No matter what industry you’re in, keeping up with the trends is a must if you want to stay on top. Ari Rastegar, the CEO of Rastegar Property Company, joins Dr. Diane Hamilton to discuss the history and future he sees with the real estate scene in Austin, Texas. Ari also gives his two cents on what people can expect when it comes to office spaces. Finally, he goes into the benefits and importance of collecting and analyzing relevant data to secure your investment’s success. Know all about the changes taking place that are setting the pace of investments in Austin and learn why it’s the place to be in.
I’m so glad you joined us because we have Ari Rastegar here. Ari is the Founder and CEO of Rastegar Property Company. He is knowledgeable in the area of commercial real estate and so much more. We’re going to talk to him about everything going on with COVID and changes, and what’s going on in Austin as compared to the Bay Area, in general, for tech companies. It’s going to be an interesting discussion.
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Keeping Up With Austin’s Real Estate Trends With Ari Rastegar
I am here with Ari Rastegar who is the founder and CEO of Rastegar Property Company. Ari’s real estate investment spanned 32 cities across eight states and includes vintage multifamily units, mixed-use complexes, storage facilities, and more. He’s also renowned for his interest and dedication to a healthy lifestyle and is one of the preeminent thought leaders on biohacking and physiology as featured in GQ Magazine. It’s so nice to have you here, Ari.
Thank you so much for having me. I appreciate it.
I was looking forward to it. That’s quite a diverse background. I read your Forbes article where you talked about a lot of things that you do. For people who aren’t familiar with you and your background, can you give us the backstory a little bit of how you got to this point?
Absolutely. First and foremost, I’m the father of three beautiful children. My life isn’t about me. Our investors are public pension funds, insurance companies, high net worth individuals, etc. We built a nine-figure business and we’ll break a billion dollars in AUM. I started this company with a $3,000 loan when I was in law school. My dad was an Iranian immigrant. There are a lot of Iranians that share a similar plight after the revolution. My mother is full German and they divorced when I was young, which I found after years of life coaching with a lady named Lauren Zander, who is, I believe, to be the greatest life coach on earth, probably second is Tony Robbins that I was big into self-help.The great tragedy of humanity is not that we aim high and miss, it's that we aim low and hit. Click To Tweet
I was an English major and undergrad, but I flipped burgers through high school, delivered pizzas through college, and took student loans out to get into law school. I was an English literature major so I’ve always been enamored by books. Both my parents were voracious readers. You would think I was exaggerating but I read at least 5 to 10 books a week. I’ve been doing that now for many years on a broad spectrum of stuff. In front of me, there’s a book called The Intelligent REIT Investor that Forbes did. You’ll find a book on spirituality and transcendental meditation. It runs the gamut for me like Shakespeare and Emerson.
To me, in my heart, I’m an artist. I’ve always been able to do the math in my head. It’s been pretty simple. I count on my hands. It’s 1 billion, 2 billion, 3 billion, 4 billion, 5 billion so it’s not that hard. After being on Wall Street for as many years as I had and having some great mentors at the highest levels of this business who are now many of them are my investors, ironically enough, I wanted a better way. If you look at Wall Street, you could argue that some methods are to say lightly, maybe depersonalized.
There’s nothing more personal than business. I sometimes use that word hate but I don’t hate anything. I’m a loving man for anybody that knows me and my heart is open. Sometimes I get those shots like the arrows that hit you, but I still lead heart first. That’s always been how I’ve been a kid and it served me well. I endured a little bit of hardship. I wanted a better way to do this business to find a better alignment of interests to structure things and use my attorney mind to offset risks to mitigate downside risk.
I hate to use jargon because Einstein says, “Keep everything as simple as possible, but no simpler.” That’s always been a mantra for me in finding better ways to do these things. I was a little bit disenfranchised, but at the same time, I learned the best of them. I had to find my own inner voice for being a kid that came from nothing. With that said, my grandfather was the psychiatrist, Shah Viren. Everybody on my father’s side of the family has a PhD, a doctor, or a lawyer. My uncle is the Director of the National Science Foundation. I come from a long line of educated people. In fact, when I told my father that I wasn’t going to law school, which I am a licensed attorney, FYI. He said to me, “Son, after you become a lawyer, you can be an exotic dancer for all I care.”
You did that, right?
I did but I found a loophole. He didn’t say I couldn’t start my real estate company while I was in law school. I borrowed $3,000 from a friend of mine’s father that I went to college with. I used my scholarship money at St. Mary’s in San Antonio. I grew up and down Texas. I lived in Texas for most of my life other than the 5 or 6 years that I was on Wall Street. I was born and raised in Austin. I would argue that this is the hottest real estate market in the United States of America and will be for the next 50 years.
Elon agrees with me based on a bunch of the stuff that he said. He bought 2,000 acres here to build the largest Gigafactory in the world. I own 50 acres close to him. A lot of that is providence and lock in but I knew where I was going and what I wanted to build. I was blessed because a lot of people are much more talented and smarter than me don’t have directionality. A quote that I love is, “The great tragedy of humanity is not that we aim high and miss. It’s that we aim low and hit.”
That’s a good point. I see a lot of people who do that. You aim high and it’s interesting your background. I imagined being an English major turned lawyer, you had some well-written opening and closing arguments.
I didn’t want to argue, which is funny. I grew up being cross-examined because my father’s an attorney. My Uncle John, who’s not my technical uncle, and my dad’s dear friend for all these years, I clerked for him. I sat in 60 capital murder trials from age 14 to 22. I realized that life wasn’t the life that I wanted. Mark Twain has a great quote, “When I was eighteen years old, I couldn’t believe how little my father knew about the world. When I turned 25, I couldn’t believe how much he learned in seven years.”Business is the most fascinating form of art. Click To Tweet
It’s interesting to see who wants to learn. When you were telling me about your family, I’m thinking since I’m a curiosity expert, your family’s highly curious. They value education.
Curiosity is the gift that was given to me. I ascribe to a work ethic because I assure you that I’m not the smartest guy in the room by any stretch of the imagination. I’m curious. It’s a beautiful word and I love to read. Both my parents are voracious readers. They divorced when I was young but they’ve always been truly voracious readers, whether it was sappy little romantic books all the way to John Grisham, Shakespeare, and Napoleon Hill. I was blessed to be around that. What I’ve learned as a father of three is that children do what they see, not what you tell them.
These are natural laws. If you want to be a great real estate guy, you find someone that you want to model and you find your own voice. I knew because my grandfather was close with and was this illustrious man, seven gold medals in the Iranian National Olympics effectively. He taught history at the American University in Iran at night. He was the psychiatrist at The Shah Viren, wrote poetry in three different languages, and was 6’4”. He was this huge man and such a renaissance man.
After the revolution, he lived in a two-bedroom little apartment in Duncanville on no man’s land Texas. The blessing for me was living with my mom until I was about 9 or 10 years old. I came to live with my father, but I’d go back and forth in summers and spring breaks. My dad was working so I had the great fortune of getting to know my grandfather, him telling me these stories, and reading the poetry. He’d read me the Persian poets, the Rumi, the Hafez, and the Maulana. I’d read it to him in English, and we talked back and forth. I speak fluent Farsi and Spanish. He would tell me about this better world, this better thing, and I wanted to be like him. I wanted to be a doctor. I’ll never forget the day where he said, “No, you see all those big buildings when you’re driving through downtown Dallas. One day, I want you to own all of them.”
It’s amazing how much wealth you can build in commercial real estate. As you were saying that, I was thinking of my grandparents. They owned the St. Louis Arena. The Hamilton Shoe Company based out of St. Louis and it was purchased later by the Brown Shoe Company, Buster Brown, and all that. They own that arena and I didn’t even ever have any part of that. My dad was 42 when I was born, so I never got around all of this stuff. They were all over 6’4” and my brother’s 6’8”.
They’re all big people and I was thinking how we have some of this stuff in common. Even though I have a real estate license, I’ve never dealt in commercial real estate. I know you deal with a couple of different things. I wanted to touch on something since you’re the expert in that area. What’s going to happen now with all these companies not needing as much office space? They’re letting people work out of their homes and thinking that they’re never coming back.
Let’s talk about that.
I’m passionate about that topic.
I’d like to hear your insight.
People are going back to the office.
100% of them will? I’m curious.
No, but people are going back to the office. We are tribal beings and it is scientifically proven that when like-minded people or even not like-minded people even better but are believable people as Ray Dalio says. If you’re surrounded by believable people that come from different vantage points, you break bread together, whiteboard, and talk, something greater than the sum of its parts happens. You can look at that from a spiritual aspect. I’m a big believer in Transcendental Meditation. I’ve been doing it for many years. Someone asked me, “What’s your title? What are you? What do you put down when they ask for the profession?” I write down, “Artist.”
Andy Warhol said, “Business is the most fascinating form of art.” This is my expression in these things, and David Solomon, the CEO of Goldman Sachs, you can pull this up. He came out vocally that this working from home is going to end. Jaime Diamond, the CEO of JPMorgan said the same thing. Productivity has plummeted and people have Zoom fatigue. There are certain sectors. Spotify said, People can work from home permanently and Twitter said but if you’re in any client-facing modality, in-person, being in the office, and being with people is mission-critical.People are going to go where the jobs are, and companies are now more sensitive than ever to the lifestyle. Click To Tweet
I’ll give you an analogy because I’m a data freak. Everybody knows that about me. I’m a middle child. I’m a Millennial but I’m the oldest Millennial. I’m the API plugin between the older generation. I’m formally educated, I speak multiple languages, I’m an attorney, and all those things so I can speak to the older generation and translate with Gen Z and what the Millennials are saying. I’m sitting in the middle, so I’m a cross baby. I know definitively that, and even seeing it in my own company, when people were working from home, this desire to be in an office to work, travel, and meet their clients.
There is a sector of the world and technology companies are becoming even bigger than ever. Information technology grows exponentially and accelerates and all the things that we know. Ray Kurzweil, the other Director of Engineering at Google has been clear about this, and singularity. We can go down the rabbit hole and it doesn’t matter but the point is, we will go back to the office. I’ll give you an example about this from history because you can’t understand literature without the context of the history that body of work was written.
In the 1980s and ‘90s, the largest tenants of office buildings were law firms. If you think about it, before the digitization of these books and these law books, they needed twenty floors for their libraries. In the late ‘90s, when all of that became digitized, all of a sudden, you had this massive vacancy across the United States in offices because people no longer needed that space. It’s the same conversation of, “It’ll never fill up. It’ll never all this happened.”
Within eighteen months, that vacancy was filled. We have more entrepreneurs now than we ever have in the history of mankind and that, to me, brings so much joy to my heart. When you’re in a startup environment, I started this company with a $3,000 loan, and now we have hundreds of millions of dollars of assets. I own 100% of the company. I never sold anything at the corporate level. As I’ve said, we run a highly institutional shop but I know what that means in a startup environment and having more entrepreneurs pushing innovation and pushing those things together. They’re going to need to be together.
I know what that’s like when you’re sitting in the room with 5, 6, 3, or 4 people and you’re brainstorming, white storming, or you’re sleeping in your office, and you’re breaking bread. The magic that comes out of that cannot be replicated digitally. It’s an energetic human thing that happens. It’s greater than the sum of its parts. We’ve seen this correction happen before. Mark Twain said, “History doesn’t repeat itself but it sure does rhyme.”
That’s an interesting discussion because I had somebody who is a professor at Harvard and we talked about productivity. In some forms, productivities are up but people are burned out. It was a Stanford study that came out that I haven’t read yet but it was about Zoom draining. We’re being drained.
Even the CEO of Zoom himself said, “I’m sick of Zoom meetings.”
There’s always too much of a good thing. It’s great to be able to connect, but there are so many of them. One is ending and you’re getting another and another. Nobody’s taking breaks. There’s a point where it’s too much.
Being at home, not having a safety valve, and the normality for the children to go to school, pick them up, go into your office space, and then come home and be a parent. Having that together that alone is draining when you’re having to help the kids with the Zoom, you’re getting on a conference call, and the kids are crawling on you. It doesn’t work but definitively, if you’re a software engineer, your whole job is sitting behind a computer. You don’t have any client interface, which, I believe, can have the ability to have the permanence of being outside of the office if they want.
My belief is that even those people will want to have human interaction because we’re tribal beings. You might want to yell across the office to another software engineer and say, “Will you take a look at this code and let me know what you think?” It’s an overcorrection. We saw this in retail and we call it the Retail Apocalypse. It is a total overcorrection and we’re watching retail be being reinvented in the genius of calamity that we’ve seen.
Using World War II as an example and putting aside the devastation and the devilish behavior of World War II. Put that aside for a second. The innovation that came out of World War II as a need of necessity is still using now. That is the silver lining around some of the calamities of COVID and all these other things but there is no question in my mind that office will have a resurgence that will surpass even was in what it was in the past because people got a taste of what it feels like to not be in the office and they do not want that.
I imagine people now with kids and in their house trying to do it all I have a lot of sympathies. I’m trying to do it with a puppy and that’s hard enough. It’s interesting to see the things that people predict more in the residential space. It’s a combination of both. I had somebody talking about if Uber takes off and people don’t want cars, then we have no cars, garages in the houses, and no parking lots.
Let’s be clear about that. I’m much in the details of those. That is not a 5 or 10-year plan. That will not happen. That is on a twenty-year timeline. People are going to drive. We’re a driving culture, especially in the major cities in the United States. Yes, automated cars, Uber, and Lyft, changed the world in many different ways. I’m a developer at five projects breaking ground with five different buildings. An office building, a post-COVID building, a development project on South First outside of Austin where we’re partnering with the largest public pension fund in the United States. We’re building a master plan community on 320 acres building 1,500 homes. We’re building 500,000 square feet of industrial. I’m much, on my hand, on the beating pulse of where this is going, especially from a sunbelt perspective. It’s completely unsustainable.
When Jamie Diamond and JPMorgan came out and said that productivity has plummeted, it’s absolutely plummeted beyond belief and they can’t wait to get people in the office. David Solomon, the CEO of Goldman Sachs said the same thing. That comes from people needing that safety valve of needing to travel and wanting to see their clients. We’re going to watch what we call a K-Shaped Recovery. I don’t like to use jargon by any stretch of the imagination, but a K-shaped recovery is effectively different asset classes will recover quicker than others.Homelessness is a mental health issue more than it is about homes. Click To Tweet
Hospitality, retail, and those things will lag a little bit further behind. Multifamily has fared well because people have been a little bit scared about where they want to be and Millennials change jobs more than any other generation. It’s not that they don’t have the money, it’s that their core values are different. They want to be out of the house, have experiences, travel, and try new things. That’s diametrically different from what the generation before that would be in companies for 25 years have their pensions. That world is changed, so we have to evolve into what this new norm is going to be.
I shy away from predictions because it’s an assumption and it makes an ass out of you and me. I don’t make predictions. I don’t have a crystal ball. As a real estate Chief Investment Officer, CIO, I’m a risk manager, so I manage risk for a living but in my heart, I’m an artist. I sketch the buildings that we have in concept, building community, and taking it out of me to build something beautiful that will serve your end-user tenant. We call them neighbors at Rastegar. These are our neighbors.
We use these different words to effectuate the heart value that is the essence of Rastegar because I started this firm to do it better. Have we done it perfectly? No. Perfect, for me, is for something bigger than me. I’m after excellence. You’re going to watch a major shift in these things. You’re going to watch office space fill up. People want to be back in the office, and some of the sectors, as we mentioned, will be working from home but this is also not new.
The CEO of Coca-Cola pioneered this work from home concept years ago so this is not new. COVID accelerated it, but we were already moving in that direction for certain industries and certain job types that would be able to work from home. There’s no doubt in my mind that offices are going to make a major recovery and begin to be filled mostly by entrepreneurs, startups, and other innovations that will lead to even greater productivity.
As you said, I was thinking of a Forbes event I attended where they talked about making the Midwest great again. It used to be the Silicon Valley of its time with cars and everything else. We now have Silicon Valley.
Boston is the new Silicon Valley.
That’s what I was going to talk to you about, because when I had Steve Forbes on the show and I asked him about that. Where’s the next place going to be? A lot of Californians are moving here, to Arizona, where I am.
We love Arizona. I have a condo development going up in Forth and Van Buren. Phoenix, in general, had the highest rental growth and the highest increase in home cell values of any city in the United States. Austin will be what we call Silicon Hills with Oracle moving their headquarters here and Elon building the largest Gigafactory. Austin will be the new Silicon Valley without question. The future of America is in the sunbelt.
California and New York’s governmental failures to disincentivize companies to be there, agree to taxes, and those things. Company owners are looking at this and saying, “If we were to move our headquarters, we can have a lower rental rate, so it’s better at the corporate level. Our employees get an automatic raise without having state income taxes by being in Texas.” They’re starting to look at these things from a different vantage point because now the world is connected globally through the use of technology, which is incredible but there’s a fine line between the extremism that you’re seeing working from home permanently. I am absolutely vehemently in disagreement with that on a human spiritual level as well as an investor.
I bought an office building here in Austin that’ll end up being our global headquarters. I know now, by dealing with our employees, vendors, property managers, and contractors that at any given moment, we have about 100 folks that we’re dealing with, including our consultants and contractors. People want to be at work. They want to be productive. They need to get out of the house and get back to normality. It’s causing catastrophic mental trauma. I don’t think that’s been covered enough of the mental toll even with the vaccines rolling out, which is great.
Israel does an amazing job of showing how this COVID can be controlled. The numbers are starting to drop. It’s a smaller country, but they’ve shown that this thing works, but it’s going to take much longer than people would like to think to overcome that mental trauma that has occurred over a year. Those things are quelling. When you look at this on the one year, it’s going to be painful, but if you look at it as a ten year, my hope is, and we’re going to look back on this, this will be a blip on the radar. As my wife says, “Ari lives 30 years in the future.” I’m looking at things 30 years down the road and all the stuff that’s for my kids.
I’m not a money worshiper. I want to create value. The old saying is, “Bulls make money. Bears make money. Pigs get slaughtered.” We are looking to create what we’re dubbing Futuristic Suburbanism. We’re building this project in the South of Austin in the city called Kyle. We’ve assembled 320 acres, and we’re building anywhere between 1,200 to 1,500 homes. That’s for workforce housing. It’s a little bit nicer than your typical track homes with great green space, walkability, little mini parks, and alleys. It’s this beautiful master plan of what the future of this will be. People will return to the urban core. There will always be a demographic of folks that want to be within the urban core. It’ll take a little while to get that comfort back, but you’re watching home prices swell outside the urban core.
I created a 70 point due diligence program over the past couple of years. It’s proprietary and one of them will sound a little bit childish to you but it’s amazingly profound if you think about the implications. I call it the $5 Uber Ride. If you’re within a $5 Uber Ride with all of the amenities, those are places that we’re looking at. That poses safety. We’re focused on vintage multifamily, which is effectively older apartment complexes, 30 or 40 years old that would be considered Class C or Class B properties, but are in Class A locations. We’re focusing on being agnostic around the asset classes. We’ve been in 38 cities, 12 states, and 7 asset classes exited successfully with audited track records.
I’m not a home run guy. I’m a singles and doubles guy. I’ve always lived by the mantra of, “Don’t lose money.” You’ll rarely hear me talk about making money. I’m about creating value. If you create value for your end-user and take that Amazonian approach to the dichotomy between being a mercenary investor versus being a missionary, this is much a mission. The world is changing, but to me, the world is changing for the better. I can say that with a clear conscience that when this is all said and done, the innovation that’s come out of it. Look at the vaccine alone. We’ve never had a vaccine be created this quickly. We’re watching the world unite to come together against this virus. To me, those are beautiful silver linings.
It’s a unique time. It’s interesting because AstraZeneca is working on one. I worked for AstraZeneca for twenty years. I was thinking, when you said, “People don’t do that anymore.” I am one of the few people I know who’s got a pension, which is nice. As you’re mentioning what is going to happen with all these areas and I know you’ve said Millennials like urban and different things in some of the articles I’ve read about you. We’re talking about Austin and Phoenix and these places growing and becoming little hubs of some of this stuff that used to be in Silicon Valley or Detroit and a lot of other places. What happens to Silicon Valley? What if you put up everything you can to buy a home?
You’re in trouble.
What’s going to happen to that housing market?
It’s going to plummet.
It already has. We’ve watched prices decrease already by 30% but there is a demographic of people. San Francisco is an amazing city. Great food and a great lifestyle. California breaks my heart. My wife was born in Hollywood and we spent a lot of time there managing broker deals for our new REIT launched, which you might have read about in the Commercial Observer. We’re the cover story of the Commercial Observer in print. The fact of the matter is people are going to go where the jobs are.
Companies are now more sensitive than ever to the lifestyle. If you do your history and your homework, all of Silicon Valley was built around Oracle. I have a lot of respect for Elon Musk for a variety of different reasons. At the end of the day, I don’t think he should be ready to public a company but he’s a visionary and he has all my love and respect. The fact of the matter is Silicon Valley is built around Oracle. Oracle’s new headquarters is in Austin. They moved their headquarters.
Did Ellison move?
He has a place here from what I know.
He’s on Billionaires’ Row. I’m on the board of advisors for DocuSign. Keith Krach was the CEO and Chairman of DocuSign and it’s amazing where they live. He was his next-door neighbor. I was curious when he moved. You said San Francisco is going to take a hit but what about where Apple is. Are they having a strong presence there?
Apple bought 140 acres in Austin and they’re building what I believe to be their new headquarters here. It’s 140 acres. It doesn’t deliver until 2025. Google and Facebook are second largest office in the world is in Austin. This little company that you might have heard of called Dell has been here for 25 or so years.Everybody needs to get a new pair of sunglasses because the future is that bright. Click To Tweet
Should these leaders, Oracle, Apple, and Dell buy the housing to help them out for people whose housing has gone under?
Do you think they will?
No, that’s not their responsibility. Their responsibility is to their shareholders. The responsibility is there but these individuals have the choice to live in San Francisco. These will be reinvented and we’ve watched this happen. Back to that Mark Twain quote, this is a reinvention of where things are going. If you look at the population migration trends, and we do a lot, we have a lot of artificial intelligence. We’re much a data analytics company at our core. The joke at Rastegar is, “Light bulbs don’t go out at Rastegar buildings.” The reason why is we have chips in all of our light bulbs where we quite know when the light bulb is going to go out before it goes out.
It’s interesting. Data is critical. I’ve had so many great guests that were data analytics experts. I’m thinking of Dr. Cindy Gordon and so many others. Data is important. I’ve had some experts on whom I’ve talked about things like inflation and different things. When I was asking one, I can’t remember who I asked, about now that we’re printing all this money to pay for all the problems with COVID, why aren’t we seeing inflation?
It’s exaggerated, in my opinion.
What’s exaggerated? I’m curious what you think it is.
The hyperinflation piece. Money is being absorbed and you’ve seen this happen in 2008 when the Fed bailed out all the big companies. They’re paying the money back and we printed money to do those things. Hyperinflation from a real estate standpoint, all that does is make real estate values more expensive. Real estate and commodities in general, whether gold or silver, and hard assets are hedges against inflation. San Francisco, from a real estate standpoint, is in big trouble.
It’s landlocked. Doesn’t that help a little bit to retain the value?
That’s what’s caused it to grow, and Austin has the same cadence because we have real geographic barriers with the hill country and the lakes. It shares a lot of that similar cadence, but the difference is you’re in the middle of the United States. One of the biggest complaints of the companies in Silicon Valley is they have to get on a seven-hour flight to get to New York. They have to get on a 4 or 5-hour flight to get the Austin.
Austin or Texas, being geographically centered and being able to be in all these major cities within 3, 3.5 or 4 hour flights, an hour to Chicago, and 1.5 hours to Miami, the geographic strategic nature of being in Texas, aside from the fact that if we were a country, we’d be the tenth-largest country in the world on a GDP basis and we operate at a $12 billion surplus. California and New York operate at deficits so we have the money and the ability to do these things. This is not going to slow down. It’s going to accelerate dramatically.
Texas will begin to be the center stage and Austin leading the charge on that because of the folks that are leaving New York and California. Austin has always been a liberal town. It went through Obama, Hillary, and Biden. Texas went the other direction as a state, but we’re watching a reinvention of the politics of Texas moving much towards a libertarian/purple party. I don’t know if you’ve heard that term, but this purple concept is basically being fiscally conservative but liberal with human rights.
Mark Skousen was on my show.
I don’t get into politics. I’m an American. People say, “You’re a Republican or you’re a Democrat,” I say, “I’m an American.” I don’t agree with anybody on anything, including my own kids but there are good things. President Biden has my prayers. I believe that he’s coming with great intention and gave us a lot of great things than President Trump did. I wish he didn’t tweet as much as he did and close his mouth a little bit more. There are a lot of great things that he accomplished as President and President Biden will do the same thing. All of this will foster growth for different reasons but there’s no question if you track the population migration trends of San Francisco versus Texas versus Austin. It’s been a hockey stick down population migration while Texas has been a hockey stick up and COVID accelerated that.
In California, the one thing I notice more than anything is the homeless rate going up quite a bit.
It’s going up because people are priced out of the market. It’s reached its top.
How do you avoid that in Austin?
In Austin, we’ve seen our homelessness increased, which is hurtful for me being a developer of homes. It’s in line with our core values to make sure that the rest of our family foundation is much behind coming up with those issues. Homelessness is a mental health issue more than it is about homes. It’s a very complicated issue. Houston has done a tremendous job of quelling that. They’re landmark pioneers of how to deal with that issue in an ethical way. If you’re not familiar with what we’ve dealt with homelessness in Houston, you should look into it because it’s pretty remarkable. We’re watching a greater disparity between the rich and the poor.
Some things that don’t sit too well for me, especially being a kid who came from nothing, and specializing in workforce housing for normal Americans who can buy things, appreciate, be too expensive, and create a better standard of living. San Francisco, California, and New York, in general, the exodus out of these states. New York is going to have the exodus into Florida. They’ve already always had a great relationship from a retirement standpoint. They have no state income taxes and all the reason that Texas has it. You’re going to watch California’s population migration trends move even more into Austin, particularly because of the political climate here. They can feel more comfortable. We have hills and have more public parks in Austin than any top ten cities in the United States. People feel comfortable being here.
I’m curious about the weather there. I spoke in Austin at a top women’s event a few years ago and it’s the first time I’d ever been there. It was lovely and I had a few months before that flown through Houston to get to Alabama for my first speaking arrangement. I got stuck on the tarmac in Houston for hours with the weather. How’s your weather in Austin? Is it humid? I don’t know much about that.
In Austin, we don’t have humidity. Houston is a different animal. Houston is extremely humid. There’s a lot of value to be had there. It’s growing dramatically. Hewlett Packard moved there. The thing about Houston that irked me a little bit and I’ve invested in Houston in self-storage, and we’ve done well around the perimeters, but Houston has those zoning laws. As a real estate developer or real estate investor, understanding where the competition could be is difficult to gauge in Houston.
In Austin, I give Governor Abbott and Mayor Adler a tremendous amount of credit for being able to have a bipartisan discussion that’s healthy between this liberal core that we have and this conservative suburban area to protect our trees and environment. Also, greenbelt protections and parks, but at the same time maintaining a conservative fiscal policy, which I believe will be the future of where politics will go by having those dialogues. I don’t agree with everything people did. Bill Clinton, although a Democrat, was much a Republican when it comes to these things. He was able to cross party lines and was able to have these dialogues. This needs to be more collaborative than it’s ever been before. I believe that we have the ability to do that. In Austin, we have 156 people a day moving to the city.
Why Austin? Why not Dallas?
Dallas is conservative. Dallas is a metropolis and Austin is a city on steroids. Austin is also beautiful. Dallas is flat. I went to high school in Dallas. I love Dallas. It’s a second home to me. I went to middle school and high school there. I went to law school in San Antonio and I was born in Austin. If you look at those three cities, they’re all connected by I-35. I grew up on that I-35 corridor which is the center of all of them.
We have an enormous investment in Austin and Dallas at 1899 McKinney, which is basically 52nd and Madison, effectively of Dallas and we’re building the largest living wall ever built in any of the Americas with 40,000 living plants that lower the carbon footprints. I ascribed to this concept of conscious capitalism that I’ve used a lot, but it comes down to creating value and being obsessed with your consumer, which is that Amazonian approach.
From a geographic standpoint, Texas is geographically strategic, as opposed to being on the East Coast or the West Coast simply from a travel standpoint. As much as I love Dallas, it’s not that pretty. It’s flat. Austin is all hills, lakes, and it has all these things. We went through this big winter storm. There were some fingers to be pointed here and there, but I assure you, that will never happen again. We have the money to deal with it. It was a perfect storm, no pun intended of several things failing.
I’m curious, event-wise, every time I had an event either in San Antonio or Dallas. It was never in Houston or Austin.
Why was that?
It’s because the people are here now.
Everybody told me that Austin was a college feeling town. It was cute.
It’s young and hip. It has energy. The tagline of Austin is, “Keep Austin weird.” If you look at the demographic of people that are moving here from these other states that are typically much more liberal, they can find a lot of peace in Austin. The Californians that are moving here see a similar cadence and a similar natural, although it’s not oceans, it’s lakes. There are hills and trees. There’s a lot of comfort for people being here in Austin versus Dallas if you’re a Californian, or you’re a New Yorker because it’s reminiscent of something that has comfort.
There’s still a huge demographic that loves California. How can you not love California? The oceans, the weather, and all these great things, but the government is disincentivizing companies and people to be there at such a level that I don’t think they could have done it worse if they tried. I’m not criticizing it but it’s facts. Raising the wealth code, the taxes, and all these other things, because the state is bankrupt. When you talk about a state like Texas that is a $12 billion surplus, we have the money to create infrastructure, roads, to support a growing population. Not to mention, Texas is larger than almost all of Europe so there is space and room.
When you talk about the space and places, it made me think of, in California, we know 90210 is a popular zip code.
78746. That’s what’s called Westlake. That’s the Beverly Hills in Austin. It’s home to the Eanes School District, which every year is in the Top Five Public School Systems in the United States. It’s the number one public school system in Texas. Our kids go to public schools because they’re extraordinary. People want to be there. You’re about 10 to 15 minutes from downtown depending on traffic and you could have the ability to access the urban core if you want to for dinner, a night out, go to the bars, or whatever you want to do. Also, people want to be in 78746 because of the profundity of the school district.
That’s interesting. In Arizona, it’s 85253. It’s interesting to see the top areas in what’s growing and I know I kept you longer than I normally would but I thought this was an interesting discussion. We don’t get into real estate that much on the show. It ties into so many other things. We talked about it in so many other shows, so I appreciate that you had so much information. We’ll make sure I covered everything that you’d like to cover while we’re here.
For me, it’s about viewership. You know your audience and I want to keep this conversational and not be real estate-centric, per se. What we believe in is the marriage of pop culture, real estate, and how people communicate. Also, how people interact agnostically with real estate, whether that’s retail, amphitheaters, immersive retail experiences, in addition to houses, multifamily, and investing heavily in logistics with our industrial development, because you need the logistics to support a growing city.
We’ve been much agnostic from that side but our REIT launched will be focused almost exclusively around vintage multifamily because that’s where people want to go. I’ll leave you a staggering statistic that blew my mind and it’s as of 2020. It came out and CNBC. You can look this up and source it, but 54% of individuals aged 18 to 29 are living at home. As a real estate investor, that’s what we call Shadow Demand. When mom and dad are finally saying, “Billy, Jane, it’s time to move out,” they’re not moving them to the high rise of downtown San Francisco or downtown Austin whatever.
They’re moving them into areas that are renovated and safe. Vintage multifamily has inherent social distancing because these are typical 2 or 3 story walk-ups, so elevators mostly without pools and gyms. It’s a safe environment. With the $5 Uber ride, they can access all those amenities but that concept of the highest percentage in history, more so than the Great Depression or the Great Recession, those individuals are living at home.
When they come into the marketplace, which they will inevitably forget about, “I’m not a market timer. I’m not a magician. I don’t have a crystal ball,” but it’s inevitable that they will leave home and move. We believe the greatest opportunity for them will be within the Sun Belt areas, tech-centered cities like Raleigh, North Carolina, Charlotte, Nashville, Phoenix, Austin, and Tampa, because that’s where the jobs are. They need a great standard of living because we take these older complexes that are smaller than what private equity will look at, but larger than what local investors can invest in.
The plan is to pull them together and hit scale and effectively create a mutual fund as REIT that has geographic diversity and price point diversity. For that, on an exit standpoint, the big funds, the big black stones of the world will pay a massive premium for that, but they’re not willing to do the work because they want to place $20 million to $30 million of equity in deals and some of these deals that $4 million of equity. What we do is we go in, and we get to renovate these down to the studs, as we say, and truly create a Class A experience on the interior and exterior basis at a fraction of the price of new construction.
It’s interesting what we’re going to see for the younger generation. I’m also eventually interested in what they’re going to change for the older generation, with the boomers all retiring, but we’ll probably have to do another show.
That’s another show. What you’re also going to look at as the largest transfer of wealth in the history of mankind, as the Boomers transfer that money, they pass away, and move on as the natural iteration of life to the Millennials and the Gen Zs. We’re going to start thinking of that money and wealth that’s being transferred. What is the core value? What is the need of those generations? Looking years in the future, whatever that is, we have to be building things and thinking in terms of Gen Z and Millennials of what they’re going to do because they’re the ones that are going to control the wealth.
It’s an interesting discussion with everything we talked about. I enjoyed hearing your perspective and a lot of people want to know more about how they can follow you, find out more about your company and what you do. Is there some site or way to follow you?
It’s easy to look me up. If you Google Ari Rastegar, you can find thousands of articles. It’s public what we’ve done. You can follow me on Instagram @Rastegar. I’m not a big social media person but I’ve started to do some more podcasts. I found out that my Instagram was verified and I didn’t even know it. All my Millennial younger generation were like, “You’re like an old man.” It’s funny. I’ll tell you a funny thing about Ari. Ari doesn’t own a computer.
That is funny. I can’t imagine. I’ve got three of them on my desk now while I’m talking.
I run everything through my iPhone. I’m old school in that regard. I like it printed and in PDFs. I like to look at it, I underline, look at them, and talk about them, but it’s going to be something special. What I want to leave your readers is everybody needs to get a new pair of sunglasses. I say that because the future is that bright.
That’s a good way to end. Thank you so much for being on the show, Ari. This has been interesting.
Thank you for having me. I look forward to doing it again. My podcast is going to launch in June 2021 and I hope you can be a guest for me.
I’d love it. Thank you, Ari. This was fun.
I’d like to thank Ari for being my guest. We get so many great guests on this show. If you’ve missed any past episodes, you can go to DrDianeHamilton.com. We air in all the radio stations listed on our site and all the podcast stations. Take the Curiosity Code Index, the Power of Perception Chapter that we’re offering, and the Perception Power Index. They’re on the site as well. I hope you take some time to explore and I hope you join us for the next episode of Take The Lead Radio.
- Rastegar Property Company
- Lauren Zander
- The Intelligent REIT Investor
- Steve Forbes – Past Episode
- Dr. Cindy Gordon – Past Episode
- Mark Skousen – Past Episode
- @Rastegar – Instagram
- Curiosity Code Index
- Perception Power Index
About Ari Rastegar
Ari Rastegar is the Founder and CEO of Rastegar Property Company. Ari’s real estate investments span 38 cities across 12 states, and include vintage multifamily units, mixed-use complexes, storage facilities and more. Ari is also renowned for his interest in and dedication to a healthy lifestyle and is one of the preeminent thought leaders on biohacking and physiology, as featured in GQ Magazine
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