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The Millionacres Hour: Interview with Ari Rastegar of Rastegar Property Company

Millionacres editor Deidre Woollard interviews Ari Rastegar of Rastegar Property Group on his large real estate portfolio, trends he is seeing in Texas, and how the future of real estate development involves documenting every aspect of the construction process.

Transcript

Deidre Woollard: [MUSIC] Hi, Ari. How are you?

Ari Rastegar: Doing good. How are you?

Deidre Woollard: Great. Really excited to talk to you, really excited to bring your perspective to the Fools here. Just want to remind everyone if you have questions, you can go to Slido and MF Live, and ask your questions. We've got Ari, for the hour, so let's take advantage of it. You launched a new REIT this year, and I thought it was really interesting when I saw it launch because you're focusing on vintage apartment communities, Class B and C, so can you tell people a little bit about that?

Ari Rastegar: Yeah, absolutely. We use the term vintage multifamily, for the same reason we use vintage as wine. These are Class A locations, that are 30-40 year old products. What's interesting about it, not only from the REIT standpoint, we're one of the largest owners of this type of product in Austin, Texas or in the Austin MSA, which is really our prototype city that we build technology around to spread it across the Sun Belt, which is the focus of the REIT. But what's interesting about it is, with COVID in general, and private actually, there's two confluence of events that make this particular asset class attractive. One is, it has the five dollar Uber riders, as we call it, from all the great amenities. Just think the old Motel 6s or two-story walk-ups, no elevators, most of them don't have pools. It has this inherent level of social distancing. So they're right outside the urban core, so you have access to all the great amenities, so to speak, but at the same time you don't have to take that proximity risk that a lot of people are still a little bit nervous of. The locations are incredible. There's new construction going on around those areas and you're watching massive gentrification, and I hate that word. For me personally, we feel like we're enhancing communities versus gentrifying, for whatever that's worth. But there is so much of this product under 120 doors. So typical institutional investors. Our investors are public pension funds, family offices, high net worth individuals. As you know, we have hundreds in millions of assets. But most institutions aren't looking at this asset class, because they're too small. If you look throughout the Sun Belt, you look at under 120 doors and some instances under 150 doors, you're talking about $8, $10, $15, maybe $20 million purchase price. So on a one-off deal, Blackstone, or Brookfield, or Starwood or one of the big shops, they're not looking at these deals. They have very high expense ratios, and they don't have institutionalization, so to speak. What we've done is, we've institutionalized smaller deals that are too small for private equity, but too big for local investors. By aggregating them together, you get geographic diversity, price-point diversity, which becomes highly attractive to large institutional investors. That's the thesis in a nutshell, is buy Class A located properties that really need to be gut renovated down to the studs and deliver a Class A experience, so that's the difference. In some instances, you'll have new construction across the street. Literally, we have the same interior on the inside, like from a Class A, Class A minus type interior; new mechanical, new electrical, new roofing, smart technology to enter and exit the properties, etc., but 30 percent less than the new construction, for the same location.

Deidre Woollard: Well, I think this is really interesting because, obviously this was in the works before COVID, but we've seen in a post-COVID environment, and during the pandemic this interest in garden-style apartments, which I think is really interesting because garden-style fell way out of favor. You talked about new construction. I know you're big in Austin and we'll talk about that later, but I've been to Austin and you just see everything going up super tall, lot of shared amenities, pools, gyms, all that stuff. That whole thesis is starting to shift where people maybe don't want those shared amenities or don't want to be in that big tower anymore.

Ari Rastegar: That's exactly right. Look, people are going to come back to the urban core. COVID changed the world as we know, and there's other health mechanisms that need to be in place. We're breaking ground on seven new development projects this year. We've invested in 38 cities, 12 states, seven different asset classes and actually successfully. We'll be all over the Sun Belt, Austin is our hometown, our headquarters and we're doing a lot more here, but it's about just understanding what the future is going to hold in this post-pandemic world. Even though the vaccinations are coming and all those great things, the mental trauma, and the fear that this could happen again, which is highly likely, is still there. People are being more value-oriented, and they want safety and wellness. So garden-style apartments in general, if renovated properly, and I come from a construction background, even though I'm an attorney by trade. It gives them both. They can have deep value, a great interior and exterior finish out, right outside the urban core so they don't feel that proximity trauma, they walk in and out of their own apartment, open the door with their phone or some keyless entry, and if they want to go hang out and do all the fun stuff, it's a five dollar Uber ride.

Deidre Woollard: I love that. Well, let's talk a little bit about Austin, because, wow, Austin in the past year, I feel like I know at least three or four people from California who moved there and they told me about their experiences in trying to buy a house or get a rental, and it's just crazy.

Ari Rastegar: I'm born and raised here. This is my hometown.

Deidre Woollard: Well, then you must have seen such an incredible transformation, not even just recently in the past year, but over the past decade.

Ari Rastegar: Yeah, it's the different place. We grew up pretty poor, our rent was $180 a month when I was growing up. I delivered pizzas through college, flipped burgers in high school, and I started my construction business in law school with a $3,000 loan. So I've literally started this from nothing and watching the change has been dramatic. We have 37 high-rises going up in downtown, right now. Just in downtown, 37 high-rises. But the unbelievable part is that you have 156 people a day moving here. In Oracle, which literally the world runs on Oracle literally. You can't go to a restaurant, a gas station, the subway, without some sort of Oracle software. If Tesla went bankrupt tomorrow, you'd buy another car. If Oracle went bankrupt, the world would shutdown. Their headquarters is here. Apple's second largest office in the world is here, Facebook's second-largest office, Amazon's largest acquisition today of 13.2 billion, was Whole Foods, which is founded and headquartered in Austin. With all the companies that are coming here, that's where the jobs are, and by leaving California and New York, you get an immediate pay raise just by moving, not only from having no state income taxes, but lower cost of living, lower housing prices, lower grocery costs. The confluence just creates something that's making Texas and Florida especially very attractive, Texas more so, because it's centrally located. If you look at Austin, or Dallas, or anywhere in that Golden Triangle, you're an hour and a half to Chicago. You're two and half hours to LA. You're two hours to Miami. You're three hours to New York. It's one of the reasons why American Airlines, 40 some-odd years ago, made Dallas their global headquarters because it's dead in the center of the United States.

Deidre Woollard: Well, let's talk a little bit about Dallas, because you mentioned that our Mogul service, which is our premium service for members. We had a facility in Plano, Texas and the demand for that crowdfunded project is just huge. So what else is happening in Dallas right now?

Ari Rastegar: Dallas will be the most populated city in the United States by 2050. There's a ton of census reports around this. You can Google it, pull it up, they have a bunch of machine learning, things that have come up, and we're data freaks. Although we are a real estate investment company, we're very much a data analytics company in everything that we do. We joke at Rastegar the light bulbs don't go out in Rastegar buildings, because we know the light bulb is going to go out before you do. Literally, and so it's taking that technology, I'm actually the oldest millennial, which is a funny moniker, so to speak because I sit in the middle of two generations like I went to law school, I'm an attorney. I can speak to an older generation, I'm a millennial so understanding the core value difference between the two. But I grew up in Dallas, I went to middle school and high school in Dallas, although I was born in Austin, and the demand has just been off the charts because Dallas was designed to be a metropolis. What is a four-lane highway on I-35, which if you look at a Texas map, you see Dallas, you drive down and you get to Waco, where Baylor is. You go a little further, you hit Austin, go a little further, you hit San Antonio, you get a little further, you hit Mexico. You go all the way North, you hit Chicago, so I-35 is the main corridor that connects Dallas, Austin, and San Antonio. Dallas was built to be metropolis, it's a sprawled metroplex, it's predominantly flat, it has all the infrastructure needed to house 25 million people I mean, it's what it's built for. Austin is a town on steroids. Austin was a capital city and most capitals don't become Austin. It's very rare that a capital city would become this hot. Austin is obviously, the hottest real estate market in the United States, we're one of the largest owners in the city and we've watched it. But what's phenomenal about Dallas is that it's so easy to get there. There's non-stop flights from all of the United States to get there. There's options in all the micro-economies that surround Dallas, whether that's Plano, Frisco, McKinney, Texas, Uptown, Highland Park. You get all these different flavors not this similar to Houston at a great cost of living. The demand is just unbelievable. There's already so many Fortune 500 companies that have been there for years and years. It's always been a staple in Texas. When you think of big real estate cities in Texas, you think Houston and Dallas. Austin, it's only in the past couple of years that anyone even thinks of Austin has anything to do with real estate. Whereas Dallas is a financial service city, it's a real estate city, Houston is an energy city, real estate city. The beauty of Dallas right now is people complain that there is so much supply coming online, but they were shocked in how quickly it was absorbing. I think that's only going to continue in Austin as a general rule is a more liberal city. There's a beautiful dialogue between both the left and the right in Austin which I love so much because I'm not a Republican or a Democrat, I'm an American. To me, whatever is best for the people is where I am and I stay out of that stuff. But the more conservative crowd feel more comfortable in Dallas than they do in Austin. They can get larger homes in different sizes. The metroplex is easier to travel. Austin has geographic barriers like the Hill Country, the lakes, doesn't have as much highway infrastructure, so traffic is a lot worse. There's just different reasons why different people would be in those areas. But Dallas is just going to go completely gangbusters. We own one of the last pieces of undeveloped land in uptown, which is that and Highland Park are the wealthiest of Dallas, right on Klyde Warren Park, we're building a 26 story high rise that's going to have the largest living wall ever built in any of the America's over 40,000 plants will be on it

Ari Rastegar: At 1899 McKinney, you can look it up. But yeah, we're super bullish on Dallas, and really the sprawled metroplex versus Dallas proper. Same with Houston on the sprawled metroplex, such as Katy, the Woodland, Sugar Land, all those areas surrounding Houston and Dallas proper are just absolutely exploding for the right reasons because the companies and the employers are there and they're expanding their footprint.

Deidre Woollard: Excellent. You mentioned Houston, obviously an energy city. I'm hearing a little bit of concern from some people about the fact that it is an energy city. Some of the jobs are leaving.

Ari Rastegar: It's much more diversified now. Look, Hewlett-Packard just announced their headquarters shift to Houston, which was huge. Houston gets a little bit of a bad rep. I'm a Dallas, Austin boy. We have a little bit of a rivalry, a few of my investors play for the Mavericks, so I get a little bit itchy with the Houston Rockets, but that's another discussion. But Houston has really gotten a bad rep in a lot of ways over the years of being tied to energy, which it was. But it's not as much anymore. It's a much more diversified economy than it was 10 years ago. The safety around Houston, I think, is much more prevalent today than it ever has been. With Hewlett-Packard choosing, being able to basically go anywhere in Texas, they chose Houston for a good reason. They have a lot of great data, unbelievable company. That's where they wanted to go and I think it was a great decision.

Deidre Woollard: Interesting. I'm wondering too, about cities you mentioned before that idea of the urban sprawl. Obviously, Texas is a little bit different than you've got a lot of room to move up, less so maybe in Austin. But are you seeing that there's going to be more of that urban sprawl? I know right now with remote work, everything has been crazy from the housing market.

Ari Rastegar: That's all going to go away.

Deidre Woollard: Do you think that some of that exurb activity that we're seeing now is going to come back towards the urban core?

Ari Rastegar: Yes, it will, absolutely. There's always going to be a group of people that want to be in the urban core, that want to be walkable, especially Gen Z and millennials. They want to be outdoors. The core values are different. They want to be out in the parks. They want to be at the lakes, be at the restaurants, the bars, at the nightclubs, having fun, walking, getting on the birds, and the lions, on the scooters. [laughs] That's just a core value difference between how millennials and Gen Z think versus the boomers. That is going to be there. How long will it take for them to feel comfortable to fill that? I have no idea. I don't have a magic crystal ball, but I will tell you people will go back to the office for one, period. End of story. People will be back in the office by the vast majority. Will certain sectors that aren't client-facing be working from home more? Absolutely. Like if you're a software developer and you don't have client interface, yes. But this is not new. COVID threw jet fuel on this. Those on Fox business the other day, talked a little bit about this. But the CEO of Coca-Cola 13 years ago, when he first took over 13 or 14 years ago, he allowed his workers to work from home. He was like, "If you're not going to meet with clients, you can work from home." Lowered office footprint, so none of this is new. Quite frankly, if you do your homework, which all of you do obviously, is back in the '70s, '80s, and 90s, the largest tenant of office buildings was law firms. The reason why is because of their libraries. They had shelves and shelves and shelves and floors and floors and floors of libraries. But once everything was digitized, the footprint need went from having 15 floors in Manhattan as an example to needing one because it was all on your computer and so we thought, "Oh my God, this will never fill up again. There's no way that we'll ever fill this vacancy." Two years later, it's over and it's refilled. I was an English major, Mark Twain says it best, "History doesn't repeat itself, but it sure does rhyme."

Deidre Woollard: Exactly. I want to ask you a little side question because you mentioned the whole scooter thing. What's your opinion? You're a guy who's obviously looking at a bunch of different cities. What do you think about the proliferation of all those different scooters? Do you think that is a temporary thing or is that going to last?

Ari Rastegar: I love it, but the caveat is I love innovation. It's inexpensive, but it can be dangerous. There needs to be some more safeguards around it. Some of those go a little too fast.

Ari Rastegar: There needs to be some risk controls in place. In theory, I think it's phenomenal by the way, I ride them myself. But there's some of them that they go at a certain speed that you need to wear a helmet and going through traffic, going on the sidewalks, parking on the side of the road. It's a little bit anarchist right now, which is okay. That part, I'm not okay with but the overall concept of innovating and finding this other way to transport that's fun and cool and very inexpensive is awesome. So I love it substantively. I just need a little bit more risk control, a little bit more regulation around where you park, where it goes, where you can drive, where you can't drive, the speeds around them, those types of things. As I see those things refine, which they are, I'm a big proponent of it, I think it's great.

Deidre Woollard: Interesting. We talked just a little bit ago about remote work. Are you investing in office space at all?

Ari Rastegar: Oh, yeah. I bought an office building the other day.

Deidre Woollard: [laughs] Awesome. Obviously that you're bullish on office space, though you can find co-working?

Ari Rastegar: No. People are going to come back to the office. It's the perfect time to buy it because we are tribal beings by nature. There is so much pent-up demand for travel, for human interaction. Like that is how we thrive. That's creativity, being in the same room together, breaking bread together, eating, talking, whiteboarding. This is how we innovate as humans. This is a 100,000 years of human history. By the way, 2021 when the Spanish Flu happened, everybody went back to work. This is not rocket science.

Ari Rastegar: But when is it all going to happen? Who knows, but not going back to the office is preposterous. Even the CEO of Zoom said the other day, I'm sick of Zoom meetings. [laughs] By the way, Jamie Dimon, the CEO of JP Morgan, said very clearly, productivity has plummeted since people worked at home.

Deidre Woollard: We know that the CEO of Netflix also wants people back in the office.

Ari Rastegar: Yeah, they all do. By the way, you're watching Twitter and Spotify and Google, who all said everybody can work from home permanently, all starting to back step. They're all are slightly throwing in, maybe we're going to come. It was a big overcorrection, just like we saw on retail, which is the retail apocalypse. Get out of here. People are going to want experiential retail. They're going to want to go places. We missed Toys "R" Us. We have three beautiful children that loved the experience. People want experiences. Yes, was there a correction that needed to happen? Maybe in office, maybe in retail, absolutely. Were some restaurants overbuilt? Absolutely. But that's capitalism. That's the country we live in. It's survival of the fittest in some regard. This is evolutionary, this is innovative. But the future is bright. I think these cities that we're talking about are going to see nothing but positive, sustainable growth. That goes for all of the Sun Belt major cities: Phoenix, Arizona, Nashville, Tennessee, Tampa, St. Pete, Raleigh, North Carolina, Charlotte, North Carolina. These cities have real ethos and they have real jobs, and they have their weather climate. They have great tax incentives. I think this is only going to expand.

Deidre Woollard: Well, you mentioned retail, so now I got to ask you, we've seen some mall conversions, things like that. Seeing some of that retail, so what are you feeling about retail? Are you investing in? What about your building, do they have ground-floor retail, is that something that you look at now?

Ari Rastegar: Look, is retail a big part of our portfolio in that regard? No, we're building industrial buildings, we're doing a lot of multi-family, a lot of master-plan developments. We're building 4,000 houses in the Austin MSA right now. We're in the process of building a new office building. We bought an office building. But no, absolutely, there's a place for retail and we're working on an immersive retail concept right now that's still confidential, but it's going to be pretty powerful. It's going to be something that will be the next iteration of what retail should be in the reinvention of the mall. Because what people don't think about malls is that mall was not about shopping, it was a destination. It was a place that we went to hang out. You did some window shopping, you went to the food court, you walked around the mall, you maybe saw a movie. But most of the time you weren't necessarily buying, it was a place to go hang out and have fun. That does not exist in this generation and we plan to change that.

Deidre Woollard: I think that's a really good point because that public social thing has been missing. I grew up in the generation that hung out in the mall.

Ari Rastegar: Me too.

Deidre Woollard: The traditional mall maybe not so great, but are you seeing more of those open-air malls, is that where things are going?

Ari Rastegar: Yeah. Look at The Grove in L.A as an example. It's a great example.

Deidre Woollard: Rick Caruso is a very smart man.

Ari Rastegar: It's a beautiful development. It's open-air, great high-end stuff, runs the gambit, great food and beverage. Fun, walkable, great lighting. They got some live music outside. But the point is, it's an experience. The future of retail is experiential, that's the key. Creating Instagram-able moments, creating moments that you can capture pictures and videos and share them and have fun, enjoy music and great food and beverage, mixed with. Because that was the place, yeah, we had the mall, that's where we went. Now people want something a little bit different, and that's what we're creating. We're creating something enormous around this concept that you'll see.

Deidre Woollard: Cool. That's interesting because I saw before the pandemic, everyone was saying experiential, every other word when they were talking about retail and then it went away. Now I think it's coming back. We've heard about DICK'S Sporting Goods, they're putting in rock walls and they're making experiential retail. We've got a little bit of energy going towards that right now.

Ari Rastegar: It's the only thing that will work. Otherwise, just buy it on Amazon.

Deidre Woollard: That is a good point.

Ari Rastegar: By the way, I find a wildly ironic that Amazon, the largest e-commerce company in the world, largest acquisition was a brick-and-mortar retail location.

Deidre Woollard: Yes. They're building Amazon Fresh, they're building the other stores. They're definitely still involved in bricks and mortar.

Ari Rastegar: 13.2 billion to buy Whole Foods, their e-commerce place. They bought, their largest acquisition was Whole Foods, brick-and-mortar retail.

Deidre Woollard: [laughs] Let's talk a little bit also about industrial. I know you've also invested there. You mentioned companies moving to Texas, are you seeing that just demand just go crazy?

Ari Rastegar: Yeah. Because we're building, next to Tesla, Chanel's on one side of us. The airport is on the same side as Chanel and Tesla is just up the road. We have 50 acres, we're building 600,000 square feet of industrial. We're breaking ground on, later this year. You need to have industrial to support growing populations. They go hand-in-hand. Not having a strong industrial backbone in growing cities, such as the ones that we've discussed within the Sun Belt, is not only imprudent, it's impractical. Industrial is growing in those cities where employers are going to and population is growing. If you're investing in those cities, industrial needs to be a major focus. The good part about it is in the grand scheme of development, it's pretty low risk because you're really building a shed, like self-storage, which we are massive investors in self-storage. We sold all our positions back in 2016 when everybody thought it was cool. Usually, when people think it's cool, I go the other way. [laughs] But that's another discussion. But all-in-all, you're building a shell. The risk factor on the development side is much lower, so the risk-adjusted returns standpoint, it's there in our development and particularly in the opportunity zone which has all the benefits that I'm sure your listeners understand. But we're excited about it. Industrial is going to be huge vertical, so we're breaking the firm up of the verticals. Multi-family, industrial, master-plan development, office, and really going after them in those major cities.

Deidre Woollard: What are you seeing in terms of industrial as far as the way that it is changing inside the building? One of the things I'm becoming really fascinated about is warehouse robotics. We're starting to see a lot of venture capital has headed towards it. We know Amazon is working on all sorts of things.

Ari Rastegar: So is Tesla.

Deidre Woollard: Yeah, good point. Are you seeing that the clients that are coming for industrial, are they looking for it to just be, like you said, an empty space or are they looking for something more?

Ari Rastegar: Look, you're right, it's moving towards more robotics, no question. That's what we're seeing more than anything. Ultimately, it starts with an empty shell. No two clients are the same. Some are lucky on that side of it but at the end of the day, it starts with the white box, as we call it. It's always at the white box, and then from there, we start thinking about what the tenant improvements would be, what the tenant's needs are going to be. But I'm seeing more robotics, more infrastructure of that nature that I've ever seen in my career or statistically seen. Maybe that's technology, maybe that's where we are as an era. But yeah, absolutely, it's there and it's here to stay and it's only escalating exponentially.

Deidre Woollard: Excellent. I wanted to ask you also because you mentioned earlier when we were talking about your [inaudible 00:29:09] and what you're doing with the apartment conversions, smart locks, and things like that. Do you have a preferred provider? Are you interested in things like Latch, which recently went public? Is that one appealing to you? What are you thinking of that?

Ari Rastegar: We are looking at them all. We have our own property management company, great asset managers. I stay out of the weeds on that stuff. We have some unbelievable technologists that work on our team that are always looking for the most cost-effective solutions to provide the best service to our tenants. Whatever is cost-effective on the investment side, but also offers the best convenience is what we'll look at. We've used several different vendors in several different instances depending on what the needs were. We love Nass. We think Nass has great value. We've used Nass a lot in a lot of different instances in their various different products. Very user-friendly. We've run the gambit on them, but we're always looking for the next best thing. We're constantly scouring the market for those types of products.

Deidre Woollard: Interesting. I'd love to get your thoughts too on real estate data in general because I'm sure you've used a ton of different data to make your decisions.

Ari Rastegar: Massive.

Deidre Woollard: You said before you're a data geek. What are you using, what do you like to use, and how do you think that things are evolving?

Ari Rastegar: We've built a ton of proprietary technology. We're launching a mobile application called Transparency, which will launch in about 45 days, which is going to quite literally bring investor relations into the 21st century. For the very first time, investors will be able to log into a private mobile application, 120-bit encrypted, and watch in real-time, their apartments get renovated with the use of cameras, multimedia, and pictures. Yes, you get your quarterly reports, your K-1s. But with Transparency, in a simple scroll, like Instagram, you'll be able to have, like for example, if I walk into a property today like this, "Hey, this is Ari, I just walked into the Chateau. We just renovated unit 107. Here's the floor, here's whatever, nice seeing everybody. Go. Bye." Keep uploading that information. In this deliberately opaque business that we're in, investors for the very, very first time will be able to see on their time and in real time, exactly how the sausage is made.

Deidre Woollard: Wow, okay. I need to know more about this.

Ari Rastegar: It's a white-labeled solution that we're going to take the market. We're the first client of it, I built it for us and it launches in 45 days. As I said, it's called Transparency, but it will be a white-labeled solution that we're going to basically bring out to anybody that uses third-party capital.

Deidre Woollard: This is really interesting to me. Is there a liability factor there? Are they going to be filming like wild, you've got webcams on while there's construction happening?

Ari Rastegar: Yeah.

Deidre Woollard: What if there's an accident?

Ari Rastegar: That's what insurance is for. Things happen and things happen and investors need to understand we are not magicians. We make investment decisions based on the best data we have. Pipes break, roofs fall in, ice storms happen, you miss cut the counter-top, but being able to see that we are working through it and we're fixing it and we're pivoting and we're moving like they think that Forbes recently, I'm sure you read the article Call Me the Oracle of Boston and I woke up and rollover and told my wife I'm like I guess I'm an Oracle. I don't know what that means necessarily [laughs] but I was thinking like I'm not a magician, I'm a risk manager, and what I want to do is bring an unprecedented level of transparency to what we do so you can see the work and the blood, sweat, and tears that goes into creating this alpha, and have control. If it's 10:30 at nine, you're wondering, we put in x amount of dollars in this deal or your trustee have a pension fund, you don't need to call me. Just get on the app, and just scroll through. You can see all the pictures, it'll be videos, maybe our property managers will do a quick little video, maybe it'll be me, maybe it will be raw like an Instagram story, maybe it'll be something produced. Every time we're in the press, they get a push notification, and just another way to keep an intimate, transparent relationship with our growing investor base.

Deidre Woollard: As a crowd construction nerd, I love this idea. How did you roll this out to your contractors and your teams telling them, ''Hey, you're now going to be doing almost like a social media thing?"

Ari Rastegar: They already were because we use technology that all of our vendors, all of our contractors that are exclusive to us, take pictures of all the work they are doing all day long, so you can't get your paid on your invoice unless you take x amount of pictures of all the work completed. Someone analyses that we run it through an artificial intelligence database so we can track timing, how long did it take, what was the cost effectiveness, how could we make better investment decisions, so this is just a matter of bringing what we already have to the investor.

Deidre Woollard: You mentioned the ice storms earlier, what was that like when that hit? How did you and your teams react to all of that and did it slow down any of your processes at all?

Ari Rastegar: Yeah. Of course it did temporarily. I mean, yeah it was a few days of annoyance but that's what insurance is for, and I feel mostly horrible for the people that lost power and electricity that are our tenants, hundreds and hundreds of people. We got thousands living in our units and the energy grid goes out, water goes out, I mean that's horrific. I mean, what do you do about that? I mean, it"s on the city at the end of the day, but we take a lot of pride in really caring about the people that live in our property, so sad. I felt really horrible for them. On the investment side, it turned out pretty good because some of the cut backs that we were going to do on these properties insurance paid for, so on that side, it got fixed, things got done, adjusters came out, it was all good, but at the end of the day, it was really sad for a lot of people, and it was really shocking, and that was the part that was the most disgruntling for me on the business side, just another day at the office. [laughs]

Deidre Woollard: Taking it all in stride. I like it. I wanted to ask you a little bit about your past as an investor. You mentioned building Europe construction and your construction team and law school, are you also a stock investor? I mean obviously you have your own REIT, but you're looking at other REITs? What kind of companies are exciting you right now?

Ari Rastegar: Look, I'm looking to create value more than anything. I'm looking for value. No, I don't invest with other operators. Although when I started my firm to mitigate risk, I invested with a lot of great sponsors that I've met over the years to mitigate risks so I would raise the capital, whether from institutions or high net worth, and then go in as LP capital or make loans. I got played all up and down the capital stack, because we didn't have the infrastructure or the operations to really manage, run, operate a property management company, a PE company, a construction company, we hadn't grown to that size, so we started out doing that almost as a fund to fund, but not really, and then migrated into back into the owner operator, manager, developer which is what I did for most of my career whether on Wall Street or back in Spring Branch Texas North of San Antonio where I started my first construction company while in law school.

Deidre Woollard: Interesting. I wanted to ask you, obviously you're doing so much construction. What are you thinking about stick built versus modular? Are you experimenting with any modular construction?

Ari Rastegar: We're looking at everything. Lumber prices have sored as you know, modular stuff, 3D printing, that's the future. There is kinks that needs to be worked out. It's innovative, there's a lot of merit to it. It's not quite for us yet, but I have my eye on it very, very closely because there will be a time in probably near future then we're looking that that's going to be a great stable, a great cost-saving mechanism for a variety of different projects, so I'm really excited to watch the innovation around that sector.

Deidre Woollard: How worried are you about softwood lumber prices? I saw another thing came out today, another record, [laughs] that much? Zero. Why are you not worried about the price of softwood lumber?

Ari Rastegar: Because it's going to come back down. It's going to come back down and if lumber prices are going to affect your overall returns, you have no business doing that project. If that really is the thing that's moving the needle, that's really getting you to the IRR that you are really trying to get to and I tell us buy interest rates all the time. Acquire interest rates, well if it goes to four percent then our deal doesn't work. I'm like, "If you're doing a deal that only works at three percent, it doesn't work at four percent, you have no business doing that deal." In my opinion.

Deidre Woollard: But what about the home-builders? I mean in taxes I hope you know.

Ari Rastegar: Well I'm building 4,000 homes right now, so trust me, [laughs] I'm looking at this. I'm at the tip of the spear of this, and it's something that I'm conscious of, but there's way to mitigate those risks, there's a lot of different mechanisms that can be used to mitigate that risk. Buying in bulk is one of them. You are using your nine-figure balance sheet to buy massive amounts of lumber, you get huge wholesale discounts. There's ways to deal with it that are very, very, very much palatable.

Deidre Woollard: Have you seen any supply chain problems? I know some of the home-builders are talking about things like getting appliances, getting fixtures, stuff like that, did that impact you?

Ari Rastegar: It's all getting better. It was more so during the height of COVID, but it's all getting better. It's all opening up, it's all getting better, no question.

Deidre Woollard: Did that experience change how you think about your suppliers and where you source from?

Ari Rastegar: No.

Deidre Woollard: Interesting.

Ari Rastegar: No, it didn't. Because we were already looking at other things overseas. We were already looking at working with some vendors in India and China and throughout Taiwan and ordering in bulk certain materials for the renovations. We've been on top of this stuff for years. On the construction side, we're very much a supply chain logistics company when it comes to how we skew our inventory, how we manage our inventory. Whether that's fans, whether that's counter-tops, or sinks, or toilets. We run as a data supply chain logistics company on the background. I always ask myself what Jack Welch would ask himself every day was, ''What business am I in, What business should I be in?'' We've been in the real estate business for these years and obviously built an enormous company. But we should be in the data analytics real estate company. A real estate business and that's exactly what we're doing. We're innovating, we're migrating, and we're creating what we're dubbing Futuristic Suburbanism and the new way that people will live. Something as simple as people don't use dining rooms anymore.

Deidre Woollard: True.

Ari Rastegar: They just don't, they eat in the kitchen. Building larger kitchens, no dining rooms, different floor plans and things of that nature using smart technology, iris scans, to be able to walk into your house versus this little metal thing that I have to carry around and stick in called a key versus just using my phone and just click opening my door, which is literally in the dark ages. Bringing real estate into the 21st century. That's what we're doing. All the smart money knows.

Deidre Woollard: Question about the smart money because one of the things, obviously you are a huge multifamily guy, we're seeing this rise in single-family built around. We saw it obviously during the rental crisis.

Ari Rastegar: That's what we are doing. We are renting all the houses we're building. That's what we're doing. Build to rent.

Deidre Woollard: Build to rent for communities?

Ari Rastegar: Absolutely. Yes, there might be depending on how the municipal bonds are structured, what human [inaudible 00:41:49] on some of them. You might sell some lots to builders, but predominantly build to rent is what we're looking at. The cash-on-cash returns are fantastic. Hardware finance a lot of the stuff, townhouses, multi-family, and homes. We are building communities. We have 320-acres in Kyle, which is just South of Austin, it's the fastest-growing city in the United States. Literally, 16 miles South of Austin on I-35, you drive another 40 minutes you're in San Antonio. Unbelievable location. There's 900 multi-units and up to 1,500 homes, some are townhouses, some are single-family homes, et cetera. We're just thinking of what the future is going to be and how people are going to live and operate. We have 60 acres of green space for hiking and trail, little miniature parks and coffee shops and breweries, just really creating these close nick communities that have access to the urban core if they want it. Or be able to be homeowners in great areas because ultimately the houses will be for sale. But for the time that these prices are really swelling, it's a better value for the investor especially these new in-plants into cities like Austin and Nashville that don't quite have their bearings of where they want to live. They might want to rent for a year, but they want to be in a house and they want to be in a good neighborhood. This provides them a conduit to rent so to speak, for a while to figure out where they want to be and they might want to buy that house, which ultimately will be for sale.

Deidre Woollard: That makes sense. What do you think about some of the green features? Are you incorporating that sort of thing? Are you concerned about construction waste? You're doing a massive amount of construction. How are you being smart about your sites?

Ari Rastegar: Absolutely. We're very, very conscious in that regard. Like I said, we're not building the largest Green-wall ever built in the Americas or 1899 McKinney development project in Dallas which you-all can Google and look up. But yes, we're very conscious of that. Using recycled materials. Just being conscious of these types of things and not being greedy. There's an old saying on Wall Street; bulls make money, bears make money, pigs get slaughtered. We want to just make good risk-adjusted returns. We want to hit singles and doubles, focus on capital preservation, leave some meat on the bone for the next buyer. Get our returns. But just keep hitting singles and doubles and stay very conservative as we've done over the years and it's served us well. If you look at our investors, one of them is the second-largest pension fund in the world, pension funds in Louisiana, family offices. High net worth individuals so a huge part of our business that built the business on high net-worth investors and they never left. Most of them are very, very close friends of mine. We have a very, very large high net worth business. They can invest in the read or they can reach out to us directly.

Deidre Woollard: Are your investors asking more of those ESG questions?

Ari Rastegar: They are.

Deidre Woollard: Are you finding them getting more interested in that?

Ari Rastegar: They are and we're at the forefront of it. Even renovating old buildings and not tearing them up is inherently ESG.

Deidre Woollard: That is true.

Ari Rastegar: The core of what we do has an ESG component.

Deidre Woollard: What do you thinking about solar and other alternative power sources? Are you doing the solar panels?

Ari Rastegar: We're looking at it. We're looking at everything. There is a bit, a lot of studies about solar panels putting off more heat than they're absorbing and some of them have done it right. Some of them have done it wrong. Solar City has done a great job, but it just depends on the math. This is math and analytics. It's like how long does it take the yield out? What's the savings going to be? What's the front-end cost? Sometimes it pencils sometimes it doesn't. We have solar panels on some of our buildings now and they pencil great on others, they don't. It really has to be analyzed on a case-by-case basis.

Deidre Woollard: Interesting, we've got a question on if you are looking at using green cement and saying that it makes sense for booming communities with tons of construction. Were you looking at green cement or sustainable construction materials?

Ari Rastegar: Yes, we are.

Deidre Woollard: Anything in particular?

Ari Rastegar: Our Head of Construction and Head of Development, Hunter Floyd, and David Clark, our Chief Operating Officer are more equipped to have those discussions. They are on the front lines of working with that stuff. But what I can tell you is we are absolutely aware of it and it is something that's very important to us. At the end of the day, our job is to create Alpha and do it in a way that is conscious, transparent, and fair to all parties that we work with. But it's definitely something we're looking at heavily.

Deidre Woollard: Excellent. In terms of impact investing, you mentioned earlier that you're investing some Opportunity Zones. How has that process been like for you and what are you thinking about the future of the program in general?

Ari Rastegar: Who knows? [laughs] I think the program has been good and has been bad. There's some areas in the Opportunity Zone that have no business being in the Opportunity Zone based on the cadence of what the Opportunity Zone is supposed to be. Such as a property that I own in downtown Phoenix that is literally in the middle of downtown Phoenix on 4th on the That's one of the hottest neighborhoods in all of Phoenix that we're building 90 condos on. It's in the opportunity zone versus being out in places that really need development and need dollars. But we don't make investment decisions based on taxes. Like I'm not buying a property because it's in the Opportunity Zone. If the deal pencils and it happens to be in the Opportunity Zone, God bless America.

Deidre Woollard: You're in so many different cities so I'm assuming you're meeting with tons of neighborhood councils, city councils, building councils, historic preservation. Tell us a little bit about what that's like. What are some of the things that cities are concerned about right now?

Ari Rastegar: I mean, it runs the gambit. The whole spectrum. Some cities have burned their urban core, they're are interested in walkability. Some want social distancing, some want more green space. There's no way to answer that question in a vacuum. It's really out of community-by-community basis. But I really commend so many of these council members that donate their time to do this and what I have found that I'm pleasantly surprised is a lot of these council people, they really care about their communities, they really do in a genuine way. That was really refreshing for me. There are political offices in some regards, but I find that this sector has a lot of heart value which really resonated deeply with us, especially with the ethos of Rastegar.

Deidre Woollard: Are you also finding some neighborhood pushback? You always have the NIMBYs and the YIMBYs, the not in my backyards.

Ari Rastegar: Of course, it is fine.

Deidre Woollard: How do you have those conversations with neighbors?

Ari Rastegar: Gently, truthfully, and honestly. We can agree to disagree. In this country, we've come a way from just because we disagree doesn't mean that we hate each other. Like I have a way of looking at the world and you have a way of looking at the world. We can both respect each other and we can respectfully disagree and still go have lunch together. That's what an opinion is, my opinion. They have their opinions and I'd like to believe that we're aligned more often than not and there's times that we're not and we deal with it gracefully and elegantly.

Deidre Woollard: The affordable housing issue is something that's so big for so many communities. Yet no one seems to know how to solve it. California is throwing lots of money in different directions. What are you seeing as part of the solution? I mean obviously if you're doing Class B and Class C, you are a part of that workforce housing solution. But do you feel like there's a need for more government intervention?

Ari Rastegar: No, no.

Deidre Woollard: No, okay. Public, private?

Ari Rastegar: No, this is the private sector needs to work in conjunction with the public sector. But the private sector needs to handle this issue. The public sector is incapable of doing this on their own, in my opinion. I think it must be a marriage, it must be a cross party, bipartisan effort, mostly predominated and pioneered by the private sector because the public sector is not as efficient and I think the private sector really needs to step up in a meaningful way and help tackle these issues. A lot of my colleagues are starting to take this stuff really, really seriously. We take it extremely seriously as you know. I'm very optimistic what the future will hold, some really great solutions that are innovative, that are cost effective and we'll begin to solve a lot of these problems. I'm sure they'll be new problems, but I think we're on the path to solving a lot of these problems.

Deidre Woollard: I think there is some concern about things penciling out. What do you think about mixed income development? There is a lot of talk about that, there's a lot of controversy about things like what they call poor doors in New York City where people, the affordable go through a separate door.

Ari Rastegar: This is fine. This is in every city. Everybody should have a right to be able to live in these certain areas. I am a proponent of offering a certain amount of units that are more affordable within a median income, especially if people are getting priced out of the market and you have to make a pencil.

Deidre Woollard: Do you have any concerns that some of the things that happened in a city like San Francisco or some of those concerns in California where we're starting to see a little bit of people leaving.

Ari Rastegar: A little bit of people leaving?

Deidre Woollard: Okay, a lot. [laughs] Are you concerned that some of that, like in Oregon, they talk about the California kitchen of Oregon. Are you concerned that Texas is going to have some of those problems with this rapid growth?

Ari Rastegar: Yes.

Deidre Woollard: What do you think some of the solutions are?

Ari Rastegar: I am not concerned about it, but it's going to happen.

Deidre Woollard: What do you think some of the ways to avoid that are?

Ari Rastegar: I don't know if you want to avoid that. Either you fight the wave or you ride the wave, it's happening. It's going to happen and we have a lot of different viewpoints that are coming into our state that typically weren't there. In my opinion, I believe in being surrounded by believable people that have disagreeing opinions. That's where I found the best solutions in my career. Sitting across the table from someone that does not agree with me and has substance and research to disagree with me. Those times that I'm found to be wrong are some of the happiest moments in my life. I think that Texas is going to have some pretty unbelievable dialogues that they have not had in maybe ever. I'm looking forward to that.

Deidre Woollard: Interesting. I love that. We are about out of time so I just wanted to first of all, just thank you so much for this conversation. I think you gave us all a lot of food for thought and just wanted to give you a second if there's anything else you wanted to wrap up with.

Ari Rastegar: No, I think that's great. Like I said, we're pretty easy to find. You can just google Rastegar or Rastegar Property or follow me on Instagram at @Rasteger. I don't know much about social media. I've a team that does that stuff.

Deidre Woollard: You're on the Instagram a lot though. I have to say, you've got a pretty good following. You're on there a lot.

Ari Rastegar: I have a great team that helps me with that but I actually don't even own a computer. I run the whole firm on my phone.

Deidre Woollard: Really? You're a data guy but you're running everything on your phone?

Ari Rastegar: Everything is on the phone or it can be printed out and I flow. I go and sit next to the people, look at their computers and they show me the stuff and I get printouts and that's just how I've always been business and I enjoy it. I enjoy sitting in the offices of my colleagues and talking with them and seeing what they're working on. I just post up in the conference room and they all come in, people see me and I walk in and we have conversations and we're known for our walking conversations like Steve Jobs used to do, just walk and talk. I just pop into different offices of our executives and all the way from the top to the bottom. We just talk.

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