almost all other asset classes.

And that's really a result of a lot of factors. Of course, the CARES Act, which we'll touch upon later on, and the supplemental payments have allowed the renters to continue to make their payments. And the positive domino aspect of that is when they make their payments, people make their mortgage payments and the system works.

So that's been a very, very positive aspect of what's taken place on the multifamily side. With respect to other asset class participations, we'll get into that a little bit later. But the office market, the retail market, industrial, hospitality, those are other asset classes which we participate in, but to a lesser degree.

Tracy Alloway (4:48)

Well, can you give us some color on how that sector has actually been doing over the past few months? I know you're primarily invested in multifamily, but what have you observed in retail and commercial real estate in the particularly troubled sectors?