Jason Hartman’s guest on this episode is Kenneth D. Campbell, founding partner, managing director, and former chairman of Investment Policy Committee and ING Clarion Real Estate Securities, Founder of Realty Stock Review. They talk about Wall Street and the stock market and how it’s exuberant on the future of the real estate market. They also discuss Brexit and how it will affect who will be the financial capital of the world.
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Welcome to the creating wealth show with Jason Hartman. You’re about to learn a new slant on investing some exciting techniques and fresh new approaches to the world’s most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine self made multi millionaire who’s actually been there and done it. He’s a successful investor, lender, developer and entrepreneur who’s owned properties in 11 states had hundreds of tenants and been involved in thousands of real estate transactions. This program will help you follow in Jason’s footsteps on the road to your financial independence day. You really can do it on now. here’s your host, Jason Hartman with the complete solution. Real estate investors.
Jason Hartman 1:03
Welcome to the creating wealth show. This is your host Jason Hartman episode number 753. And I’m coming to you today from Missouri. While I’m in a park and it’s a beautiful fall day, maybe you can hear my dog rustling through the fall leaves, you may be able to hear that actually. So just painting the scene. But yeah, as we embark on a really a historic new presidency, that may well be the most interesting presidency in American history, or at least in modern American history. And I don’t say that all in a good way. I just say interesting, in kind of a snarky, sarcastic way. Yes, you’ve known me to be snarky and sarcastic, haven’t you? Over the last 752 episodes? Sure you have. Well, anyway, I am here in depositions all week long. So yes, depositions and our legal system is probably the closest thing to hell on the civilized World avoided if you can. This case many of you have heard about it in the past. It’s basically where I, I believe I, you know, I have to say, allegedly and believed, of course, and all that kind of stuff that I found a property manager taking advantage of me many years ago, back in 2010, ish timeframe, 2009 2010, etc. We’re kind of in that era. And I published a video on YouTube to educate our clients and other consumers as a consumer advocate. And they sued me over it and that lawsuit was released. And then, more recently, someone had found that video and reached out to me and I published some podcasts about that. And so, yeah, so litigation basically on and off for six years. In this case, it’s just mind boggling how difficult it is. I think I should do a crowdfunding campaign to pay the expenses. See if anybody who’s as adamant about consumer protection as I am, will Annie up and help out with this? Because it is such a burden. It is mind boggling. I mean, the system we have is so yeah. And here’s what’s odd about it. It’s probably the best in the world or close to it. But it is so ridiculous. And please pardon the construction noise in the background here, in that lawyers can make a lie the truth and they can make truth a lie. And they can twist words and they can twist situations and scenarios. And it is nothing short of ridiculous how that works in our system. But hey, it’s a lot worse in some countries where you really have no access to the court system at all. So that is what is going on with me this week. Unfortunately. More to come about that later. Oh, gosh. What else is going on? We’re going to have a lot of shows coming up talking about what the Trump president He means to real estate investors. What the republicans controlling the House and the Senate means to real estate investors in the economy overall. There are some very significant things coming up. I think most of them are pretty good. We had on our last episode with Darren Bloomquist from realty Trac. Talking about that, we will continue to be on that path for a little while just so we can keep you informed of what what we predict and what others are predicting out there and what it means to us as real estate investors. Today, though, we’re going to talk a little bit about wreaths and trusts and things like that, and our guests will be be talking about that with you. So be sure to go to Jason Hartman comm check out properties, check out upcoming events like meet the Masters in the events section, and just some great stuff. So thank you so much for listening and let’s go to our guest.
It’s my pleasure to welcome Kenneth D. Campbell to the show. He is the founding partner managing director and former chairman of Investment Policy Committee at IMG Clarion real estate securities. Founder of realty stock review the first investment newsletter on REITs, or real estate investment trust, co author of the best selling and first full length book on rates, the real estate investment trusts America’s newest billionaires and author of the new book, watch that rat hole and witness the read revolution. Ken, welcome. How are you?
Kenneth D. Campbell 5:30
Thank you very much. I’m I’m absolutely sensational today.
Jason Hartman 5:35
Good to have you on the show. Give our listeners a sense of geography. Where are you located?
Kenneth D. Campbell 5:39
We’re located in Radnor, Pennsylvania right outside of Philadelphia. Fantastic.
Jason Hartman 5:44
Well, so when it comes to real estate investment trusts, and these are, of course, the pooled money way to invest in big real estate properties, large office buildings, etc. You’re really the guy I mean, you started doing this a long time ago. What’s the history of it? I believe you said as we were just talking off here, they were legalized as a security in What did you say? 1961? Yeah, that
Kenneth D. Campbell 6:13
Eisenhower President Eisenhower signed a bill we in September of 1960. To create real estate trust. The concept was that mutual funds had been had been legalized in 1940. And the real estate people, primarily based in Boston and summit in New York of Washington wanted to avail themselves of the pass through tax treatment for NSA mutual funds for real estate, and so they prevail on Congress to pass the law. And, as it shall happen, I live in New York City in 1961. Just as they were, you know, getting off the ground, and I was employed by a magazine called house and home. And my boss on our first first news conference says, What are these reach? And I said, I didn’t know. And he said he didn’t know. He said, What’s that rattle? Me? That’s your assignment. Anything that happens in the real estate investment, trust world, bring it to me. And we’ll get a story in the magazine. And I’ve been watching them for 55 years. Wow. There’s a
Jason Hartman 7:36
long history of watching reads. So, you know, you talk about the read revolution. I mean, 55 years into it. Isn’t the revolution long past us now or is there something going on we should know about?
Kenneth D. Campbell 7:50
Yeah. Jason. What happened was that the Wall Street got hit very infatuated in the late 60s and early 70s with it group called the mortgage reached, and they were basically companies that made construction loans to developers and, and builders all over the country. And they were at a normal run, they probably tripled in price in probably a two and a half year period. And then the 1974 75 recession came along and it just killed them because it’s basically killed building. And so the more you’d reach past in the history, there were about a mirage 7580 more you’d reached and they had a had a good one on Wall Street and then they died. And in the aftermath, enormous number of you know what we would call activist investors today. We call them vulture investors then came in and tried to take over the Rei keys, the you know, the failing mortgage rates and some of the equity rates, equity rates being those that own properties and through the period from say 75 through 90 when I finally sold my newsletter, there were probably 150 people who tried to take over reach in various ways and, and it was a quite an active period but the bottom line oil at turn when I call turn over that 15 year period was that equity reach the owners of properties rose to prominence and, and then in 91, we had the first major offering of a new equity recoiled Kymco realty at the time and then in 92 when Had the offering of Calvin chatters which was a very well left on our offering and, and quite frankly, we went on from there and today the Rei key equity reading industry is a little over a trillion dollars. It’s got about 165 or 170 participants in the public markets right now. And they’ve been doing swimmingly. They’re up, you know, nearly 14% year to date as we talked today, which doubles the Standard and Poor’s 500 data at about a six and a half percent gain year to date. And that’s what gives me some heartburn because I don’t like to see the Rei T’s get that far ahead of the broad market. And so while its fundamentals on real estate are really really solid demand, there seems to be good. There seems to be some old We’re building in apartments in San Francisco and New York City. But beyond that, the market appears to be pretty, pretty solid.
Jason Hartman 11:11
Okay, now, when you talk about the market, you’re talking about the underlying real estate market. That’s because there’s, there’s really multiple markets here, of course, like in anything, I mean, there’s the availability of financing the amount of demand by tenants, there’s the underlying real estate market, then there’s a separate market, which is really the route market the traded securities market, which which could be completely out of sync with the underlying asset, couldn’t it? That’s right. And and I mean, you see, you see this all the time in like derivatives markets, and in the in the stock market in general, where the stock can be doing one thing, but the industry or the company specifically could be doing another thing, right? That’s exactly
Kenneth D. Campbell 11:54
that’s exactly correct. And so that’s where the point I am but right At the moment, the market the stock market, let’s talk stock market seems to be a very exuberant on the future of real estate. Whereas in, in a real sense, the real real estate market if you will, seems to be to be very sound, but is not setting the world on fire, in my opinion anyway, so I get skittish windows to you know, don’t march in tandem. Right right.
Jason Hartman 12:30
Okay, good good stuff. So what’s happening now then? Yeah, I’m not sure if you really explain that like when you say you talked about San Francisco and you said the apartment market might be over built there. And then there are there are many apartment reads. I it’s hard to imagine that the San Francisco market can be over built with rents being so insanely high there. It seems like you need more supply to soften the prices
Kenneth D. Campbell 12:56
get apartment market. It’s not lost on everybody that the millennials Also known young people just entering the workforce want to live, basically in center cities where they have a, you know, a broad range of amenities, and generally they they rent. So, there has been a surge in building
Jason Hartman 13:20
you know, really to meet that demand for the millennials. I guess you’re here, 8 million millennials out there. And so backhands created named Well, maybe moving into the rental market, but overall, there’s overall there’s 80 million of them. It’s a biggest, bigger than the baby boomers. So there’s a lot of them, and they are moving right into their their prime rental years. And certainly they’re a huge, huge factor on the real estate market and many other areas of the economy too. But are you saying are you saying that every economist and demographers saw the millennials coming many years ago Of course, because it’s not hard to predict. When you talk about age, people will reach a certain age it’s a pretty much a given as the market for, say, apartments over built for them, or is it still trying to meet that
Kenneth D. Campbell 14:11
demand? It seems to be it doesn’t seem to be overbuilt. Generally, if I look at the entire United States data, but as I show you there seem to be some building now I will have to, you know, backtrack here and say that the supply of, you know, permits for new apartment seems to be tailing off in the last few months. So the supply that’s being built was, you know, started in the ground two years ago is now coming on ground on onto the market seems to be the problem. year and a half, two years down the road. I don’t think that’s it’s a problem. But right at the moment, I think that you know, the Nash, the discontinuity that you find over and over and over, as you analyze real estate markets and obviously, it has some effect on some Rei T’s who are obviously bringing new properties to market. In the cities I mentioned, those are the two that have seemed to be mentioned pretty regularly. And beyond that the apartment market seems to be doing for drag on well office market is doing at you know, okay, it’s got the same kind of mgg indigestion in center cities and again in in, in New York, New York and San Francisco.
Kenneth D. Campbell 15:49
And
Kenneth D. Campbell 15:52
la seems to be doing much better Boston. This is really hot, hot.
Jason Hartman 16:00
market. So, it varies from city to city and obviously a major Rei t wants to have properties in a you know a diversified portfolio. So they did hedges its risk if you will they diversify geographically Of course. So in the world of rates, what type of reads do you like? Do you have a particular for example, do you like office Do you like apartment Do you like industrial? What type of properties Do you like is the underlying asset class?
Kenneth D. Campbell 16:30
Well, you know, that’s going to vary. Jason from day to day, year to year and show for so. Just to come back to the database. I think I like Rei T’s that own properties. We call them equity over each they own the equity and they borrow mortgages, either through bonds issued in the stock market, or direct mortgages issued by Insurance companies or banks or other kinds of lenders, so I’m a fan, I have been a fan for, you know, a lifetime now, the equity or the property type that I trade, which is not the property type, which CBR a clarion may favor but you know what my colleagues do and what what I say is sometimes do different things right now, is the industrial cooperation. I just think that they are benefiting from a surge of demand from e commerce. And so, their growth rate seems to be above average, if you will, and, and their snapchats seem to do pretty doggone well. But like everything else, nothing grows to the sky. So my word would be to anybody out there listening Tonight would be to check with your financial advisor be crushed. I, you know, I could you know, I’m not going to pick a stock, but even my my mind could be wrong on the future.
Jason Hartman 18:17
I got it. Let me let me switch subjects. Okay, so I want to I want to make sure we get time because I got to ask you about something super interesting. In the 80s. You were involved with some of the biggest names in the financial world that we all know. Carl Icahn, the infamous Michael Milken. Sam Zell, a huge real estate investor, Warren Buffett, of course, and you were doing some deals with him. Tell
Kenneth D. Campbell 18:42
me what that was like? Well, back in the 1980s, a friend of mine, and I operated an investment banking business. That was essentially how I would act as independent advisors and validators, if you will, for mergers and acquisitions that were taking place during during the 1980s. I think we did about two dozen of what is called a trade fair initial opinions on those. The Carl Icahn whom I met only once. Apparently, a friend of mine who’s a lawyer was a friend of Carl’s and Carl called him. They were talking and my friend reached into his drawer and said, Hey, he should look at the Rei keys and then that picked your name off my, my, whatever issue he was looking at from realty stock review. And, lo and behold, before you know it, Carl had bought a majority position or not a majority about a controlling position around 26 27% of the thing and it turned out to be Carl Icahn first foray into activist investing. And a year later he had a head own head control of the ants that they, which was it originally was called Bearden Warner based in Chicago. And he converted a name to Bayswater Realty. And it became a vehicle for Carl and his real estate mentors for a number of years afterwards. During that period, I tried to talk to Carl and he was very, very, very How shall I say non responsive to my questions? It was disappointing to me at the time that I couldn’t get any real feel as to what Carl was About and that’s the only time I ever met him but I say with the with the truth but one of my publications that shingle out the first deal that I can’t ever did. Of course you should. He’s gone on and made a few more bucks and you and I right now.
Jason Hartman 21:25
Yeah, he sure has. I think he’s obviously a big name. What about Michael Milken Sam Zell Warren Buffett? Well,
Kenneth D. Campbell 21:32
Milton,
Kenneth D. Campbell 21:35
my partner and I
Kenneth D. Campbell 21:38
had been nominated and elected to be chairman and president of a very, very, very sick mortgage Rei t somewhere around 1982. And it had a dementor issue, convertible debenture issue that was impossible. Pay and so, we tried to do a an exchange offer to the convertible debenture holders and wound up finding that
Kenneth D. Campbell 22:15
Michael true his
Kenneth D. Campbell 22:20
actual burn them at the time and through other clients if he has a centrally controlled somewhere between 30 and 40% of the bonds and and, you know we were we just the bonds never went into default interestingly enough, and
Kenneth D. Campbell 22:41
by was
Kenneth D. Campbell 22:44
my partner and I were forced out of the out of beta. The officers and nominees Michael took over. I only met Michael once again But not under, not under these circumstances. So it was it was a it was one of those things that happened in my life and I tell a story in the in the book.
Kenneth D. Campbell 23:14
Yeah. Interesting. Anything you want to say about Sam Zell or Warren Buffett? Well, very interesting. They’re they’re two different patient applaud Sam took over again a very highly leveraged Rei t called Great American and
Kenneth D. Campbell 23:33
use the device to create a book of receivables by using the tax loss it had the great American had huge tax loss carryforwards. And the story at the time was that if you could use those within the confines of the IRS regulations, you could make a fair amount of money because you’re earning names were tax free for a period of time. And Sam blocked into great American at about, I think around $8 a share somewhere very late 70s 7980 somewhere in that range, and ultimately sold it or liquidated in 95 at about 50 or $55 the exact prices in the book and chandus and that was the beginning of Sam’s experience in the public markets. He obviously now controlling interest in equity residential, which is the largest apartment, Rei t out there and he owns a controlling interest. Yeah,
Jason Hartman 24:47
he’s a big deal. We didn’t leave it in that easy big deal and I certainly as So,
Kenneth D. Campbell 24:54
Sam is a is a guy that, you know, I’ve known over the years And the he’s he’s a great guy. You know, I like Sam a lot. And I think he learned a lot about running public. Already. It is from his experience with great American max. That’s the bottom line of my think, is Warren Buffett was chairman of a REIT actually only a director of one of the very early Rei th called General Growth Properties. And he and I had met him at under on on that occasion somewhere in the early 70s 7172. And then, later on, he started buying he and his wife at the time started buying shares in again Rei case where there was a great liquidity where he felt that the payoff would be great He’s very, very, very high on having a, you know, a margin of safety in his things and he bought the stock and an Rei t called central mortgage and much lock in that thing called city National Mortgage and got big payoffs out of those. You know, and I think those incidents occurred very late 70s or early 80s. But Warren is a very, very, very sharp investor. And I not, you know, I encourage lost money somewhere along the line, but I don’t know, man, I can’t piece I you know, put together a tie. I own a, you know, a slice of Berkshire Hathaway today, because I think he’s a very smart investor and it’s not Very well for me.
Jason Hartman 27:01
What What is the outlook on the regulatory climate? As far as rates and these pooled money assets? You know, what are your thoughts there?
Kenneth D. Campbell 27:09
My thoughts are that
Kenneth D. Campbell 27:12
it’s the Rei cheese. Or, Well, okay, there is a, there’s a, there’s a current regulation that just just come down out of the IRS that puts some very tight strings on spinning off various types of real estate, into Rei corporate real estate, if you will, into real estate investment trusts. Everybody since the beginning, has talked about the General Motors of real estate. And it’s always been said that General Motors could do very well if it’s fun, it’s factories and other real estate into At Rei T, the same has been said about McDonald’s that McDonald’s could do a great job by spinning off its locations. And the same has been said about Macy’s is a, you know, a department store that owns a lot of real estate around the country. And the IRS put the rules in place within like two months or three months. That would essentially put a lot of strings on that. I’m not saying that that can’t happen. But I think that we’re not going to see a General Motors Rei t anytime soon, but smaller deals probably will happen. MGM spun off recently about slow 15 or 20 of its casinos and resort properties into a A new Rei t called MGM Growth Properties. So the regulatory environment is tough for large industrial and retailing and other commercial corporations to spin off their real estate into
Kenneth D. Campbell 29:20
Rei T’s but it could happen.
Jason Hartman 29:23
Very interesting stuff. Any thoughts on the Brexit or the economy in general as we wrap up,
Kenneth D. Campbell 29:30
I think Brexit is
Kenneth D. Campbell 29:34
going to slow new construction in London for a period of time, probably two, three years until everybody sees how everything shakes out. It’s interesting, the London market vacancy had been going down very very significantly in supply The lowest vacancy that in the last 15 years and maybe 20 years in the London commercial market, office market. And so, this probably will be a help to, you know, even medium term basis for the major Rei T’s in in London. It has also had the impact of directing some new money flow, Flom. overseas, let’s just say there’s an enormous wealth of the foreign capital out there and they all like to invest in the United States. So my feeling is that New York City will get a fair share of that. So I think it helps New York in competition with London as a World Financial Center. And it’s probably part of the reason Let the Rei case have been so strong in the last 3045 days. Longer term, I don’t know what the impact will be. I think it’s everybody seems to think it’s kind of slow growth on the continent a little bit and slow growth man. They were they should, you know, in England, if you will,
Jason Hartman 31:22
I think it’ll ultimately be positive though because they’re under the burden of less bureaucracy and lower taxes to, you know, a non localized governmental entity that they have. He has really has very little accountability.
Kenneth D. Campbell 31:38
That’s exactly my feeling, Jason.
Jason Hartman 31:42
So there may be some short term pain but
Kenneth D. Campbell 31:45
in the teeth a little bit on that point, but I think longer term it’s going to be very good for UK, London, specifically. And I think it’ll be good for United States to quite frankly.
Jason Hartman 31:58
Yeah, I do. I do. You know, I think one of the interesting things about it, Ken, is that I think it’s going to give the Fed all the excuses, they need to keep interest rates low, which, you know, of course is going to fuel rid the real estate market, right.
Kenneth D. Campbell 32:11
Yes, that’s true. And, you know, you know, I have not seen this kind of interest rates. You know, first house I bought was 6% mortgage and my son at one time paid, I think, 13 and a quarter 13 and a half percent mortgage. And, and, you know, I look at these numbers today, you know, 375 360
Jason Hartman 32:37
It’s insane. It’s, it’s an amazing time to be a real estate investor, isn’t it?
Kenneth D. Campbell 32:43
Yes, yep. So, you know, real estate to me is always been a great, great, great store of wealth or value for people. And, and I just, it’s got so many permutations. So many ways you can go in real estate. And I just kept stumble on the Rei T’s A long time ago and I grew up with them. You know, my wife and I have a significant stake in the Rei t through mutual funds. We don’t buy stocks, if you read the book, you’ll see that we don’t buy stock, individual stocks, we just buy mutual funds, because we think that’s usually the way they go.
Jason Hartman 33:26
Ah, sure do take a lot of C’s, though.
Kenneth D. Campbell 33:29
Well, all the fees are coming down. I think the fees are coming down and it’s, you know,
Jason Hartman 33:38
you’re you’re right. The fees are high, sometimes, but I think that that’s probably a thing of the past. You know, I think the fees are gonna be lower. technology’s put some pressure on the fees, which is a good thing. You know, the interesting thing to me, Ken, is that there have been so many studies on how these these fund managers, they can’t even beat the index. Next, you know, you could just buy like when now we’re talking about stocks now not rates. Okay. But But you could just buy the s&p index, right, like a Vanguard s&p index fund, right. And and you’re gonna beat all these fund managers without all their fees on top a, it’s unbelievable, you know, I mean, as an average, you know, of course, there’s gonna be a few outliers that are great, but
Kenneth D. Campbell 34:22
you know, I think that’s right. You know, I think people worry about the fact that they might get, you know, a big downturn. And you know, we saw a very big downturn in the s&p back in late oh nine. So, yeah, there’s there’s there there’s there’s comfort in out obviously, jack Bogle who happens to live close to where we live and, and, you know, says, if you’re selling pizza, you better if people are buying PT, better be selling pizza and he’s selling pizza at Vanguard, you know, Right. Yeah, so he’s not pretty darn well.
Jason Hartman 35:03
He certainly is. can give out your website, or any information or resources you want to share with people. The website on the book is watch that rat hole all, you know, all strung together.com. And hold
Kenneth D. Campbell 35:19
on want it. I’ve been negligent. The last Mike, my wife had a surgery a couple of weeks ago and I’ve been sort of busy with her. She and I’ve been married 65 years, so I’m going to give her the first preference.
Jason Hartman 35:38
Good stuff. Good stuff. Well, Kenneth D. Campbell, thank you so much for joining us today.
Kenneth D. Campbell 35:42
We appreciate and good luck and we’ll keep in touch.
Jason Hartman 35:48
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