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Episode #21: What is Millionacres with Austin Smith

In this episode, Millionacres Editor, Deidre Woollard talks to Millionacres Managing Director Austin Smith about the origin of Millionacres, the Mogul and Real Estate Winners premium services and why 2021 should be great for real estate investors.

Born out of the Motley Fool brand, Millionacres demystifies real estate investing with classically Foolish advice. Millionacres exists to educate and empower investors to make great decisions and achieve success.

Millionacres is a comprehensive resource to help investors of all kinds become more successful with real estate. There's no one-size-fits-all solution; that's why you'll find content on REITs, rental properties, fix-and-flips, financing, commercial crowdfunding, and more on Millionacres.com and why the Millionacres Premium Services are designed to serve many types of real estate investors.

Transcript

Austin Smith: The tide has really suggested that real estate Crowdfunding is going to become more democratized. There's a lot of restrictions around Regulation A. It's a fantastic way for individuals to invest in real estate, but some of the complexities and protections around it now, it can take months to file for Regulation A fund and then, once it's approved, there's a lot of fees that you have to take into these vehicles in order to recover the cost in time. I believe Regulation A filings will become a lot faster and a lot more affordable in lieu to Regulation A funding by individual properties. It's not really feasible today, but I'm really optimistic around that. Everything I'm seeing suggests they want to make real estate investing accessible to individuals and safe for individuals. [MUSIC]

Deidre Woollard: Hello, I'm Deidre Woollard, an editor at Millionacres. Thank you so much for tuning in to the Millionacres podcasts. One of the reasons I studied real estate for so many years is, it is never boring. Land stays the same, but our uses of it are ever-evolving and I'm really interested in real estate, both for its stability but also for its innovation. Today, I'm talking with Austin Smith, who just happens to be the Managing Director of Millionacres and my boss, so no pressure here. Austin is a long-time Motley Fool employee, joining The Fool in 2011 and he's worn many hats along the way. But what most people don't know about him is that he's from a real estate family and he first got his real estate license at the tender age of 19. He's owned rental properties when he was in his 20s. He understands real estate from a variety of angles. He's invested in properties, in REITs, also in crowdfunded commercial projects. So he is the perfect person to discuss the future real estate with. Welcome, Austin.

Austin Smith: Deidre, thank you so much for having me. I actually feel like the pressure is on this side because you're such a talented host. I'll do my best to live up to the standards and the quality of the other previous guests on the podcasts.

Deidre Woollard: [laughs] Well, I think this is going to be fun because you and I love to nerd out about real estate. We're going to start taking a look at the year that was 2020. I mean, so many surprises this year. Is there anything that didn't surprise you?

Austin Smith: Oh my goodness. That list is a lot shorter than the list of things that did surprise me, no doubt. The resilience of multi-family seems like, maybe this is hindsight, but that was not super surprising. It's just an excellent commercial real estate port during economic storms. If we take a look at the public markets, I think the strong performance of Zillow, Redfin, and the insane demand for Airbnb probably could've been predicted even pre-COVID. There are all these phenomenal companies, Airbnb has such strong brand recognition, so much pent-up demand. In the public markets, I think the performance of those three is not surprising. Maybe the magnitude would have caught some people by surprise, but I think we all could have predicted that they would've been strong stocks. In the commercial sector, I mean, nobody can predict interest rates. There does seem to be some surprising, at least for me, price resilience, I would have expected to see far more discounting. Sellers are staying firm, they're waiting for the narrative to shift a little bit. I'd say everything outside of that category was extremely surprising this year.

Deidre Woollard: It's true. We did our wrap-up, our predictions looking forward last year and I think the thing that we got the most right was mortgage rates and also the fact that a lot of retail stores closed, although we had no idea the amount of retail turmoil that was headed our way.

Austin Smith: COVID was just such an accelerant. It's amazing. I feel like a lot of people have said this, but it continues to be true that it looks like it just pulled forward five or so years of performance. If it was going to happen in five years, it just happened this year instead. So we probably saw a massive compression in the retail bankruptcy chain.

Deidre Woollard: Yeah, definitely true. We're going to see a lot more of that in 2021. I wanted to talk a little bit about our Mogul premium service for a minute. Not as a sales pitch here, listeners, but just to explain what it is we do because I think a lot of the listeners, they know about the free Millionacres site, they've probably seen some articles on there, but they may not know about Mogul. So can you explain Mogul to our listeners?

Austin Smith: Yeah. Starting with Mogul is actually the genesis of Millionacres. It's the very first expression we had as a brand. It was designed to be a go-anywhere real estate recommendation service, but not just one that I gave you buy advice, but also one that educated you on the way in typical Motley Fool fashion. So we certainly wanted people to become richer through real estate investing, but smarter and happier as well. So we make a variety of recommendations across REITs, equities, and commercial real estate. We're also bringing a healthy dose of tools and tax optimization since that can be such a distorting factor for real estate investors. We're trying to bring that all together under one roof so that people are coming in with this go-anywhere real estate investing solution, they can start today, they could have joined a year ago, they give very actionable guidance about where to place investments, but then hopefully become more educated and more capable themselves as real estate investors along the way. When we think about why we made Mogul this all-encompassing going to a real estate service, it really just came out at an appreciation for both the opportunity and complexity in real estate investing. We wanted to demystify it as much as possible. So many people know they may want to get investment in real estate, but that might mean 10 different things have 10 different people and it's really hard to understand the breadth of what real estate investment can mean without somebody out there showing you all of the various ways you can get access to this asset class.

Deidre Woollard: The other factor that's great about Mogul is that idea of providing those recommendations on crowdfunded real estate projects because it's still so confusing. People don't really know what they're looking for, and so having someone to break it down and score it for you, I think, has been really valuable.

Austin Smith: Yeah, I mean, you're referring to one of the hallmark features of Mogul, one that I'm so proud that our analyst team has carried forward so well. We score every commercial real estate opportunity we see and we recommend on 100-point scale called our MogulScore. It really helps individuals compare across different asset classes and even across platforms. There's a couple of dozen Crowdfunding platforms where you could put your money to work today, and then within each platform, there's dozens of opportunities, so it's a lot to sift through. But that MogulScore really helps you say, "Hey, this hospitality investment over on RealCrowd, how does that compare to a multi-family investment on CrowdShare?" Or, "How does that compare to a farm opportunity on AcreTrader?" It distills all of those down to a 100-point score so you can see all of our considerations boiled down to one rating and understand it's appropriate for your investment dollar.

Deidre Woollard: It teaches you how to think, and I think that's a really important thing that a lot of the Motley Fool products do, and it's something that we really value. It's great to recommend something. It's better to teach you why we recommend it, so when something comes across your desk that may not have come through Mogul, may be something else, you know what to look for. I think that's really important. I think that education is one of the things that I think is one of the best parts of the Motley Fool.

Austin Smith: We have such a talented team, and Deidre, I think you and I both hold this to be true, but I have learned so much from our analyst team and I've become a better re-invester because of their education, because of their guidance. I've had my eyes open to farmland investing in the opportunity, in the stability that that asset class can provide, something I never would have considered before the Mogul team was out there scouring the Crowdfunding landscape for these opportunities. So I'm really proud of this service and I'm also a user of it. I've learned so much. We have such a talented team. Not only are they great investors, they are also great teachers.

Deidre Woollard: Well, the other thing with Mogul this year, looking back at 2020, we saw that deal flow stop a little bit, and I know our analysts are super strict. So it feels like now that's starting to loosen up. Is that what you are noticing?

Austin Smith: Absolutely. I mean, not just this year, 2021, but going forward for a number of years. I mean, Crowdfunding, it's so promising and so strong. I don't think there's anything that's going to slow it down long term. But there was just so much uncertainty. People weren't sure how to underwrite it. I mean, there's a whole financing side of this or maybe if there was investor appetite for Crowdfunding, these deals just weren't able to get done because of the financing side of it and the banks weren't sure how long COVID would last, or what consequences it would have on industrial versus multi-family. It was a hard asset class to underwrite. So a lot of things slowed that down largely due to uncertainty. I think the investor demand is still there. The deal flow is starting to come back now as the sponsors are able to get financing done as banks are getting more comfortable with different subsectors of commercial real estate. So we're definitely seeing a thawing of the ice. I think 2021 is going to be an extremely interesting year for our Crowdfunding investors.

Deidre Woollard: Let's talk about our analysts a little bit. I mentioned that they are very strict and they are very precise. When you were thinking about putting this team together and you were hiring analysts, what did you look for, and what makes a really good real estate analyst?

Austin Smith: Our origination was as the Motley Fool investment company. So pooling from that DNA, flexibility and willingness to learn. We would so much rather have analysts who are very careful in their research, but willing to bring in new ideas and new genres of coverage. We didn't want to bring in somebody who is so narrowly focused on maybe their subsector, I would say hospitality or industrial or cold storage. They might know that sector cold, but they may not be able to pivot when the best opportunity happens to shift to another sector. So we want to bring in people, first of all, who are great teachers, who have high attention to detail, but who could be flexible and therefore benefit our investors and our members when it made more sense to put more money into multifamily and more money into REITs and to be able to capitalize on those opportunities instead of just being so narrowly focused on one subset or real estate investing.

Deidre Woollard: I think the other factor, too, with Crowdfunding that's different is, you have the deal and you have a lot of people coming into the deal. So there's a lot riding on it versus just making a recommendation. That is, if you're working for a company, it's a recommendation for one institutional investor. In this case, our analysts have to know that they're making this recommendation, that a large pool of people are going to become a part of, and that's a heavy responsibility, in my opinion.

Austin Smith: It is, and it's something that we don't take lightly, and just to indicate, we do put Millionacres capital behind all the deals we recommend, partially so that we can stay apprised of those deals and measure their performance accurately so we don't get information secondhand. But also because we believe in eating our own cooking. I mean, I invest in as many Mogul deals as I can, and our company has afforded us the ability to invest in every single commercial real estate investment we do recommend so that we're right there alongside investors, be committed with our capital. So it is a high responsibility and I hope that by putting our own balance sheet to work there, people will see our conviction in this coverage and this due diligence.

Deidre Woollard: I wanted to also talk about the future of real estate Crowdfunding, and in particular, you and I have talked before about the SEC changing some of the regulations and allowing Series 7 investors to invest in accredited invested deals. We're probably going to see more opening up on that. But do you think that there will be some changes in the differences between Regulation A, which is open to everybody, and Regulation G, which is open only to those accredited investors?

Austin Smith: Absolutely. It's a matter of time and I certainly can't predict when this will happen, but the tide has really suggested that real estate Crowdfunding is going to become more democratized. There's a lot of restrictions around regulation. It's a fantastic way for individuals to investment in real estate, but some of the complexities and protections around it now mean that these entities can take months to file for regulation and funding, and then, once it's approved, there's a lot of fees that you have to pay into these vehicles in order to recover the cost and time and investment in getting that funds set up. I believe that regulation A filings will become a lot faster and a lot more affordable and lighter due regulation and funding by individual properties. It's not really feasible today, but I'm really optimistic around that. But there's just so much that suggests that the regulatory bodies that govern this industry want it to succeed. Whether it's carving out specifically the Crowdfunding exemption, making regulation available, whether it's extending the investor accreditation timeline from 90 days to five years so that once accredited you can continue to invest without having to renew that. There's just so much that suggests that we're going to get there. It might not be neat. It might take a while. These regulatory bodies are operating with individual's best interest, but everything I am seeing suggests they want to make real estate investing accessible to individuals and safe for individuals.

Deidre Woollard: I think the other thing that I would like to see in Crowdfunding on the accredited side especially, is a reduction in the amount of the minimum investment. I know that takes place on the developers and or the sponsor. But I think sometimes, when it's 25,000 or higher, it limits the amount of participation and it limits the amount of deals that people can invest in as well.

Austin Smith: Absolutely. Now, fortunately, again, if you looked at the trend, I think we will get there, it might just take a little while. It's worth reminding ourselves that a lot of these sponsors are used only having one or two checks for major institutions or deep-pocketed friends and family. For them to maybe go from five investors to 150 in a given deal is an order of magnitude change and it's intimidating for them. They get there going from maybe a couple of million dollars check minimums to $25,000 minimum. Hopefully, in the next few years they take the next lead and go from $25,000 minimums down to $500 minimums and we can take that 150 investors and individual deal to 1,000. Certainly, the power of technology makes that easier. Then, we've seen some Crowdfunding marketplaces that specialize in [inaudible 00:13:43] doing a good job of bringing low check sizes into a limited number of deals. I think we will get there. The trend is in our favor. It might just take a while to convince developers and sponsors that having 550 investors in a deal can be better than having five big individual institutions or family offices behind them.

Deidre Woollard: Well, I agree with that. I think that's interesting because one of the things that I've seen some of the studies that say that more and more developers are planning to use Crowdfunding. I think that that is a trend that's absolutely going to continue. Mogul has seen some developers come to us directly. I feel like more people are interested in learning about Crowdfunding and what it can offer them.

Austin Smith: Yeah. They actually are. A lot of sponsors and developers are seen as wave of the future, but as any new trends, there's still uncertainty around it. There are still some fees associated with it as well. A really well established developer sponsor might be able to get money directly from investors or family office and not have to pay a fee on it. But when you go to Crowdfunding and if you work for one of these marketplaces and you have to pay them for the service they provide, typically that can cost 4-7 percent cost of capital. There's definitely some fee walls for some sponsors to get over. There is uncertainty about what it means to go from five investors to 150 and hopefully, more someday in a given deal but it's starting to fall. We're seeing big institutions come into this space. We've seen Sterling Bay and Greystar and some of them the major real estate operators in this industry start to legitimize it by doing Crowdfunding. I think it's a matter of time, it's just going to take a while for people to get comfortable with this idea that you go to marketplace and raise money for your deal and have everything go off without a hitch, especially if they've got a certain system that works for them and a certain rolodex of raising capital that they've used for a number of years successfully.

Deidre Woollard: Well, that's the other factor too, is that are they going to have a more difficult time of raising capital in a market that is rapidly shifting in 2021? We've already seen some distressed assets, and so I think banks are going to be looking at things a lot more carefully. It seems like whenever there is difficult, you always have to look for the other side, where is the opportunity.

Austin Smith: I think we would say the real estate industry is big enough and broad enough that we know both of those will exist. The are going to be distressed assets. There also going to be assets where there's going to be too much demand. Certainly, industrial just appears to have no ceiling right now. Any industrial sponsor out there, I don't believe we're going to have a hard time raising capital, but maybe a class B multi-family property might or retail certainly is going to be underwritten a lot more conservatively, more aggressively. This industry is big enough that there can be weakness and strength at the same time. They're certainly not homogeneous.

Deidre Woollard: That is one of the things that I also love about real estate. I think one of the things that's interesting is, we exist within The Motley Fool, but we're kind of our own little company. I think of us very much as having that startup part. What lessons did you learn building this service as an entrepreneur, but also really an entrepreneur inside another company?

Austin Smith: Oh, my goodness. I'm learning new lessons every day. There's certainly, no shortage and it feels like they're accelerating. I would say one of the lessons that stuck with me the most, and this actually goes back to a podcast episode we had listened to the other day, Deidre, and one of the lessons there that really stuck with me is just, simplifying always wins in general. With Mogul, we talked about this earlier, but in last minute, we rolled out something called a MogulScore. It was not part of our original roadmap, but it really resonated with people and it clicked for them. It helps simplify our research down to 100 point score, so that individuals who may be new, they wanted to be investor in real estate but didn't have the time or appetite to figure out how to compare a hospitality to multi-family opportunity, could reference that score and see where we were, and then, do their further research and put it into context from there. One of the lessons I've learned is just that simplifying, making it easier for the consumer, it wins, it resonates. I liked that Mogul does that for people, I like that people can go as deep into our research as they want, or they can stick with the MogulScore, invest based on that if they want. We certainly encourage people to read all of our research. But we know that that has resonated with people. Then, second lesson I guess, people have a real appetite for this, to learn about how to invest in real estate. It's larger than we expected. We had so much demand early on. We thought that Mogul was a comprehensive service, but it's not. We're starting to see there's so much demand for other areas of real estate investing and other guidance and education that we can bring people. We're getting feedback all the time about how people enjoy Mogul, but then. they're bringing all these suggestions for ways we can improve it and grow it, and bring in new areas of real estate investing and new coverage for them and new tools. To reiterate, simplifying wins. It's a good service to users. Then also, just that there's so much demand here. People want to invest in real estate, they're not sure how, it's intimidating, it's obfuscating. They want us to help them demystify here, and we're excited to rise to that challenge.

Deidre Woollard: I think one of the things that I actually may not even know the answer to is, the true Mogul origin story. [LAUGHTER] Obviously, you were working at The Motley Fool, and you were not doing real estate, but you are from a real estate background. How did this start, and how long ago did it start before you actually ended up launching the service?

Austin Smith: Good question. The origin story of Mogul, and therefore, Millionacres goes back to Crowdfunding, just starting to get traction. We saw a lot of Crowdfunding marketplaces out there that were raising deals that looked really promising, and people didn't know at the time, "Are these legitimate? Can these be trusted? If I decided that I want to invest in them, how do I compare opportunities across them?" It actually came from an internal need, just friends and family seeing these pop-up and saying, "What is this? How do I invest in these? Which one should I pick first? There's 10 opportunities here. These forecasts are too good to be true, can I trust them? I don't know how to read them." Just that frustration, confusion that people face, but also excitement. We said, "Well, then, we should probably be there and help other people probably respond too, we should be there and help them solve it." It originally started as a Crowdfunding rating and review service. But we realize that if you really want to invest in the real estate sector in the broadest sense, you need to go beyond that. There's real estate equities. There's REITs. There's going to be cold winter for Crowdfunding, and there will be times when REITs are out of fashion, or maybe their valuation is too stretched and you don't want to put money there. If you want to really have the best exposure to the real estate sector, you need to be flexible and go across these asset classes. It started with confusion around Crowdfunding, but then, we saw the reality that we need to be more flexible and adopted "go-anywhere" mentality to really serve people and help them invest in real estate more successfully. Then, from there, it's just caught on and people really reacted to it, and we saw that demand, and then, we decided to build Millionacres around it. What people now know as our publishing website and podcast that people listen to today.

Deidre Woollard: Well, I think it's great for The Motley Fool just because I feel like their balanced portfolio necessarily includes real estate. I'm biased that way, but it does seem to me that there is value to have both real estate and stocks in your portfolio.

Austin Smith: I completely agree. If our first mission is to help you become smarter, happier, and richer through real estate investing, our second mission, which is not stated, is to convince all the financial advisors out there in the world who are telling people that they share five percent allocation to real estate, that's probably more like 25 or 30. I certainly love some of the financial advisors out there. I know they do well by their clients, but there's just some people who don't understand this sector, and the stability it can provide, the income it can provide, the appreciation potential. Hopefully, our secondary mission is fulfilled, and we'd get all the financial advisors out there who tell their clients that five percent is way too low. Real estate is way too promising, and we need to go above that, we need to multiply that.

Deidre Woollard: Well, you have an advantage there because you grew up in a real estate family. Your dad, I believe, is a real estate broker. You've always understood what real estate is, but how do you convince other people, whether their financial advisor or just anybody, that real estate isn't just buying a home, it's a great way to build wealth?

Austin Smith: I don't think you can do it with numbers. There are definitely people approaching me every year, maybe they want to buy their first home, or their second home, or their first commercial property, or scaling up. I think the best way to get people excited about the potential of real estate investing, it's not with the spreadsheet, it's not in numbers. People respond much better to stories, they are more tangible, they can visualize them. If it's a really creative one, all the better. A good example matters here. I think people understand better, and maybe the doctor who made more money owning the building that their practice is located in, than by being an actual doctor. That's just really interesting and counter-intuitive, and it sticks with people, or maybe about the woman who bought an old building and renovated it and made it a coffee shop or restaurant. People can really visualize out, or maybe they know that specific location, and then, they see how cool it is, and then, they understand all the value that's been added to that property. I think the more creative you can be, the more stories you can bring them the better, people don't get excited about real estate in a spreadsheet, that's like in eating your veggies assignment. Nobody says, "Wow, they made a 3x equity multiple with low leverage on the mixed-use facility." While that might be a great return, people don't get excited by that, but they can understand the story behind it. I think the more we can tell and demonstrate the creativity of the real estate sector, and just how people are re-purposing land or re-purposing buildings to a higher and better use, people love to hear that and it sticks with them.

Deidre Woollard: That is really interesting. I think that's important because story is one of the things that made me fall in love with real estate. I come from less of a math background and more of English literature background. That's how real estate appeal to me was, "I got the stories before I got the math."

Austin Smith: There's so much more fun, of course. I actually think, although there's certainly a lot of math, and there are a lot of spreadsheets and operations to pull off good real estate investments. I think it all starts with creativity. It all starts with the vision. Who saw the old abandoned hospital and imagined the higher and better use as a different facility? Or who saw the blank piece of land and had the vision that it could be a destination resort? That's just so interesting. I think the root of all real estate is actually creativity. It's who had that best vision, and then, who is able to pull it off with good operators, and good spreadsheet, and a good system after. But I don't think you start there. But Deidre, I'd love to turn that question around on you and hear about your interest in real estate. I know that our listeners have heard your background in real estate, but it's one of the most widespread that I've come across.

Deidre Woollard: Well, I did not grow up with real estate brokers in my family, but two of my uncles are contractors, and one of them has done luxury flips on Cape Cod for, oh, God, I don't know, probably like four years. But most of my real estate experience was actually in Los Angeles, working in luxury real estate brokerages, which was really quite an experience. I taught marketing to real estate agents, so ended up going on listing appointments, sometimes with very large houses, and very famous people. I've gotten to see some really amazing houses. But seeing just how hard real estate agents work and I feel like that's one of the things that I've always wanted to let people know is that real estate is a serious career. People see the money side of it. They watch the reality TV shows. I've worked with some of the people who actually star on those shows. They work a lot harder than what you see on TV. That's one of the things that I really want to make sure that people understand is that real estate is a serious profession, that those people really know what they're doing, and that having a real estate agent by your side is important.

Austin Smith: Absolutely. It's the myth of the casually successful investor is a tempting one. It's an alluring one.

Deidre Woollard: Yes.

Austin Smith: But am I hearing you correctly that your uncles don't walk into a property and point at three walls and renovated in seven days, and then make a $150,000 profit.

Deidre Woollard: Definitely, definitely not. They would be very mad if their careers were described in that way. I'm sure.

Austin Smith: [laughs] You're absolutely right. I think it's good for people to appreciate just the skill and the energy and the intensity that goes into this sector. I mean, there are a lot of extremely smart, extremely hard-working people and that's what it takes. If you're trying to take an asset from one expression to a completely different one, you have to have that energy and you have to have that hustle. As an investor, of course, that extends to everybody in this space. Agents work seven days a week, 24 hours a day. It's incredible to watch the skill and the hustle on this industry in all aspects of it: financing, investing, brokerage, there's a lot of good people in this space.

Deidre Woollard: There's also no end to what you can learn. One of the things I find really interesting is that every investment, every property, every house is different. There is no such thing as being able to exactly replicate something in real estate. I find that very, very fascinating.

Austin Smith: Can I ask you some questions, Deidre? You have a lot of exposure to the luxury real estate. I've always felt like the story, I have very little exposure to that aspect of the real estate industry. What role does stories play in these luxury homes? Like famous builder, the famous architect, the person who formerly lived there, or is it about fixtures and zip codes and the properties themselves?

Deidre Woollard: It can be either. I worked in luxury real estate PR. Sometimes it was a celebrity thing, sometimes it was the history of a house, and so you'd have to do a little bit of digging and research on that. Sometimes it was some of the craftspeople involved in making stained glass for the windows or something like that, or the history of the land itself and maybe who owned it, but also the town around it and how it sprung up. It's really about finding that individual story and making someone else feel like when they buy that house, they're taking on the next level of that story and they have that emotional connection because real estate is always so emotional. I think that's one of the things that people think that residential is emotional and commercials is a numbers game. Having worked with brokers on both sides, both are true across the board just to a little bit of a lesser extent but I've seen a lot of commercial developers get very, very attached to their buildings.

Austin Smith: Well, it makes sense if you're invested for a number of years maybe to get a building, to reposition a building, or get to close a deal. Well, it becomes maybe less personal identity, but definitely a professional one at a minimum. I can absolutely see that. Where do you think luxury real estate is going in 2021? So many interesting economic factors playing out right now post-COVID. What do you feel like that sector will look like for next year, year-and-a-half?

Deidre Woollard: It's interesting because we've seen some high-profile sales in Los Angeles. We've seen some in Palm Beach. We've even seen a couple in New York in the past few weeks. In fact, there is a report that comes out every Monday from Olshan Realty which details the amount of properties under contract above four million. It got down to about two or so in March and now it's about, I think it's usually between 15 and 20 maybe 30 a week now. It's definitely coming back up and you are seeing more of those bigger sales. It's hard to say what the future will hold, but we're still seeing those big properties transact. The thing that I wrote about recently on Millionacres, which was interesting, is some of the luxury spec home people in Los Angeles and some of the troubles there following a person called Nile Niami, who is kind of the king of giant, mega, multi-million-dollar properties. He's building one called the Opus, which was at one point supposedly supposed to list for 500 million. I don't think it's going to list for that. But he's run into some financial problems, filed for bankruptcy on one of his properties recently. Stories like that makes me a little bit nervous about certain parts of luxury real estate.

Austin Smith: Yeah. What was that huge piece of land outside of LA that was supposed to set a record and sat on one of the hills?

Deidre Woollard: Yeah.

Austin Smith: That has such an interesting story as well. That's going to be fun to watch.

Deidre Woollard: That one is connected to the former President of Herbalife and then, it was bought by this other person whose name I can't remember, but he has a little bit of a shady background. Was at one point, I think it was owned also by an Iranian princess. That one has just incredible story. The interesting thing about that land is that it's very flat, it's pads, so you could make a bunch of properties up there. I know a lot of famous people have gone and looked at it. You see it all the time, sometimes used in commercials. But getting up to that property itself is really, really difficult and because of that, it's going to be very hard to build on.

Austin Smith: That was, I think, originally listed for a billion dollars, right? It sold for some fraction of that but they had to inherit the debt. Anyway, again, real estate is infinitely interesting, right? So many interesting stories.

Deidre Woollard: So many stories.

Austin Smith: Who's going to reposition that land? Will it sell for a ham sandwich? Will it become a major community out there? Who knows? It's going to be a fun one to watch.

Deidre Woollard: Exactly. For me, 2020, I bought a lot of REITs, I really expanded my REIT portfolio, partly because some of them were undervalued, in my opinion. I know we launched another service last year, Real Estate Winners, and that focused on REITs and also other real estate stocks. It's grown really fast, we've seen a lot of people really excited about it. Do you think that's because there has been an opportunity that we've seen tech stocks zoom up but REITs and some of the real estate stocks have been left out a little bit?

Austin Smith: I don't know individual motivation for joining Real Estate winners. I certainly hope that people are coming to us because they see opportunity in REITs. Whether they came to us because of general market euphoria, and there's a rush to interest in equities in general right now and we're benefiting from that, or if it's because we stand out to them and we're providing guidance on an asset class that hasn't had that crazy multiple expansion that tech stocks have. I'm not sure. Regardless, for whatever reason people did come to us and Real Estate Winners, we're going to stay the course and to our darnedest to provide world-class guidance to them while they are here. I think they'll be well rewarded for that. I certainly hope they stick with us for a number of years because some of the multiples evaluations in REITs and real estate equities today are just absolutely silly if you consider the underlying operators buying those companies or the assets they hold. I don't know why people came to us. I'm certainly happy they found us and I hope they stick with us for a number of years because our analysts want to do well by them and some of the opportunities they are uncovering today are just super exceptional, in my opinion.

Deidre Woollard: Yeah. I would totally agree with that. Just to make it clear for listeners, can you explain the difference between Mogul and Real Estate Winners because we've got two services but they're really different.

Austin Smith: Yeah. Mogul, as we discussed, is a go-anywhere, real estate investing service in order to cover the most terrain possible. It's most suitable for credit investors. We make commercial real estate investments, which you generally have to be accredited to invest in. We also provide some tax education so you can optimize your filings and know which accounts own your investments in. That is a more consequential service if you are high net worth or credited. Real Estate Winners is where I suggest people start. Real Estate Winners is accessible to anybody, it's only 250 bucks a year, you get one investment recommendation a month and it's either a REIT or an equity. Our analysts have been over-delivering and they issued two recommendations last month and I've heard rumors that they plan to do it again this month. They also rank them again and issue a top ten every quarter across all their investments. But Real Estate Winners, in particular, focuses on selecting REITs and equity from the public markets, and therefore it's accessible to nearly everybody. A share of one of these REITs might be as low as $50. With Schwab entering the fractional share, might be possible to even invest on his guidance for less than that. Real Estate Winners is definitely more accessible, available for everybody, pulling REITs and equities as public investment options.

Deidre Woollard: When I look back at 2020, the story that I keep seeing and really have wanted to talk about was the divergence between the way the residential market has performed and the way the commercial market performed. You've got really two different things going on: home sales, record highs, record price highs. I think it's been 105 months of price gains on the existing home sales side. On the commercial side, we've seen that drop in deals happening. You've got homebuilder stocks doing well, some of the REITs doing less well. What do you think is going to happen in 2021 with commercial real estate? Do you think there's going to be some stabilization happening there?

Austin Smith: Boy, that's a big one. It's definitely beyond my crystal ball. I mean, the commercial real estate sector is so big and so broad, I would hone the question a little bit. Because commercial real estate is such a huge asset class, I would say there are sub-sectors within it that will do better or worse. There are some that will become stabilized, there are some that will become [inaudible 00:38:13] or some that will be distressed. I'm less concerned and less focused on commercial real estate stabilizing as a whole, and I'm more interested in uncovering which sub-sectors show more promise. We've talked a lot about multi-family and just the general port in the storm that that sub-sector usually represents, but industrial is another one. Industrial is just on fire right now. The acceleration of e-commerce has pulled forward all of the value that that sector represents, but not a lot of new builds being done to catch up with it. It's hard to build industrial facilities in a period of months here, so there's a lot of opportunities there. I'm also very interested in medical office. I think it's really interesting. We haven't talked about it a lot inside Mogul, but the homebuilders are also very interesting. The supply constraints that we have with single-family homes, they are staggering. Specifically standalone single-family homes. Affordability is a counterbalancing for us, it has me concerned or curious here, but I'm looking at medical office, I'm looking at home builders, I'm looking at industrial and multi-family. But to answer your question, unless focus on stabilization as a whole, I don't think stabilization is the goal and it's not necessarily what we're interested in. We're more interested in opportunities. So whether or not commercial real estate stabilizes, I don't know. Some sectors of it probably will, but I'm looking for the opportunity to growth.

Deidre Woollard: I think one of the things that's interesting is single-family build-to-rent. I'm seeing more and more activity in that sector than I have in previous years. So that's fascinating to me. I think the other thing that I find really interesting is life sciences and I know the Mogul team has been interested in that as well. If 2019 was your industrial year, 2020 has been certainly your industrial year. But also life sciences, we've seen some big billion-dollar portfolios trade hands. Is that one that you're interested in as well?

Austin Smith: Absolutely. If you believe that demographic is our destiny, and I do, I subscribe to that notion that life sciences just feels like it's an inevitably strong asset class you want exposure to. No doubt. Senior care facilities are another, talk about a devastating year for them in this year. Investors and the operators there and the individuals and residents, just a really tough year there. But if you believe that demographic is our destiny, that is another sub-sector worth watching for decades to come.

Deidre Woollard: Well, one of the things that I've learned from both you and Matt Argersinger is that money follows people. That's one of the things that I've heard both of you say and that has stuck in my head when I think about real estate investing.

Austin Smith: I actually came to take credit. I think I've heard it from Matt, but I really like the idea, and I do believe that it's true. The idea that demographics or migrations will dictate real estate project success. The trend is stronger than the individual operator or the individual execution in a given city. If you want to build a destination resort in a part of the country where people don't want to drive to or there's no people within driving distance or there's no major airport, the broader environment you're operating in will dictate a success or failure of that investment. You can be the best operator in the world and not get people to show up, then, it won't work out for you. Money follows people, opportunity follows people, demographic's your destiny. I also think that frees us up to think ultra long term, which is something the Motley Fool has certainly injected into the Millionacres DNA, is that investing is a game for the patient. We try and invest with a lens of decades in mind. When you start thinking that way, you start looking at different trends in different sectors and you're less concerned about what is happening this month or next month, and more conservative of what's happening in 20 or 30 years.

Deidre Woollard: That is so valuable. I think about that too in terms of, in 2020, we saw people leaving cities. A lot of people are saying, oh no, these cities are doomed. It's like, no, that is a short-term trend. You don't make your decisions based on a trend like that. That has been very reactionary.

Austin Smith: Absolutely. It's a Mark Twain quote about, "The rumors of my demise have been greatly exaggerated." [LAUGHTER] I definitely see people crowding to the ball to say that San Francisco is doomed or New York City will never come back. New York City has always come back. There's definitely an exodus out of San Francisco and it makes sense in our current environment. But will San Francisco be a city that people want to live in, will Seattle be a city that people want to live in, in 20 years? Absolutely. They're fantastic cities. There are brilliant people and wonderful companies and operators. They have access to gorgeous terrain. That alone will save these cities in the future. So yes, there are people leaving for Austin and Boise and the middle of the country and the sunshine states. We've talked about that and we are invested in that trend. But I think the rumors of New York City's demise and San Francisco's demise are greatly exaggerated.

Deidre Woollard: I want to close up on a little bit of an unusual note. This is probably for my curiosity, but also hopefully for our listeners. If you could have the career of any real estate investor, who would it be and why?

Austin Smith: That's a hard one. I have always indexed more towards the anonymous financially independent local landlord and owner who just built up their city. They're not a household name per se, but they maybe developed a whole district or a whole neighborhood and town with their hard-earned wealth. But that's not an exciting answer, [LAUGHTER] so let's come up with a better one. I think the CEO of Brookfield, Bruce Flatt is really interesting. He's Canadian, first of all, so you know he's a really nice guy. He's not a household name, but if you look at Brookfield, the entity, they're very disciplined operators while also remaining very flexible. That's one of the things that I love and respect about our analysts at Millionacres, is they're very disciplined. Their attention to detail is so high, but they're very flexible and they pivot to where the opportunity is. Bruce Flatt and Brookfield then by proxy, it's not typecast. They don't just focus on one type of real estate investing. They have renewal energy subsidiaries, they have infrastructure, they have regular standard commercial property. I respect the flexibility and the willingness to wait out where the opportunity is and not to stay typecast on, "No, we're Class B owners and operators. That's what we do and we're very good at it." Certainly, there are a lot of people that make good money that way, but I respect being able to span different genres of real estate investing and to take that expertise to new boundaries.

Deidre Woollard: It's a very well-reasoned answer. I think I come up with things like, "I want to be Sam Zell." [LAUGHTER] It might be Sam Zell. I love to hear the stories of the developers of yesteryear. So someone like an Abbot Kinney who built Venice in Los Angeles. I love those big stories. I think if I could be anyone in history it would be someone like that.

Austin Smith: To be a fly on the wall of the early development days in some of the big city growth, New York City as it was being built or San Francisco as it was being built, everything was handshakes. Basically, the wildcatting equivalent of real estate developing would've been so much fun to witness. I would love to be a fly on that wall.

Deidre Woollard: Yeah, definitely. Another time period if I could go back, I think I would love to be in gilded age Manhattan. When Manhattan was converting from, when you get the first apartment buildings and things like that. Good times.

Austin Smith: I bet John Jacob Astor would be a wonderful dinner guest.

Deidre Woollard: Absolutely. Well, Austin, thank you so much for your time today and indulging all of these questions. For our listeners, you can always find out more information about premium services on millionacres.com. Stay tuned, we've got plenty of things coming soon that we can't wait to share with you. [LAUGHTER] Thank you for tuning in to the Millionacres podcast. I hope you liked today's show. If you enjoyed this episode, please consider subscribing through your favorite podcast provider. If you have any questions, please feel free to drop us a line at help@millionacres.com. Stay well and stay invested. People on this program, they have an interest in the deals, offerings, or services they discuss, and Millionacres or the Motley Fool may have a formal recommendation for or against. Always consult a certified tax professional before acting on tax advice, and do not buy or sell assets based solely on what you hear.