Speaker 1:
From the library of the New York Stock Exchange at the corner of Wall and Broad Streets in New York City, you're Inside the ICE House, our podcast from Intercontinental Exchange on markets, leadership, and vision in global business. The dream drivers that have made the NYSE, and indispensable institution of global growth for over 225 years.
Speaker 1:
Each week we feature stories of those who hatch plans, create jobs, and harness the engine of capitalism, right here, right now at the NYSE and at ICE's exchanges and clearing houses around the world. And now, welcome Inside the ICE House. Here's your host, Josh King of Intercontinental Exchange.
Josh King:
A few months ago, we talked with ICE's founder Jeff Sprecher at the time of the company's 20th anniversary. The conversation included a lengthy discourse on Jeff's peculiar fascination with the mortgage industry and the opportunity, still in the early innings, to give the old ICE treatment of catapulting it from analog to digital. Nothing like a little electronification, scalability, and efficiency to seize a bigger wedge of the total addressable market.
Josh King:
Now, at the time we talked to Jeff, ICE had already made preliminary moves in the space, beginning with them taking a majority stake in MERS in 2016, purchasing the remainder in 2018, and acquiring Simplifile in 2019. It led to the announcement on August 6th that Intercontinental Exchange would buy Ellie Mae, the leading cloud-based platform provider for the mortgage finance industry.
Josh King:
The deal will, I'm going to quote Jeff here, enhance ICE's growth strategy and mortgage technology with complementary products, and a wide array of customers and stakeholders will benefit from our core and proven expertise in operating networks and marketplaces.
Josh King:
Now, the $11 billion transaction will be the largest acquisition in ICE's history, moving the 2012 deal for the New York Stock Exchange to second on the growing list of milestones by the management team over the past 20 years, which all begs the question, what does creating an end-to-end electronic workflow solution for the mortgage industry really mean for you?
Josh King:
Well, closing on a mortgage is a process that hasn't changed much since our great-grandparents signed for their properties with quill and ink. ICE is now positioned to make sitting down and signing document after document until your hand cramps go the way of the paper stock certificate. For the millions of Americans taking advantage of the lowest interest rates in half a century, that can't happen soon enough.
Josh King:
The problem balloons when you look at the real estate companies servicing those millions of applications, which brings us to our guest today. Arbor Realty Trusts founder Ivan Kaufman, whose firm specializes in multifamily real estate. He joins the podcast to talk about the impact of COVID 19, and what it's had on the real estate sector.
Josh King:
Our conversation with Ivan Kaufman on the housing market, the economic outlook for the real estate industry, and the impact of going digital with physical properties, that's all right after this.
Speaker 3:
Board diversity is important.
Speaker 4:
Board diversity is important.
Speaker 5:
Board diversity is important.
Speaker 6:
Board diversity is very important.
Speaker 7:
Not just because it's the right thing to do, but because diverse leadership at companies creates better companies.
Speaker 8:
This is about value, not values.
Speaker 9:
With board diversity, you build better companies.
Speaker 10:
Diversity of thought, diversity of perspective.
Speaker 11:
Different perspectives often yield better outcomes.
Speaker 12:
You need to have different perspectives with different backgrounds to really inform and find the best solutions for our organizations.
Speaker 13:
Companies that have more diverse boards perform better.
Speaker 14:
Diverse teams are better performers. That is absolutely true in the boardroom as well.
Speaker 15:
It makes a difference to the employees who work for companies. It makes a big difference for the communities in which they work.
Speaker 16:
Our business is about building leaders for the future, and that talent cannot be only half the population of the world.
Speaker 17:
What are you waiting for? 50% of the population for some reason isn't qualified. Let's put the smartest people we can in the boardroom. And why ignore people or exclude people for any reason other than they're not qualified?
Josh King:
Our guest today, Ivan Kaufman is the founder, chairman, and CEO of Arbor Realty Trust. That's NYSE:ABR, a multifamily and commercial real estate lender and real estate investment trust. He's also the chairman and CEO of Arbor Management Acquisition Company and CEO of ArborCrowd, the founder of Arbor National Holdings Inc, and its lending subsidiary Arbor Mortgage Inc. Welcome, Ivan, Inside the ICE House.
Ivan Kaufman:
Nice to be here, Josh, and look forward to having a really productive and deep conversation.
Josh King:
Let's start with the news that broke last week. You see ICE buying Ellie Mae. What ramifications does that have for the industry?
Ivan Kaufman:
So, clearly technology and the speed and the easiness to get a mortgage, whether it be residential and commercial is imperative. As you mentioned in your earlier comments, the process is somewhat difficult even today. It is quite different than when our parents did it and our grandparents did it, but clearly it's taking a longer period of time than it used to, but there've been significant advantage even on the multifamily side and advances. Today, we're closing loans from beginning to end within a 30-day period. I would say that's almost a 40% to 50% improvement from two years ago.
Ivan Kaufman:
The use of electronic signatures, the use of using data and not having to duplicate data and not having to duplicate entries. There's clearly been significant progress. And I think that's going to continue. I wouldn't be surprised to get a loan on the multifamily side in a year or two from now. We'll go from 30 to 15 days. So, we'll continue to see those improvements. And not only does that ease the process, but it also reduces the cost.
Ivan Kaufman:
And I think that if you take a look at the cost involved in getting a multifamily loan in terms of the process and cost, we're already down 40% from two years ago. And I think as you improve the process, as you streamline the process, as you bring technology to bear, not only will you have better data and better information, but the cost of obtaining a mortgage will be reduced significantly as well.
Josh King:
Thirty to 15 days in just the next year sounds like a sea change from where it has been in the past. Why has the mortgage process been so resistant to the electronic and automation technology that most investment vehicles embraced so many years ago?
Ivan Kaufman:
Well, I look at it as two aspects. One internal and one external. So, clearly there've been a lot of improvements on the internal side and the processing and the automation and the data collection that we have control over. The external forces are the appraisals, the third parties gathering that external data. And I think that's where the next leg of improvement is going to be made. So, when you order an appraisal, it now takes a lot less time to make that order. It takes a lot less time to get that information back to us. It's fairly automated.
Ivan Kaufman:
However, the whole process that the appraiser has to go through of collecting the data, analyzing the data, and having intelligence around that data, that's where you're going to see significant improvement. And that's how you're going to see the turn on our appraisal, which probably takes two weeks or so reduced probably to five to seven days. And that's where you're going to see the process improve as well as the engineering and environmental reports.
Ivan Kaufman:
So, those are outside influences that I believe with the right technology, with the right artificial intelligence, with the storing and manipulation and analysis of data where you're going to see the improvement that's going to reduce the turnaround time. Now, I'm primarily referring to refinance transactions, right?
Ivan Kaufman:
Refinance transactions should be a matter of the speed it takes from the time of application through closing. Purchasers are entirely different. There are other factors in terms of timing and those are market factors. But if you reduce the timeframe on refinances and if you reduce the eligible aspects of the external, internal factors on the purchases, I think the whole industry will be condensed in terms of timeframe and cost. And I see that happening rapidly and exponentially now.
Josh King:
I wonder if our conversation would've been any different than we had this talk five months ago. Do you think COVID-19 and the need to be nimble to operate in the new normal has had a big impact to separate the companies that can innovate?
Ivan Kaufman:
So, you had an interesting phenomenon going on. For the last 10 years, we've been in a bull run and whether it be refinance or acquisitions, multifamily or other asset classes. People were so busy managing their specific businesses that we're not focusing to the same degree on efficiencies. When revenues keep growing, when the market keeps expanding, and you're just keeping up with your day-to-day business, that's not your primary focus.
Ivan Kaufman:
When COVID hit like most recessions, but this one was a little different, people step back. They take a look at where they are and they start to evaluate, how can we create the efficiencies? They have time on their hands. They have different focuses. So, I think you'll see in every recession, the opportunity for people to recalibrate. Where do we put our time and attention? How can we create economies of scale? How can we create savings?
Ivan Kaufman:
So, there's no question. Even in our firm, even though our volumes are up, our ability to step back and evaluate our processes and how to improve them, this was the opportunity. And I would call us as many people call COVID the accelerator of certain behaviors.
Josh King:
The growing importance of data, Ivan, to the real estate business is a full circle for the Kaufman history of establishing companies. I think your father was a serial entrepreneur who founded a number of businesses, including OPOC Computing Inc. and Acker Retail Audits, and Hart Systems. How did he get his start in business and how would he have been at home in the current mortgage data revolution?
Ivan Kaufman:
So, it's very interesting. My father was an entrepreneur. He was born in the Bronx, self-made, moved out to the suburbs, I think when homes were either 16,000 or 19,000. I can't exactly recall. And that's what they were able to afford. And he began his career in the data processing business. I come from an environment where it was a very entrepreneurial home, and I took to that. And that's how I began at a very early age doing entrepreneurial tasks that led me in the direction that I am in today.
Josh King:
What were some of those early entrepreneurial tasks and what led the Kaufman's out to the suburbs in the first place to get that $16,000 or $19,000 first home?
Ivan Kaufman:
They were living in apartments. And it gave them the opportunity to move their family, as well as many family moved at the same time. In fact, I can recall that my family moved with their best friends and we were next-door neighbors and grew up together. That's how they moved, but they got a home. They got four bedrooms, five bedrooms. I grew up in a home where my parents had four kids, and I think it was five and a half of years, which was not abnormal back then. So, people needed space.
Josh King:
Your mother, Anita, was a founder as well. She helped start the first Jewish day school in Suffolk County. And years later founded the Jewish academy in Commack and established a Chabad Center in Florida. How did her community organizing and involvement influence you?
Ivan Kaufman:
So, we grew up in a household. It was not just entrepreneurial. It was also very philanthropic. My parents and my mom, they were, were engaged in education and supporting and building and running educational schools. My mother was also involved in creating senior citizens and creating meals on wheels program back then when it didn't exist.
Ivan Kaufman:
So, the whole environment, the house was a combination of being entrepreneurial as well as being philanthropic. And those are the footsteps that I followed in.
Josh King:
So, today, Ivan, Arbor specializes in multifamily, but the company roots began in the 1980s as a single-family lender. When American Mortgage Banking as Arbor was known originally, was founded, you were still a first-year student at Hofstra Law. How did the company get its start and why real estate?
Ivan Kaufman:
So, it was a fascinating period of time. And like most entrepreneurs, they don't know what they're getting into, but they handle as much as that's thrown at them. So, I was in my first semester of law school. I'd gotten married, had a child and started my first business all in the same period of time. Back then you just manage what's thrown at you and it doesn't really phase you. So, I think I was 23 years of age at the time, knew very little about the industry and began to learn about the industry from the ground up. And I think that's one of the trademarks that has led me to be very successful.
Ivan Kaufman:
And every business that I operate, very granular, very detail, and I'm able to start from the bottom up, learn every single function, replace each function that I do with somebody who could do it better than me, so I can keep rising up. But I have a total grasp on all the elements and all the fundamentals of a business.
Ivan Kaufman:
And looking back on it, going from one employee to, I think at the end, I had about 3000 employees before I sold that company to Bank of America, there was not a function that was performed that I personally didn't know how to do. And my mission was always the same, find somebody who can do it better than you, turn it over to them, delegate, and then move up and move on.
Ivan Kaufman:
And that's how I was able to build my businesses with that philosophy. So, it was a level of knowledge and a level of detail that allowed me to build my businesses fundamentally sound.
Josh King:
Where did the Arbor name come from?
Ivan Kaufman:
So, that was quite interesting. Because initially, the name of the business was American Mortgage Banking. And it didn't mean that much other than when you pulled up the charts, your name under A came up first. And back then was a very different environment than it was today. And we spent a lot of time trying to figure out how to rename that company, how to have a purpose, how to have a community purpose, which is pretty much the way I was brought up. So, I did a contest with our employees and we basically came up with the name Arbor.
Ivan Kaufman:
And what people don't realize back in 1985, 1986, 1987, we were still using Styrofoam cups and all those environmentally unsound things. So, we created the name Arbor, and it was all about the environment. And here it is where, providing financing for individual homes, were community-oriented and allowed us to really have a community name.
Ivan Kaufman:
And then, the other thing we did, which was really, really creative and had a big impact, since the name was Arbor, we actually gave a tree to every single person who bought a home. So, we were planting trees, putting things back into the environment, and it all worked very nicely together. And that's how we had our name Arbor.
Ivan Kaufman:
And then, everyone asked me the next question is, how'd you keep that name? Didn't you sell your company? I sold that first company, which was public to Bank of America. And I had a very interesting phenomenon occur. I sold my company in 1995. It was a public company. I was owned about 50% of it, which is also one my trademarks to be a very deep owner of every company that I start even if it goes public. And when I sold at Bank of America, I had a very fortunate set of circumstances occur.
Ivan Kaufman:
Number one, they were a west coast institution, so they didn't need my people. And my philosophy was and still is, you're only as good as your people. So, I had the gift of retaining my core management staff. And to this day, those people are still with me. My average tenure of my executive staff is over 25 years, which is unheard of. So, I was able to keep my people in place.
Ivan Kaufman:
And secondarily, I bought out the small multifamily company out of the holding company, and it still had the name Arbor on it. So, I was able to keep my name. And the third part, which was really great was, I was in the single-family originations business, which was very much dependent on Fannie Mae and Freddie Mac. I was able to step back into a very similar industry, being the multifamily originations business, which is also very dependent on Fannie Mae and Freddie Mac.
Ivan Kaufman:
So, I didn't miss that much. I got a little more mature, a little bit more experience, a lot more capital. And I was able to restart with a very, very solid and high foundation.
Josh King:
How did the business actually change as you're evolving from single-family to multifamily? What are the differences that an average listener might not realize?
Ivan Kaufman:
It's an entirely different business, but there were a lot of elements that were very similar. So, what was different about it was, I was in a high volume, lower margin business that was getting commoditized very, very quickly. So, the ability to provide different levels of service was disappearing, was being very commoditized. A lot of people had 3000 people. And when you go from one to 3000 over a period of 10 years, you lose that personal touch. So, I wanted to get back to a smaller environment, and multifamily financing allowed me to do it.
Ivan Kaufman:
It was bigger transactions. It was way behind where single family was. And it's only in the last four or five years that it started making some of the similar advances that the single-family business did. So, I was able to keep my employee count well below a hundred for the first number of years. And even now as big as we are, my employee counts still only at about 500. So, managing a team of 500 is a lot different than managing an enterprise of 3000 people.
Ivan Kaufman:
So, I think there was more personal service on the multifamily side, more creativity. You could bring different products to the table and you could make a difference on a deal-by-deal basis where on a single-family side, it was purely commoditized.
Josh King:
So, Ivan, I'm reading the Financial Times today, looking at the Lex column, and it reads, and I'm going to quote from it, the mortgage industry is not an obvious place to invest right now. The coronavirus pandemic has thrown millions out of work and pushed the US economy into a recession. Nearly 7.7% of mortgage loans are in forbearance. Meaning 3.8 million homeowners have delayed payments. Banks have set aside tens of billions of dollars for loan losses as they braced themselves for a surge in defaults. Not all mortgage businesses are equally exposed to macro pain.
Josh King:
So, given that, Ivan, how does the unique business model of Arbor Realty Trust limit your exposure?
Ivan Kaufman:
So, that comment or overall macro statement of mortgages or real estate is the wrong place to invest. I look at a lot different and our story and the way we're structured and who we are will tell a lot about that story. First of all, as you know, we all know, there are many winners and losers due to COVID and due to recession. And the commercial mortgage asset class is roughly a 14-trillion dollar market. And it's impossible to take the position that of all the asset classes that they're all losers. It's actually not true at all.
Ivan Kaufman:
In fact, 60% of the asset classes are winners, right? Multifamily is a winner. Single-family rental is a winner. Industrials rent, a winner. So, I would say 60% of the asset classes have done extremely well. And I believe they're going to continue to do very well.
Ivan Kaufman:
The other asset classes, which we all know are losers right now are retail and hospitality. And let's put office to be TBD, to be determined, right? They're going to be some winners and losers, but it's not going to be a total disaster. So, that gets back to the Arbor story and that also gets back to this macro outlook. When the COVID hit and the recession began, Arbor stock was at 15 and a half dollars. The entire industry tanked. We got down to $4 and nobody knew why, right? Our fundamentals were in place.
Ivan Kaufman:
And in fact, we're better performing this year than we were last year. So, how could that happen? Because there's fear, there's panic. Nobody knows where the bottom is. And there were so many people who knew me, knew of my history. They started buying my stock at 10, 9, 8, 7, 6, 5, all the way down. And today, we're rising back up. We're approaching 12. In fact, as we speak, we may be going over 12, and we're the best performing mortgage rate in the industry.
Ivan Kaufman:
Most mortgage rates are purely a simple play. They make mortgages, they leverage them and they collect the spread between the rate they charge, right, and their mortgage expense. And that's how they create their dividend, and they're monoline companies with only one business.
Ivan Kaufman:
The mortgage pays off, they got to put a new one on. The mortgage is delinquent, they have an issue. They're over-leveraged, they have problems. That's the way the mortgage rate industry generally works. We're quite different. We have multiple lines of business. We're an operating franchise. And just the aspect of our mortgage is on our books. And our interest rates only represents about 40% of our income stream.
Ivan Kaufman:
We originate loans to Fannie Mae and Freddie Mac for sale. We collect a gain on sale. We have an enormous servicing portfolio over $20 billion where we collect a fee for over 10 years. So, we have a lot of income. We have a significant investment, and we do very well in the single-family originations business. We own real estate. We have other interests. So, we have a variety of different income sources.
Ivan Kaufman:
And depending on interest rates in the economy, one business goes up. It's offset by another. So, we have a very diversified income stream, and we have a very constant long-dated income streams that work extremely well together. So, when the rest of the industry goes down and we get grouped together, we became an obvious buy for many, many people.
Ivan Kaufman:
And the other key thing, which you touched upon earlier is our core asset class with multifamily, and that's not by accident. Going through several recessions and going through the great recession, it was very clear to us the multifamily asset class is extremely resilient. Even if it goes down, it comes back very, very quickly.
Ivan Kaufman:
So, while we were only 30% in the past of multifamily assets as part of our balance sheet, we're now over 80% and we made it a very, very clear operational strategy to stick to multifamily. And that's why through this downturn, not only we are not negatively affected, we're one of the winners. Our assets are performing in an amazing way. We don't have a single modification on almost $25 billion of assets in our portfolio.
Josh King:
We're one of the winners. After the break, Ivan Kaufman, Arbor Realty chairman and CEO, and I will discuss the impact of COVID-19 on the commercial real estate industry and how Arbor is using technology to democratize access to commercial real estate investment. That's all right after this.
Speaker 1:
In our time of greatest need, we want to thank the true heroes around the world for stepping up, for taking care of us and keeping us safe, with your expertise, your commitment, your sacrifice, and your selflessness. We'll work together to create a brighter future. And we thank you for reminding us what really matters. From all of us, thank you.
Josh King:
Welcome back. Before the break, the chairman and CEO of Arbor Realty Trust NYSE:ABR Ivan Kaufman, you and I were discussing how Arbor became an industry leader in multifamily property lending. So, at the time of this recording, Ivan, President Trump and Congress are still debating another stimulus bill. How have the stimulus bills been in allowing people to pay their rent?
Ivan Kaufman:
It's been extraordinary. And if you go back to late March and the beginning of April, there was an unbelievable amount of fear. We all had fear. If people are unemployed, of course not due to anything they've done, just because the pandemic hit and they don't have income and they can't pay their mortgages, the whole system stops, right? So, when somebody can't pay their rent or pay their mortgage, and then there's a default, and then the securitization market stops, the whole system freezes and the dislocation becomes extraordinary.
Ivan Kaufman:
So, what the CARES Act really did is it put the money in the right hands. It put the money in the person who had to pay his rent. He paid his rent and then the borrower paid his mortgage. And then, they were able to service that loan and the whole system worked. Some say they put too much money in people's hands. Well, you know what, I'd rather than put too much money in the individual who needs it and go from the bottom up.
Ivan Kaufman:
Because remember, 75% of that money that got put in their hand got spent on rent, utilities, property taxes, retail, and food. So, it all went the right way as opposed to trickle down. When it trickles down, how many of it gets lost on the way down? You lose 50%, 60%, 70% of it. So, I think it was a really healthy move. And we were shocked. When they first started showing the rental payments that were being made, we were really, really surprised.
Ivan Kaufman:
In fact, we had come out with a very innovative program because we weren't sure what was going on. We had instituted a program that in conjunction with our bars were providing rental assistance. And we thought that would be a very used product. And to our surprise, so many people were getting the impact of the CARES Act were getting the right income replacement, and we didn't even fully utilize our entire program.
Ivan Kaufman:
So, it really shows you that the CARES Act had a real significant impact, kept the system moving forward, and kept the number of defaults down, and allowed us to recovery in the securitization market quite rapidly.
Josh King:
Ivan, you recently shared an article from the National Multifamily Housing Council that raised the alarm on the potential harm of long-term extensions on evictions. What's the potential effect of a national drop in rental payments?
Ivan Kaufman:
So, there are so many different forms of rental payments. I think if you start to have a lack of evictions, then on a long-term basis, properties are going to suffer, and there'll be some foreclosures and they won't provide the quality housing that needs to be provided. So, when you have issues like you have in New York City where you can't improve the housing stock because you can't increase the rents, you're going to end up having housing stock start to diminish and services start to diminish.
Ivan Kaufman:
So, I think any programs that are put into effect have to be thought through from beginning to end. It's not just a matter of capping rents. You have to be able to support that housing. I know New York has some programs now where they'll eliminate real estate taxes for capping rents. Those are great programs.
Ivan Kaufman:
But I think with New York State and New York City having some budget issues, I think they're going to be reluctant to try those programs, which I think had a direct positive impact in terms of keeping rent-controlled and rent-stabilized units in the housing stock.
Josh King:
Now focusing just purely on your sweet spot, the multifamily property. Ivan, in the first half of 2020 refinancing made up, I think three quarters of apartment loans. Do you expect that trend to continue through the rest of 2020?
Ivan Kaufman:
So, I think that where rates are today, you'll continue to see an enormous amount of refinancing business. But what we haven't seen is transactions occurring in terms of purchases and sales. That's starting to pick up now. And I think the third and fourth quarter, particularly the fourth quarter will be a record number of refinanced transactions with purchase transactions returning to normal. Before people buy, there has to be some price discovery. And we were waiting to see what was going to happen with rental payments, rent growth, and economic occupancy. And people are starting to size those particular issues. There is negativity towards it, but people understand it.
Ivan Kaufman:
So, we're starting to see transactions pick up, and I believe come the fall, come September, October, November, there'll be a lot of transactions which will close in the fourth quarter. And the fourth quarter should be a record year for multifamily transactions and for Arbor Reality Trust.
Josh King:
Lease signings went up in June. What does that suggest for the outlook of the rental properties sector for the rest of the pandemic you think?
Ivan Kaufman:
So, I looked at that chart. It was quite interesting because lease signings for this June were higher than last June. So, at the face of it, people will say, "Wow, they're signing leases faster than last month." That's very positive, but it is a catch-up. Keep in mind, there were no lease signings the prior two to three months. So, I think you have to see what the adjusted lease rates are. But our philosophy and our economic predictions are the following.
Ivan Kaufman:
We think that there's going to be a softness in rents and you'll see a, not in the urban core areas, but you'll see a zero rent growth to a 2% to 3% decline. And you'll also see a little bit of a decline in occupancy because of the household formations and the flight to suburbs. But that's going to be offset in terms of price appreciation.
Ivan Kaufman:
Because multifamily is such a great investible asset class, and with the rates where they are, you're actually going to see cap rates compress and values go higher even though incomes are not growing. So, I think the asset class remains an unbelievable asset class. And even through a year or two a little bit of a struggle, you'll still see price appreciation.
Josh King:
How much of what you're seeing in your business is a novel reaction to a global pandemic versus what you expected from the normal ebbs and flows of the real estate cycle?
Ivan Kaufman:
So, that's an amazing question because we have a different outlook than the rest of the world. And that's why we're so well prepared. I had been through a number of recessions and dislocations and clearly the financial crisis, which in many ways was worse than this for the financial industries prepared us for this. We were on a 10-year bull run. We started to see certain practices that were not appropriate take place. And as a result, we started to prepare for the recession. We never expected the recession to be caused by COVID, but we saw it coming.
Ivan Kaufman:
So, if you looked at a couple of our earnings calls, the last couple of quarters, we were stockpiling cash. We were slowing volume. And we were talking very specifically about the way we were going to run our company, and we weren't going to be growing our business, but keeping it stable. We were beefing up our asset management capabilities.
Ivan Kaufman:
And when COVID hit and the recession began, we were very, very well prepared, quite different than other recessions in the sense that there are certain industries that are clearly losers to no fault in their own. The airline industry, the hospitality industry, restaurants, cruise lines, anything to do with travel, you can't prepare for that.
Ivan Kaufman:
But certainly in our industry where people were using excess leverage to get their returns were investing in certain NASA classes, which were not prudent, we were able to step back and really prepare for it. And that's what put us in such a win position.
Josh King:
If the short-term effect of the lockdowns, namely urban flow light and remote working such as I'm doing today become a more permanent trend, what do you think are the potential long-term effects on urban areas and the surrounding suburbs that would need to absorb the inflows of more people? Are they ready for that?
Ivan Kaufman:
So, it's clear to see that in urban areas. You're seeing a flight and there's going to be a lot of ramifications for a lot of these urban areas. Their property taxes are going to go up. They're not going to have the income to support. And there's a real flight. And they're certainly the losers, the winners of the suburban areas. I think that there's going to have to be certain preparation. Can the schools handle the influx? Is there going to be more traffic or less traffic? Nobody really knows that because people are going to be working a little bit more from home.
Ivan Kaufman:
So, instead of traveling five days, maybe they're going to travel two, three days to the city. So, I'm not sure how behavior is going to really be impacted. I think we have to sit back and wait and see. But I am not the believer that the urban areas are going to lose the office space and people aren't going to go to the city to work anymore.
Ivan Kaufman:
I think you'll end up with some hub and spoke mentality where you'll see major offices in the city, the winners on the suburbs on the office side, people will work from home. They're moving out of the city so they can have home offices, but you still need to be able to have the camaraderie and the affiliations with your employees in order to grow and be creative.
Josh King:
We've been talking so much about your history and your current core business. But in 2016, you formed ArborCrowd eventually with your sons, Maurice and Adam. What did your father Morris teach you about balancing business with family?
Ivan Kaufman:
So, I'm going to give you a funny story because I'm not quite sure how I ended up where I was. But I had worked very closely with my dad. I was very fortunate but unfortunate. He got sick at a very early age. He had heart disease at the age of 38 and he passed away at the age of 50. When I graduated school, I went to Boston University. He was very ill. I got to work extremely closely with him, got him to be almost a one-on-one mentor. That was a good part. The bad part is he passed away at the age of 50. I was on my own, but I was very well prepared.
Ivan Kaufman:
With respect to my own children, I was a little nervous about what to do with them while I was very entrepreneurial. I wanted them to be ambitious and achieve on their own and not grow up in an environment where one day they can come work in one of my businesses. So, my message to them was, you can't work with me, that wasn't available. And they went to college very successfully. All three of my kids did. Two of them went to Penn. One went to NYU.
Ivan Kaufman:
They graduated. They were ambitious. They went to work. And then, later on once they achieved, then after some collaboration, some new business ventures, some ways to saw something new, not stepping into one of my businesses, but the ability to create something new mentor them, work with them, leverage off of some of the skill sets, some of the capability, really giving them a basic start with a great background. But first, they had to achieve the basics. And that was a very important step.
Ivan Kaufman:
And they used to joke when I called them up and I said I have something I want to talk about. I'd like to start a business with them. I have an idea. They said, "Is this a practical joke?" And that's how we got to where we are today.
Josh King:
So, you as the mentor, curious, how does the ArborCrowd platform bring Crowdfunding to commercial real estate, and what have been some of the early successes of this enterprise?
Ivan Kaufman:
So, the ArborCrowd platform is an interesting platform because it combines technology with the depth of the real estate experience that we bring to the table. We were looking at a lot of the Crowdfunding platforms that were out there. They didn't have the real estate background. They were basically just a portal to show deals, to earn fees, which they are today, but they didn't have the depth and the experience on the real estate side.
Ivan Kaufman:
And it was our approach to take that technology to allow the individual investor to be able to invest anywhere between $25,000 and up and to see real estate through the capability of a firm like ours, who really understood real estate so much so that when we funded a real estate deal, we funded with our own capital. And then, we distributed out to individual investors.
Ivan Kaufman:
So, our individual investors felt really comfortable with our branding, with our capability. And we were not just in this for a fee. We were in this to provide another product to go really vertical in a whole multifamily experience. And that's another step that we're very successful with.
Josh King:
In a few years, Ivan, when you return to the New York Stock Exchange trading floor to ring the bell in celebration of Arbor's 20th anniversary of listing, how do you think the company may be different than it looks right now?
Ivan Kaufman:
Well, our mission is to become fully vertical and to offer every product on a multifamily aspect, whether it be from investment sales all the way through servicing, whether it be equity, preferred equity, permanent debt, bridge product, construction lending. And we have a program over the next two to three years to make sure that we fulfill that mission.
Ivan Kaufman:
And when I go ring that bell again, that would be my mission, to be able to go fully vertical. So, any customer seeking any aspect of a multifamily process will look at us as being able to provide every level of service within the spectrum of that process.
Josh King:
A fully vertical Arbor in a couple years back on the New York Stock Exchange floor. Ivan Kaufman, can't wait. Thanks so much for joining us.
Ivan Kaufman:
Thank you.
Josh King:
We'll see you when that happens in a couple of years.
Ivan Kaufman:
Okay. Look forward.
Josh King:
And that's our conversation for this week. Our guest was Ivan Kaufman, chairman and CEO of Arbor Realty. If you like what you heard, please rate us on iTunes so other folks know where to find us. And if you get a comment or a question you'd like one of our experts to tackle on a future show, email us at ICE House, at theice.com, or tweet at us @ICEHousePodcast.
Josh King:
Our show is produced by Pete Asch with production assistance from Steve Romanchik. I'm Josh King, your host signing off in the library of the New York Stock Exchange. Thanks for listening. Talk to you next week.
Speaker 1:
Information contained in this podcast was obtained in part from publicly available sources and not independently verified, neither ICE nor its affiliates, make any representations or warranties, express or implied as to the accuracy or completeness of the information and do not sponsor, approve or endorse any of the content herein.
Speaker 1:
All of which is presented solely for informational and educational purposes. Nothing herein constitutes an offer to sell, a solicitation of an offer to buy any security, or a recommendation of any security or trading practice. Some portions of the proceeding conversation may have been edited for the purpose of length or clarity.
