30 years in #CRE: 4 Key Takeaways From Michael Fascitelli

ULI put up a great interview with Michael Fascitelli where he shared the most important things he learned in his 30 year (so far) commercial real estate career. Born in humble circumstances, he started out as a McKinsey consultant. In 1985 he went to Goldman where he became a partner and ran their real estate investments, helping to launch their Whitehall funds. In 1996 he became president of Vornado Realty Trust, taking over from founder Steven Ross. He was CEO there from 2009 until last year and remains on the board. He has his own operation going now but thinks the market's 'a little long in the tooth' so he's taking it slow.

My Key Takeaways:

#1. Knowing where you are in the cycle is critical: One of the biggest challenges of the real estate business has been timing—and having the courage to invest when others don’t... At Goldman, we started to have a very bad market where we couldn’t [get] anything closed. We said, “Maybe it’s a good time to invest.” So we created Whitehall out of the bad market and the RTC days of the early ’90s... Real estate values had gotten clobbered; it looked like there was unlimited supply of space that would take years to absorb.

Everybody tends to overstate the current conditions. One of the challenges is to look beyond the current conditions. It’s very tough to do... We bought when things were relatively depressed and underpriced then had the courage to get out of the market, to stop buying when this kind of cycle gets long in the tooth. (Like now?)

#2. Beware of 'strategy creep' where today's low returns make you take on more risk: The core-plus guys are doing value-added or opportunistic investments... What’s happening [is that] people are saying everything else is too expensive, so I will develop. If they get a pro forma of 5.5 to 6 percent for apartments—even if that’s off 100 basis points or even more—they will end up [with] a new product at 4 or 4.5 percent... People are rationalizing lower returns and taking more risk... We used to say we would make it on the buy side, we would buy well. Today, we say we have got to make it on the operations side... Returns have gotten so low. (Probably because we're late in the cycle?)

#3. Real estate is not rocket surgery: One of my professors at Harvard told me, “These guys are no smarter than you. You just have to have more confidence that they’re not [smarter] than you.”

#4. But you do have to do the work and gain experience. Many of these things in real estate are just about judgment and your gut. You have to do the analytic work and the math, but you also have to have judgment, which is honed with experience... I started working as a kid. I did construction, landscaping, paper routes, shingling roofs. I’ve been working my whole life. 

Good hunting-