How did you get started in the industry? You came out of Harvard with an MBA but was this a calling or did you just fall into it?
I’d say I more fell into it. It became a calling. I don’t think I knew it was my calling but in retrospect it clearly is – there was a lot of providence in it. In 1989, leaving graduate school, the marketplace was somewhat like today and a bit like it was in 2007 and 2008, which was we were in a significant recessionary period and tumult. I ended up going to work for a consulting firm that did reorganisations and bankruptcy restructuring and things like that. The initial group of clients we had were standard manufacturing or service firms. Then a number of real estate organisations became troubled and the partner that was in charge of the group decided I was the best person to put on many of the assignments. And so, I developed relationships with a number of senior professionals in the industry and it led to my entry into the industry.
One of the first big stops you had was one of the senior management team, at Rouse Liberty Property Trust – a big $7bn publicly-traded office and industrial REIT – you then helped take it public in 1994. Can you name a few of the highlights from your time at that firm?
Securing that firm’s future at the side of Bill Rouse was a highlight. So many organisations at that time in the United States dissolved and this firm did not and that was quite a milestone and had everything to do with Bill’s transparency, joyfulness, hope and optimism. And strength of capability. It was that example that allowed me to go onto the next stage. I’d say one highlight that was certainly big was constructing and leading the IPO of the firm which began in 1993. I think from there probably one of the more notable things is that I thought I was going to become the CFO of the company at that time. I thought I was going to be the next whizz-bang CFO and Bill said, ‘there’s a lot of people who can be CFO’s; there’s very few people who can be real estate deal makers and real estate professionals at high levels which I think you aspire to be’. So, he said I want you to go lease space in the office buildings and life science labs and warehouses in Chester County Pennsylvania. And I started leasing space full time for a living. And that was the greatest thing I ever did in my career.
And no regrets about not becoming a CFO?
Not an ounce. Leasing space is the most important component of commercial real estate. And having skills in leasing and being local in that pursuit is why we have the highest returns in the industry. It’s also why we build the best buildings – because we don’t let architects and engineers design our buildings – we are informed by our clients, the same clients we lease space to, what they want us to construct and design for them. Many of our peers that are more financially minded or approach the business from a capital perspective do not have the skills in design and development or leasing that we have. I’m quite proud of the fact that what I mainly do all day is lease space. And not many people do that because they think it’s a skill that’s lower IQ work and low value-add.
You would think that leasing guys know how to lease and how to respond to client requests. What is it about leasing that people don’t listen to their clients?
Leasing people do know how to lease, but we are the only firm in the industry that has in house leasing people on nearly all its buildings. There are 500 real estate investment managers. The other firms don’t think it’s an important skill. They believe that capital is the answer. It’s about capital. Capital. Capital. But I don’t believe so.
How did Exeter come about?
Bill Rouse in 2003 was 59 years old and died of small cell lung cancer. I thought there was a decent chance that I would become the CEO of that company, but he died too young, and it didn’t give me the time to mature into that role. I attended to my role in the company as best I could for 24-36 months and then decided I needed to do something different. The real estate public companies were becoming less entrepreneurial and more institutional. And the fund business, the value-add or opportunistic fund business was more entrepreneurial, more alpha-generating instead of beta-generating and more in-line with my skill sets and the people I knew in the industry that joined Exeter.
What can you tell me about Exeter before that huge deal with EQT?
The story of our business is not about before or after EQT, but all the years from 2006 up to today. It’s a relatively continuous line from the perspective of it’s been an upward trajectory, it’s been consistent in our performance, in having the top performance in the industry in the last decade and a half. I wouldn’t say the EQT transaction changed anything because we still raise funds the same way we did from 2006 to 2021 and now going into 2023. Nothing’s changed. The way we raise funds, the way we buy buildings, build buildings and manage the business has all been pretty much the same. I’d say the biggest things are gaining a broader, deeper company management team and our specific growth in Asia was bolstered by the EQT transaction. We had half a dozen people in Asia before the EQT transaction and we have about 75 now.
Exeter was a real, real estate business and EQT was the world’s largest private equity firm – why was that your choice at the time?
Our choice was driven by most of the choices we’ve made over time, and it goes back to what I was saying about leasing space – you have to understand the needs of your clients and you have to have a burning desire and passion to serve people. Service leadership is very important in this world, in all sorts of aspects not only in finance and investments but in community and society at large. We’ve always had a service mentality here and when you decide you’re going to lease space for a living you’re there to serve corporations. When you look at the private market space, the three biggest asset classes are real estate, infrastructure and buy-out – knowing we were the real estate division joining a group that was relatively small in what we do was a good place for us. Real estate is the biggest asset class in the world. If you add up all the other asset classes in the world in every private and public venue, it doesn’t equal the asset value and capital value of real estate.
You did this major merger during Covid – how did you underwrite the cultural connection; how did you meet these guys and get comfortable with the sale – it’s a lot to do over Zoom.
It’s a little bit like courting my wife. I met her. I got engaged in six months and was married six months later. I met them on Zoom. They came over to the States. It was over a very short period of time. I kind of knew that culturally they were very similar. There’s a very distinct construct in their business as their roots were from the Wallenberg family as industrialists. They weren’t financiers. They were industrialists who realised that they could make companies more valuable because of their skills in science and engineering and those types of things, just like our skills in real estate make us strategic builders of alpha.
It’s clearly been a financial success – how has it worked out culturally? Has the fit been as good culturally?
I think it’s been exceptional. I think the answer is yes. I think they are exceptionally humble but high-performance people.
Any lessons learned? Anything you’d do differently or regret?
If I’d waited three more months to sell, I’d have probably got three percent more on the price. But if I’d waited nine more months, I’d have probably got 50% less. I don’t have any regrets. I’m not saying it’s been perfect, but all the outputs have been strong.
The thematic approach that you take to investing includes some interesting themes that you do not hear about from anyone else: inclusion and equality, resilience and transparency, distributed ownership, decentralisation. Can you tell us a little about the genesis of this big themes?
I think it has to do with an industrialist mindset again. When you run companies with thousands of people you learn how to be caretakers of them. You become a caretaker of people and family. You don’t become a caretaker of just money. Who you believe you are a caretaker to, and that’s where it comes into inclusion and equality. We take exceptionally seriously our responsibility to the capital we steward. But the way that we steward it is so vastly different than our peers.
As a senior leader in the hunt for talent what are you looking for when you hire?
I would say people with significant grey matter but significant humility.
Any words of advice for people looking to start their own firm?
I thought you were going to say start their career. I’ve got lots of advice for people to start a career: go to the office, interact with people, talk don’t text. As far as starting a firm, I would say that probably the things we’re doing you need to do. You need to focus on the client – not what you want to do. You’d be shocked at how many people I’ve been involved with in the industry that come to me and talk about their business plan and it’s all about them. Anyone who wants to run their own business has to identify what clients need and then be focused on servicing those clients. It takes listening skills, creativity, solutions but also humility to accept what the marketplace wants.
Lots of commentators have used the phrase ‘a perfect storm’ to describe the marketplace. Over the last 12 months we’ve had Ukraine, the tail end of Covid, energy price shocks, price of living crisis, interest rates escalating. How do you see things?
I would say that this is just another cycle. I don’t think there’s anything special about it. I think the variables that go into it are always a standard deviation different. I point to the fact that this cycle was brought about by too much stimulus that was put into the system particularly in the US and the UK. That was the mistake that was made this time. Last time it was too much debt. Banks were lending 90% LTV. 100% LTV. 110% LTV. Too much capital put into the system is what creates cycles and bubbles. And so, I would say there’s nothing different about this. I would say we are in for a significant time period of correction. Maybe we’ve seen the lowest of some lows, but I don’t think we’re getting out of this for two years. Survive until ’25.
In terms of geographical regions how do you compare the Americas, Europe and Asia and what are you liking right now?
I would say probably that Asia’s the soundest because it did not have as poor a monetary policy. So, I don’t think you’re going to see as big a correction. If you own an asset in Asia, I think you’re better off than if you owned an asset twelve months ago in the United States or Europe. The United States will have the biggest correction but depending on whether you have cash or own assets right now, it will also create the biggest opportunity. When you think about the United States having for a period of time zero interest rates – it’s absolutely absurd. The people should be fired for fraud and malfeasance who took on the policy that the United States of America with the strength of its economy had zero interest rates. It’s completely irresponsible to have ever seen the word zero in interest rates in the United States.
What about asset classes. Any emerging ones that you’re liking the look of?
We invest in sheds, beds and meds. We’re the global leader in sheds, beds and meds. I would say the life science component is over-hyped at the moment – it’s not a new thing. I was signing leases 30 years ago in the Great Valley Corporate Centre in Chester County Pennsylvania with Merck, Sanofi and Kodak Sterling Drug and GlaxoSmithKline – the whole idea that it’s a new thing is just young people who want to put a package on it to raise capital. Science and medicine are, or soon will be, the leading industry in the world, but the spike that we’ve had is a little bit exaggerated – but that too will create investment opportunities for venture capital life sciences funds like EQT-LSP Fund.
If we’re thinking about next year any kind of warning lights on the horizon?
I think you’re going to start reading about banks’ reserves and banks’ defaults and those things we haven’t really read much about in a decade – I don’t think banks are going to fail, I want to make that very clear. But we ‘re going to see assets within banks that are going to fail and there’s going to be foreclosures and there’s going to be default provisions – the work out groups in every bank are going to increase significantly in the next twelve months.
What’s next for EQT Exeter and for you?
What EQT Exeter has on the horizon is great promise and great execution which will lead to great success. I think the profitability of the firm and the growth of the firm are on very solid foundations. To weather a storm, you need a strong foundation. And to launch a rocket you need a strong foundation. EQT Exeter has the foundation for both.