FULL TRANSCRIPT
Slava Rubin (00:00)
In this episode of Smart Humans, we talk with Charles Clinton, who's the co-founder and CEO of Equity Multiple. We talk to him about the world of real estate, what is happening with interest rate, and what is happening with different markets and different types of real estate. Should you be getting in now? Should you wait? Which geography should you invest into? And which types of real estate investments are right for you today? And of course, we ask him for his predictions for three years out.
Slava (00:52)
I am excited to tell you all about AIR Insider, the private market investor's unfair advantage. Every week, you get public and private market investment picks from industry experts like Jason Calacanis Anthony Scaramucci, and of course me. You'll get access to exclusive monthly briefings as well. Right now, we are offering the first year at 50 % off, which is less than $10 per month. We've also partnered with some of the best investment platforms and tools and gotten our members thousands of dollars of offers and discounts.
This includes $50 of free stock from public, up to $250 of free investment credit from percent, and up to $1,000 of free gold from Argo, and a whole lot more. All of this for just under $10 per month. You can sign up at withvincent.com/insider. Again, that's withvincent.com/insider. Invest like an insider.
Slava Rubin (01:43)
Hello and welcome to the latest episode of Smart Humans. I am super excited for today's guest. We have an expert in all things real estate. We're gonna be talking about where the market's at, where it's headed, and how you could be investing into this space. We have Charles Clinton, co-founder and CEO of Equity Multiple. Welcome Charles to the show.
Charles Clinton (02:02)
Hey Slava, good to be here.
Slava Rubin (02:04)
Absolutely, so we always get started in the same place with everybody, which is how did you ever even enter into this world? Meaning take us back as far as much as you'd like, whether it's childhood, college, wherever you started the impetus of how you landed into this spot.
Charles Clinton (02:19)
Yeah, yeah, absolutely. So my path was a little circuitous, I'd say. I grew up in a house that was not investment savvy. I did not grow up with basic financial literacy, kind of accumulated it over the course of college and post-college life. And like many people who are ambitious but don't know exactly what they want to do, I ended up in law school. And came out of law school, went to work at one of the big white shoe firms in New York, Simpson Thacher.
and you know, somewhat arbitrarily, I would say I picked the real estate group. my only connection to real estate is growing up in New York city and being surrounded by big buildings all the time. think something just gets in your blood to appreciate real estate. but it was a great, it was a great landing place. you know, the firm basically worked with all the best private equity firms. So Blackstone, KKR, Carlisle, you know, really kind of high end sexy sort of transactions.
which I liked, which was interesting, but what I realized pretty quickly is I didn't like being a lawyer. So I thought about how do I get to the other side of the house? And the way I started was going out into deep Brooklyn on the weekends with a few friends and looking at little tiny multifamily buildings and trying to figure out what we could buy. And, we realized pretty quickly that, you know, working
the ungodly hours of a young corporate lawyer and trying to be a landlord didn't line up too well. But what that taught me was, look, people want to invest in real estate, but it's hard. It's not actually easy to do. You can invest in public REITs, but market goes up, REITs go up, markets goes down, REITs go down. It doesn't really have the true flavor of private market real estate investing in ownership and tax benefits associated with it. So, you know, look, I...
if anyone should have been able to figure out a way to invest in real estate at someone who's basically working with Blackstone every day, but I couldn't. And around the same time, because I just didn't have access, I didn't know, you know, it's not like I could go up to someone at Blackstone and say, can I put 50 grand into your $2 billion transaction? You know, that whole world of private real estate investing is basically was word of mouth and, you know, know someone and at
Slava Rubin (04:07)
Sorry, you couldn't because you didn't have the network. Right.
Charles Clinton (04:26)
country club that was really the industry for a long, time. Then the jobs act happened in 2013 and, basically let businesses like Equity Multiple go online, start to market these private investments to individual investors and open up that access. So, you know, look, the lawyer part of me definitely said change in law, something big is going to happen out of this. Go and give it a try. And I linked up.
with a friend that I knew from the real estate world, Marious Sjulsen and he was in real estate private equity on the buy side for a long time. So we had good kind of complimentary skills to get started. And yeah, we started back in 2015. So it's been a 10-year journey, a 10-year maturation of the business. And here I am today, and we've done maybe 240 transactions. We've had
700 million invested through the platform. We've invested into over five billion of real estate. It's been an exciting ride.
Slava Rubin (05:29)
Amazing, so you went straight from law school to being a lawyer on real estate to seeing the pain yourself, wanting to get access, didn't have the access, so you were just like, let's do it, let's start it. ⁓
Charles Clinton (05:39)
Absolutely, absolutely.
I mean, it sounds pretty dumb when you put it that way, but, you know, I made the jump.
Slava Rubin (05:45)
No, it's one of the more linear paths that we've actually had on the show. So it all is actually very logical. Now, let's talk about you personally in terms of your net worth. Obviously, you have a lot of probably your own net worth in your company. So let's just put that aside and let's talk about how you like to invest the rest of your money. So, you know, because we here like to talk about all-time investments. So I'm guessing you probably put a little bit into real estate or maybe you're going to say you put all of it into real estate.
Charles Clinton (05:47)
Ha ha ha ha.
Slava Rubin (06:10)
So let's start at the top level, which is, you know, the classic move is 60-40 equities, bonds, zero alts. So what's your percentage? Is it 60-40-0 or is it 0-40-60? Just what's the first high level number of equities, bonds, all things alternative? And obviously all your real estate would be an all things alternative.
Charles Clinton (06:25)
Ow.
That's
Yeah, that's a great question. I'm over 50 % into real estate, into alternative. And then I'm very light on bonds. I have some through retirement accounts, but basically equities in real estate. And from an equities perspective, I'll dabble in individual companies. But really, I take the view that the market is the best thing to invest in. Most of what I'm in is, it's VU.
S &P 500 indexes and that kind of thing. And, you know, look, think you really, my view is you really have to be dialed into something to have an advantage. And you look at all the data and it says most people don't beat the market. So, you know, my view is I know about real estate, have a ton of experience in it. So that's the place to make more of my individual bets. And then the rest of it is let's bet on the, you know, greatest asset the world's ever seen, which is the U.S. economy.
Slava Rubin (07:26)
No, so you're about 50 or let's call it your 45, 550. Is that right? Which is like 45. And the 45, the equities, you're keeping it nice and simple. You're indexing it. You're not doing stock picking.
Charles Clinton (07:34)
I'd say that's about right, yeah.
Yeah, yeah, I mean, I'll do some one off stuff, especially look, the market's been so nuts, you know, definitely got a little more adventurous over the over the last few months. But even then, right, like my idea of buying the dip is I want to buy the an index at a dip ideally. you know, there's obviously areas where you just have a little bit more insight or feel like you do. And I'm happy to make a couple smaller bets in those.
Slava Rubin (08:07)
And then in the alternatives, if that was 100 % and you sliced it up, is it 100 % of your 100 % is real estate or do you have any slices in the other alts, i.e. crypto, art, collectibles, private credit, pre-IPO venture outside your company?
Charles Clinton (08:25)
I'm 100 % real estate. ⁓ Look, I got to put my money where my mouth is. I have, of course, many friends who tell me what an idiot I am for not having some exposure to crypto and, of course, get pushed on putting a few bucks into the other asset classes you mentioned. But look, like I said, my general thesis is real estate, one, it's not a home run category, but you can hit.
Slava Rubin (08:27)
Nice.
Charles Clinton (08:50)
singles, doubles, and you'll get a triple, maybe a home run sometimes. And that's, look, I'm making a big enough bet on startup stock, though I guess maybe not quite a startup after 10 years. But you know, that's, I have a lot of concentration in basically a risk asset already. So I look at real estate as something that's a nice hedge against what I'm doing on the equity side, has a different kind of profile from a cashflow perspective. And you know, that's how I like to construct it, at least now.
Slava Rubin (08:57)
Of course.
Charles Clinton (09:16)
We'll see in five or ten years.
Slava Rubin (09:19)
In the equity side, you're doing indexing, if I'm correct, on the alternative side, inside the real estate, you're doing quote unquote real estate picking, meaning you're not doing that REIT, you're doing one asset at a time. So it's the exact opposite of your perspective. Yeah, so that's really interesting. So can you do that?
Charles Clinton (09:30)
The exact opposite.
But look, guess
one thing I'll say there is I do go for diversification, right? I'm not putting in all my chips into one basket. I think just like we preach to our investors, build diversification. Even if you're picking one deal at a time, you can still build a diversified portfolio that way. You just have more control over it.
Slava Rubin (09:53)
How many investments do you need to have to feel diversified in your opinion in real estate?
Charles Clinton (09:59)
It's a good question. mean, I think I would look at, optimally, you're looking at like 10 probably. You you start to feel diversified probably at five. But you know, we look at our investor portfolios and the people who have the lowest volatility, of course. It's all just the math of having more investments.
Slava Rubin (10:18)
Great, and just because so many people love to talk about crypto, I have to ask, know, crypto's BTC Bitcoin is over 100K right now. It doesn't sound like you have much exposure there. I'm sure somebody's told you maybe you should put in some exposure and I'm sure you've made a decision multiple times as to what you're gonna do there. Can you just give a little bit more thought as to what you're thinking related to Bitcoin for the listener?
Charles Clinton (10:39)
Yeah, look,
think Warren Buffett's view definitely seeped into my brain a little bit, which is when I can't tie the value when it feels like this is based purely on trust. Well, you know, look, like gold in many ways. So it's not to say those trust assets can't be sustainable. But it's just harder for me to have a long-term view because I think ultimately it's tied primarily to consumer sentiment, right?
and without, if I were, if I were deeper into the Bitcoin market, if I understood the underpinnings of it a little better, I'd feel more comfortable. but that's not my area of expertise and you know, I probably should have some amount in candidly. but, not buying in at a hundred.
Slava Rubin (11:22)
So I know you're not on the show to ask for any investment advice, but I would suggest, given your mix right now, that you should take 2 % of your net worth, which if you had a dollar and you lost two cents on the street, you might not notice it. And you should put that into Bitcoin, even at 100. It might go down to 50, but there is a decent chance in the next 15, 20 years it's gonna hit a million, if not significantly more.
And I do think it's a good diversification for you, especially given the two assets you already have mostly. But that will be the end of my suggestions.
Charles Clinton (11:52)
No, no,
look, I will say you are correct. I will follow your advice. I might try to wait for a little bit of a dip, but I know I should have some money in there.
Slava Rubin (12:01)
I mean, you should just DCA in dollar cost average in. I don't think you should overthink it. Like I said, it's such a volatile asset that if you lose all 2 % and it goes down to zero, you're probably not really going to notice it that badly. But if you do 10 exit or who knows maybe even more, all of a sudden it's one fifth, if not greater of your entire net worth, which is kind of interesting for just the 2 % position.
Charles Clinton (12:14)
But the upside.
Now, 100%, I have a buddy who lives out in San Francisco, maybe unsurprisingly, who's gone 100 % into primarily Bitcoin, but spread through a couple other Bitcoins too. And he's built AI agents to manage his portfolio. So they do all active trading for him. And he's, of course, been very evangelical to me. In a way, maybe I feel more scared after talking to him than I did before.
Slava Rubin (12:48)
Well, that sounds a little crazy.
That sounds crazy because that's very high risk and that obviously can have massive implications on your overall portfolio. I'm suggesting.
Charles Clinton (12:50)
He's a little crazy. He's a little crazy.
he
plays in the World Series of Poker too, so you know, if this paints a picture.
Slava Rubin (13:00)
Right.
Exactly. Exactly. I mean, you're 50 % in indexes and 50 % in real estate. So I doubt you want to be all in on crypto, but I do think if you put 2 % in, know, lock the keys away, quote unquote, close your eyes, don't really look at it and just at minimum, minimum. Exactly. Okay. So let's move on to the next question, which is, uh, write up your allies. gonna be a big question. You can take it wherever you want, which is where are we at right now in the market?
Charles Clinton (13:17)
Think about it in a decade. Yeah. Yeah.
Slava Rubin (13:30)
And what I mean by that, we're talking stock market, we're talking real estate market, we're talking inflation, jobs, we're talking tariffs, we're talking economy, we're talking global, macro, everything. Just take it wherever you want to take it, say anything you want about any perspective. We just want to hear the Charles Clinton perspective.
Charles Clinton (13:46)
Yeah, yeah, absolutely. I mean, as you imagine, I spend a ton of time thinking about this. think the candid answer for everyone is who the hell knows, given how much rapid change there's been over the last five, six months. But look, I think that the worst version of events, which was a month or two ago, trade war, especially with China, but really we're going against
all of our ostensible allies too. That was a big shock to the market, obviously. That was a great short-term buying opportunity. And it feels like the gas is out of that car right now. That there's positive momentum to reconciling to something that maybe is different than it was six or 12 months ago, but is more in line with the existing system. It's not trying to break the system. It's trying to
a little bit more to the American agenda. And I think for most businesses and most investors, you know, that's really the preferred outcome, right? I mean, you for me, certainly as a business owner, predictability is the name of the game. I think that stocks as a whole are overvalued. I think that the dip we saw in response to tariffs, you know, it came in response to tariffs, but really,
You could also say it was just the beginning of a normalization of multiples. So, you know, I looked at that as a time to buy in, put some additional cash into equities, but I'm not convinced that our ride in equities is done. You know, I think there's a lot of factors. It's what impact tariffs actually have on inflation, what our growth prospects end up being.
and you know, ultimately like what's the performance level, especially of the, of the top seven companies which are driving, you know, candidly too much of market performance right now. I think that the next fed meeting for interest rates is going to be really interesting and important. look, the, the inflation data came in, came in cool. The last inflation data, I think kind of defied expectations, you know, coming in at, 2.3%.
No tariff impact is in that data yet because it's backward looking. I think what tariffs do is still pretty TBD. I mean, I've read a lot about it, but given how much the tariff environment has shifted, how rapidly, I don't think anyone has a good handle yet on what the actual impact to consumer pricing is going to be and where exactly that's going to be felt. So I would expect it's going to have some kind of price pressure.
but with inflation data coming in cool and the federal reserve certainly mindful of the job picture, which has been uneven, you know, some months it's discouraging, some months it's a little more encouraging. there might be enough room for, you know, the, the fed to lower interest rates, you know, sometime in, in mid year or in the third quarter. which, know, three months ago, I would've said there's, there's no chance in hell of that happening. so.
You know, moving out into real estate, look, obviously lower interest rates are good for growth across the economy. It's good for consumers. It's good for consumer spending, which powers so much of American growth. But for real estate specifically, it's obviously a great thing. you know, interest rates really, really hurt the market. It hurt valuations. It hurt just the number of transactions happening. But since the first interest rate drop in September,
things have definitely improved from just a transaction velocity perspective, you know, look, the market's been down so long that at some point sellers have to sell, especially if there's no, Hey, rates are going to drop to 1 % and we're going to get saved. So the market's definitely been better over the last six to nine months. ⁓ the real estate market. Yeah. Yeah. And, you know, I think we're, what we're seeing that's really important is we're seeing.
Slava Rubin (17:27)
market being the real estate market. Yeah.
Charles Clinton (17:35)
properties trade for the price that they should given where interest rates are. For a long time, the sellers were saying, no, I want to sell for the same price. I could have sold that in 2021, but when interest rates go up, that's not the price anymore. Now, sales prices are down. So we've really tried to be as active as we can because we feel like we're buying in at a good valuation. And looking out in three or four years, the really interesting thing is
interest rates come down, that's not just giving you better cash flow in real estate. Really, that's giving you a better valuation, right? So interest rates come down, cap rates come down, valuations go up. So you really could be entering this environment, which has not existed since 2010, 2012, where you buy in at one interest environment, you exit at another, and as a result, you're getting this valuation pop that really isn't tied to the NOI and performance of the underlying investment.
That's what has us really excited on the equity side. We were really cautious on the equity side for the last few years, but we've really dived back into real estate equities. And then look, we like real estate bridge lending too. With rates high, you can just lend at rates that you haven't been able to lend at in 10 years. So we continue to like that vertical for fixed income, but.
You know, real estate equities, I'm excited to, you know, kind of plow more into that because we're off the bottom. And I think that there's less uncertainty in real estate than there is in, you know, the stock market and in some ways the broader economy.
Slava Rubin (19:14)
So lots of good thoughts there. You gave us some general directions. I'm gonna put you on the spot though.
Charles have to say about specific questions. So recession next six to 12 months. Yes or no.
Charles Clinton (19:26)
I mean, two months ago, I would have said, yes, definitely. Now I would say we're 50-50.
Slava Rubin (19:33)
Got it. How about what's happening with inflation? You think it's that 2.3 cool number is going to be cool and it's going to be a potential we got to be worried about prices coming down or is it the opposite? think tariffs are going to be hitting soon and who knows what's happening and inflation going to be happening over the next six to 12 months.
Charles Clinton (19:52)
I think it's going to tick up, but it's not going to spike.
Slava Rubin (19:57)
So you don't think that it's coming down significantly, but it's gonna stabilize.
Charles Clinton (20:01)
Yeah, no, I look I think it's going to go up in the short term because of tariffs, but it's not going to we're not going to see 5%. You know, I mean, the hell we saw as high as 789 % before, but I think it'll go up from I think 2.3 is going to look like the floor for right now. Tariffs will send it up and then I think we'll see a normalizing track once the market, you know, absorbs the new normal from a tariff perspective.
Slava Rubin (20:04)
Because of tariffs. Right.
And you gave us some direction on rates, be a little bit more specific. You said the next meeting, but give me your crystal ball. Obviously this is an investment advice, but it's for the sake of the show. What's happening in the next six to 12 months on rates?
Charles Clinton (20:38)
Yeah, I would project we have two to three rate decreases this year. think two is probably what I would peg. I think there is real estate recession and interest rates. There's a little bit of a mixed bag in there for the economy and for real estate in particular. Recession is not good because people have less money to spend, but interest rates will drop faster.
I think that we're, I don't have a solid view that we're gonna plunge anywhere bad. I feel like the fundamentals are pretty good. Could we have some kind of near-term recession that's not a deep one? Absolutely. But I think we're gonna see moderate, you know, kind of gradual declining of interest rates, unless something unexpected happens.
Slava Rubin (21:18)
So just to be a little provocative for the sake of discussion here, do you think a few months out because of this, let's call it not too hot, not too cool, starting to maybe come down a little bit, do we start getting into Goldilocks? Does it start getting like kind of exciting where it's almost like too good to be true? Cause it's just nice and steady and not too hot.
Charles Clinton (21:38)
Yeah, look, I think that that's obviously the scenario that everyone was saying. Look, the soft landing is coming. Somehow the Fed has executed this thing. Tariffs have thrown a huge wrench in that. Given that tariffs have scaled, look, just feel like my gut is the final product on tariffs is not going to be massively impactful to the economy one way or the other.
Slava Rubin (21:50)
Totally.
Charles Clinton (22:01)
I of course could be wrong. There's a lot of unpredictability. There's a lot of posturing, it's negotiations, I get that. But given the track of this, which is let's light the world on fire, and now it's deal mode, it feels like this is not going to be as disruptive. And there's at least a chance that the plane can land in something that doesn't look like, hey, maybe we're not jumping into high growth, but we're not looking at anything major in terms of recession risk.
Slava Rubin (22:28)
All right, great. Let's talk about your company. So you already gave us some high level numbers. You kind of foreshadowed it already. So I think you said 240 transactions, $700 million of investment over $5 billion of real estate that you all have invested into. Those numbers are huge. You've been around for about a decade. Obviously a lot of people know who you are, but not everybody. So can you start from the beginning? Like what is Equity Multiple? Who uses it? What's it for?
Charles Clinton (22:55)
Yeah, we're an online real estate investment platform for accredited investors. know, fundamentally, we want to make investing in real estate as easy as investing in stocks and bonds. our experience is going to be very akin to a brokerage account. You sign up, you create an account, you link your bank account, and then you log on and you see investments. And we bucket our investments, you know, roughly into the concept of stocks and bonds, right? So we have
fixed income, might be bridge lending in real estate. And then we have equities, which are going to be a kind of three to five year business plan, you know, going for going for a higher return. And, you know, look, just like managing a portfolio, right, we encourage diversification. So we have low minimums, as low as $5,000 on some products, more typical is probably 15,000. But really, we're trying to facilitate building a portfolio with us and
On average, our investors have invested six times or so a piece with us. Our investing 25 or $30,000 at a clip. There's a huge range, obviously.
Slava Rubin (24:01)
Sorry, 25 times six or six equals one.
Charles Clinton (24:03)
Yeah, 20,
25 or 30 times six. Yeah. Yeah. Yeah. So, you know, we're, we're, we're obviously proud of that. Um, and we think that is the right way for people to build. You know, we keep pushing that number used to be four per an investor. Now we've seen it grow to six. I mean, as I said, I would love to see it at 10. Um, but you know, it's, it's, we're keeping those minimums low. We're offering a range of investment types. The other is, um, we have
Slava Rubin (24:06)
Wow, that's an amazing average.
Charles Clinton (24:31)
fund options, It's set it and forget it and invest in something diversified. And then we have individual property options. And we have that in both equity and we have that that in debt. have variety of property types. You know, I can get a little more into that later. But, you know, really, we're we're using our credit hats as investors to pick these investments. You know, we're picking 5 % of the investments we see try to curate that for you.
But ultimately, it's up to the investor to decide what particular investments they want in their portfolio.
Slava Rubin (25:00)
Got it, so I have to be accredited. This is a real estate opportunity. I could get into the equity side of the real estate, which is a bit more risky, or I could get into kind of the fixed income version of the equity, which a little bit less upside, but more kind of a guaranteed annual amount. I need to put in at least 5K into some of the products. And you said some of the products, I might have to do 15K, is that right?
Charles Clinton (25:22)
Yeah, yeah, I'd say our lowest is 5 and highest is probably 25 or 30.
Slava Rubin (25:27)
So if I go onto the site, there's going to be a bunch of options. So are there fund options where I don't have to do the, let's call it the stock picking, meaning the real estate picking, or is it all picking?
Charles Clinton (25:41)
Yeah, now we have we have fund options as well. So we have on the bridge lending side on the fixed income side, we have a fund called the Ascent Fund. So that is, you know, just focused on on bridge lending, focused on giving a current cash distribution. And then on the equity side, we don't have a permanent fund yet. We're planning to, you know, launch that in the future. But we do have
We'll have some funds from third party sponsors. We might have a self-storage fund or multifamily fund. And then we also have some portfolios. So five multifamily properties, five industrial properties. The portfolio is already built for you. You don't have to do anything.
Slava Rubin (26:18)
Got it. And I know you can't guarantee results, but what kind of results are we talking about in terms of like this debt fund or getting into a diversified portfolio of like these equities or these debt plays?
Charles Clinton (26:31)
Yeah, so we're targeting like a 10 to 12 % current return on the fixed income side, on the debt side. Generally, we're targeting kind of high teens and above total. These are annualized returns, total annualized returns on equities. And some of that will, on equity, some of that will come through cash flow, but a lot of it also will be realized upon sale.
Slava Rubin (26:52)
Amazing. are these all real estate that you're managing or is it that you're picking that somebody else is managing and you're saying these are good choices that they deserve to be on our platform?
Charles Clinton (27:02)
Yeah, it's a little bit of both is the answer. we do have some competitors who are pure marketplaces. They will list an investment from a third party sponsor. The sponsor does everything. The sponsor reports to you. At least, hopefully, they do. Our model is a little bit of a hybrid, where we also act as an asset manager. So we always work with third party operators.
So we'll find, you know, people who are specialized in industrial or in self storage or in multifamily. And they'll be, they're bringing us the investment. We're underwriting the investment, but most of the time we're also, you know, a partner in the investment. So if something needs to happen, you know, if they want to refinance, if they want to sell, if they want to change the budget, we have say so in that. So we have a internal asset management team.
It's led by a guy who spent two decades in the institutional real estate world. So they're monitoring the portfolio. They're involved in major decisions where they need to be. They're the ones doing reporting to investors on a quarterly basis. So we're not buying and holding the real estate ourselves, but we're very much involved in the project.
Slava Rubin (28:13)
So let's say I'm new to real estate investing or I'll just be that proxy myself. I don't have much real estate investments. Why should I get into real estate? More importantly, why should I go through you guys and invest through you guys? how should I think about using your platform to diversify my portfolio?
Charles Clinton (28:28)
Yeah, yeah, absolutely. Look, I think that for investors who don't have alternatives as a big part of their portfolio, real estate's a really common place to start. And there's a variety of reasons. You know, there's jargon in real estate, but at its core, real estate is something that's pretty simple and that we interact with every single day. And it's, you know, people pay rent and you have pretty basic expenses, right? It's sort of a, it's a P &L.
that people can get up to speed and understand pretty quickly, which is, think, nice from a new entry perspective. The other thing is the profile, right? So, know, real estate's really known for being a combination of cash flow driven and value appreciation. And, you know, that is something that can be complementary to what you have in stocks and bonds, particularly in today's market. You know, your distributions coming off of your S &P stocks are
you know, gonna be pretty marginal while you could have a more even split in terms of how you're making your return in real estate. So I think, you know, those are some of the core benefits. The other piece is tax. So you get depreciation benefits. If you're an equity investor, we've set up all of our investments in equity to pass on those depreciation investments. So basically you can shield some of your income coming off of that real estate if you make that 6 % return.
A lot of the times you're not paying any tax on that in that year because you get deferral because of depreciation benefits. So, you know, it's just a different kind of profile that is a nice way to diversify because of that different profile and also just a nice educational entry point for a lot of folks. In terms of us in particular, look, I think we offer a couple things. We offer
education and transparency on the upfront. you know, we want you to get up the learning curve and we try to help you do that. And you'll get a lot of resources from us. We have people available to speak on the phone. We have a 10 year track record. You know, we have really institutionalized an old fashioned business of doing these, you know, kind of club deals. And, you know, look, I think the standardization and visibility
is really the major benefit. And for us in particular, we also offer these diversifications, benefits, and the main active management that I think not a lot of our competitors can. So you can really know that we're doing a lot of the heavy lifting for you. making this easy. And you can monitor your portfolio. You can understand it. It's not a black box, which is what real estate investing looked like 10 years ago when we started this.
Slava Rubin (31:03)
And you mentioned that it's targeting like 10 to 12 % on the debt returns from the fund or high teams for the equities. Is that including fees or not including fees and what are your fees?
Charles Clinton (31:12)
Yeah,
that's net of fees. So generally, the only investor fee that we charge is an annual asset management fee that's typically 1%. That's taken out of distributions. And then we also make transaction fees when the investment closes. And sometimes we'll make fees from the borrower or the sponsor, basically upon success of the project.
So we try to align our interests in terms of how we're making money and try to, again, that fee that's really the investor fee is a 1 % annual.
Slava Rubin (31:49)
So you had a lot of perspective on the macro and the market. How about the specific real estate opportunities? So what would you be guiding our listeners right now? What do you like? What do you not like? And what I mean by that, give me two geos that you like, two geos that you don't like.
Charles Clinton (32:05)
Yeah, yeah, absolutely. So I would say we, you know, we can, we're a little shy on some of the Florida markets that we were bullish on a few years ago. So, you know, there's just a ton of weather exposure and insurance cost exposure that I think is really tough right now. ⁓ You know, despite
Slava Rubin (32:25)
So you're
short Florida right now.
Charles Clinton (32:28)
Yeah, look, think it depends on the exact location and it depends on the property type. ⁓ But say Tampa Bay, right? You've seen major weather events there that are extremely disruptive. Obviously, on the other coast, you've seen the same thing. So you've got to be really selective and you've got to be really smart about your insurance costs in particular, really mindful of that stuff. We are, similarly, think we're
Slava Rubin (32:33)
Of course, of course.
Charles Clinton (32:53)
Honestly, a lot of this comes down to the particular property type. We have been really anti California. You know, I think there's there's a case for San Francisco now that it's, you know, gone through such a shock, but it's a really hard place to do business in. There's a ton of regulation. The laws change. They can affect your ability to charge market rents.
the, really it's the, the economy and political environment, I think that may get challenging rather than, you know, necessarily the growth prospects of the state long-term. in terms of markets we like, we like Texas. so Texas has had, a lot of people when, when bust in Texas, a lot of syndicators went bust in Texas and that's created a lot of good opportunity. And you have to be careful in Texas cause it's so easy to build new.
Slava Rubin (33:26)
Yeah.
Charles Clinton (33:39)
but there's so much demographic movement in texas. People are always moving to Texas which is, obviously just core to real estate, right? More people come in demand grows. so we have long been texas folks. We continue to invest there. and then I would say one where we're, we're, we're bucking the trend a little bit. A lot of people have been anti New York. but you know, this is our backyard and we have a lot more visibility into it and
You know, I think every time that there's been a New York is dead case, which has happened, you know, three or four times over the last 20 or 25 years, it's always proved incredibly resilient. and look, there's particular political risks here too, no doubt. but if you're in the right property type, the stability, the liquidity of the market, the amount of institutional capital that wants to participate across the globe, you know, those are factors that are not going to unwind.
So if you can buy in cheap, because other people aren't into it, New York is still an interesting place for us.
Slava Rubin (34:36)
So New York is New York City, not New York State.
Charles Clinton (34:38)
Yeah, New York City. New York City, look, on a personal basis, you know, it's hard to get much that's like scaled, that makes sense, you know. I think that there's markets that are upstate that if you want to donate an Airbnb are pretty interesting. But, you know, for us, that's more on the commercial side. We really are New York City focused.
Slava Rubin (34:56)
You mentioned the real estate type a few times. So give me some perspective there. Give me two or three pluses, two or three minuses. What do you like? What are you not like?
Charles Clinton (35:05)
Yeah. So look, we always are long housing. There's definitely markets where they built too much housing in the last cycle, but we're chronically unsupplied in the country as a whole. And then even in the markets that got overbuilt, the interesting thing we're seeing now is interest rates went up, people slammed on the brakes of new construction. So, you know, there's just less inventory coming on. Now those apartments that were overbuilt before starting to fill up.
so, you know, there's, have views on, Hey, look, Philadelphia, for example, they got overbuilt. It's probably going to be another year or two before that rent growth starts to grow again. but in a lot of places, they're just is, is national under supply and multifamilies really emerged as the most core institutional asset class too, which is just good for maintaining price stability. so we always like multi, we like small Bay industrial.
so different set of reasons, you know, ton of mom and pop owners in small Bay industrial who are just, you know, under utilizing space, don't want to put any money into it. you know, even if it's getting a big rent bump, maybe they don't know that, you know, they're charging too little in rent. if they gave a tenant 400,000 bucks to fix up the space, they would pay $10 more. but we've seen good results there. and of course, you know, the continuing growth of logistics.
e-commerce and you know I think it's yet to be seen what happens with this but if there is any real movement over the next four to eight years because of political industrial policy and reshoring you know that is that is kind of on written upside into the industrial category. The interesting one is office it's the one on everyone's everyone's lips. ⁓
Slava Rubin (36:48)
Sorry, is office
an up or down?
Charles Clinton (36:52)
It's a deal by deal, block by block, market by market. So we were a hard no on office until recently. Felt like it was a falling knife and didn't know where it was going to land. Valuations are way down. We've seen individual properties, the valuations go down by 80%, depending on where you are. And some markets are just never going to go back to where they were.
on the other hand, some markets have been more resilient, and you're still getting massive discounts. So I'll give you a more specific example. We just, we just participated in, in office deal in, in long Island. you know, tour close to the city. but it was purchase or the, was purchased for around a hundred million, by the, by the last, by the seller. they put some more money into it.
It's close to 90 % occupied. The occupancy in the market is strong. COVID, it wasn't really the same impact there as it was in New York City. Not everyone was worried about wearing their masks every day. You didn't see the huge fall off, even though it's only 20, 30 miles away. And the purchase price on that, purchased through the bank because of foreclosure, is $40 million. So you're looking at a 60 % discount off of something that
is produce, you know, it was producing stable cash flows. It just was over levered. They couldn't sell for that price. and now you're stepping into something that has great cash profile right away. and obviously if there's market recovery in terms of how people view office, which were optimistic there's going to be, cause they can't get much lower than this. there's a real upside case. So I'd say with offices, it's your high risk. It's your high, you know, variance.
Play right now. It's that's where people will make the most money in real estate in this cycle. I think But obviously there's going to be some losers there,
Slava Rubin (38:45)
What are the things you're trying to stay away from?
Charles Clinton (38:48)
So look, I would say it's in part its office. I think that we are really selective on retail. There's some forms of retail in the right location that that makes sense. But real retail had a surge back after everyone thought it was dead. And I don't know how much wind is left in the sails for retail as a whole. I mean, you see
so much bad activity with the large scale retailers. Smaller retail is holding up better. you're sort of, in some cases, maybe it's a grocery store and a bunch of small stores around it that are local stores. That stuff's doing okay. But with the pressure on kind of big box of all sorts across the board, I think it's hard to know what that space becomes and what the values are there.
Slava Rubin (39:33)
All right, you've given us a lot to think about, a lot of good information. Anything else you want to cover on real estate or Equity Multiple?
Charles Clinton (39:39)
No, no, I've yapped on long enough. Let's do something else.
Slava Rubin (39:42)
All right, so obviously we all wanna be as smart as you, as knowledgeable as you in this space. What do you like to listen to? What do you like to watch? What do you like to read? What informs you? Just give us a few examples of that sort of content.
Charles Clinton (39:54)
Yeah, so I'm a stalwart news person. So I read just about everything that comes through my feed. And I feel like staying very, very up to the moment's just essential for what I do. do some podcasts. love, what's a couple? like Plain English a lot, if you know that one with Derek Thompson from the Atlantic.
In general, I'm doing not real estate focused kind of stuff. I'm really trying to get broad view, understand what's happening in the world, understand what's happening in the economies, listen to smart people. there's, there's, you guys obviously run a great podcast, but you know, I love the long form interview podcasts. and honestly, the, thing that's changed most about my consumption of information over the last six or 12 months is, is AI.
so it's not filling in the bucket for news, but the way I search for information is just totally and irreversibly changed. I, you know, Google, if I need to find a website, if I need to find out information, I'm on, I'm on chat, GPT. If I need to learn about something, I'm asking chat, GPT to structure me a lesson plan. so, Hey, what book should I read on this? What articles should I read on this? What should I listen to about this? It's an incredible resource for that particular task.
And of course, just summarizing complex information and making it quick. So that is the biggest change that's happened over the last six or 12 months. It's honestly, in terms of my just self-education, it's gone from zero to the majority over the last six to 12 months.
Slava Rubin (41:27)
So that's a great learning. Can you give us an example just for the listeners? So what does that mean? Chat GPT creates a lesson plan for you. Can you give an example that you did recently where what you used it for and exactly how did you use it?
Charles Clinton (41:38)
Yeah, I mean, so, you know, this is a really in the weeds one, but we were we're we're looking at a different type of real estate investment vehicle. Basically, it's a it's a type of tax deferred vehicle where people can contribute properties into a fund tax free and then own interest in the fund. So, you know, I heard a little I heard about a business doing this given the way we're situated. We have a bunch of properties already.
We're in, we work with a ton of operators. We also have a partnership with Marcus and Millichap, which is, you know, the largest commercial brokerage by number of transactions in the country. And they're doing a ton of these sub 20 or $30 million transactions. So, you know, I knew about this, but it's really, it's tax driven. It's complicated. It's nuance. If I call our lawyer about it, you know, it's going to be three weeks and $20,000 to get to a basic level of education.
So I plugged into chat GPT, you know, here's what I'm thinking. This is what I want to get smart on. What are, what are the, what are the pitfalls? What are the opportunities? What's the competitive set? Give me resources. and you know, it spat out a 10 page summary of all the complexities of it. It's gave me 20 links to follow to get more in depth on a particular thing. Can't say there's any podcast covering that topic. So I didn't get any recommendations there. but.
You know, it's really anything you can think of, you can get it to educate you and educate you rapidly.
Slava Rubin (43:04)
Did you recall how you had to structure the prompt to get you the answers you needed or do you have to try a few times to get where you needed?
Charles Clinton (43:10)
So I use the prompt, give me a lesson plan. sometimes I'll start with, here's what I know about this. Give me some basic information about it. And what am I not thinking about? And that'll start to build. then I think.
Slava Rubin (43:25)
Awesome.
Charles Clinton (43:30)
Chat GPT, when I first used it, the prompt game is unfamiliar. And then just like using Google, you kind of figure out what the native language is pretty quickly. So I would encourage everyone who's not using that as their Google alternative to get on board, because it's the future.
Slava Rubin (43:48)
Amazing. Well, we have covered quite a bit, Charles, from you graduating law school, deciding to get into law in real estate and then deciding I have to get on the other side. In 2015, you started Equity Multiple, and obviously it's been an incredible ride. You're very much into real estate on your own, about 50 percent, and you're very much into indexing into equities on the other side. I love that you're pretty much just two completely opposite positions and two completely opposite approaches. You're not into crypto, but who knows, maybe after this podcast, you might get
Charles Clinton (44:18)
You sold me.
Slava Rubin (44:19)
You might get into a little bit of Bitcoin. You do think the
market, the predictability is key. The stocks are overvalued, which was a hot take. The interest rates are coming lower. You're 50-50 on recession. Inflation is, you know, was just at 2.3. We might get a little tick up, but you're not too concerned. And you are thinking maybe two or three rate cuts in the coming quarters. The plane may be able to land, you mentioned. Equity Multiple has done over 240 transactions.
$700 billion of investment and $5 billion of real estate value. Incredible. My favorite part is you already have investors doing six average investments at about 25 to 30K per investment, which is amazing traction and really speaks to the investor coming back and working with you guys. Really interesting returns from 10 to 12 % on your debt fund to potentially high teens on the equities, lots of different options.
We then got into what you like and you don't like, which was really interesting. So, the GEOs like Texas or New York City, you like. Tampa, Florida, or California, you stay away from. There was also the vertical slices. You love housing, you love multifamily. I think that was pretty consistent. The one that was unique was the Small Bay Industrial, which really hot take there, especially with reshoring in America. Office, you're 50-50. You have to really find the right opportunity, like in Long Island. But otherwise, you stay away from office and retail.
You gave us a real good idea about how to use ChatGPT. So if everybody's not already doing that and creating their own lessons for where they need to learn, we learned here from Charles how to do that. Charles, thank you very much.
Charles Clinton (45:49)
Thank you, Slava. You were not kidding when you said you were taking notes.
Slava Rubin (45:53)
Have a good day.
