Ring Distinguished Speaker Series: Barry Altshuler

Hello everybody. Well, let me tell you a little bit about myself. I'm a graduate of UF from 1982. There wasn't a master's program, there wasn't any real estate program at the time, but I got a degree in business. I think my major was called Real Estate and Urban Analysis at the time. It was the closest thing to what some schools may have as an undergraduate real estate program, and it was very good. My UF experience was very good. The people I met at UF I still know today. I have people to call on who for the last almost 30 years I've been friends with and colleagues with in the industry around the state and in other states. People move around. But I think your time here now is something that for the rest of your career is very good. The relationships that you've made in this part of UF you'll always have, and that's really helpful. You'll see as you go forward and other people get jobs and do things, the kind of connections you'll have. That's something that is unique about being at a school like this, and if you stay in Florida, that is a unique experience which you have to kind of have to know what I'm talking about. My career, it's funny because I finished school in 1982. I think interest rates were 18% or something, 20% to buy a house. Today they're four or five. And the economy sucked, it was a horrible time, there were no jobs. I didn't know what I was going to do when I finished school. Along came the Florida Department of Transportation. They came to UF and FSU and needed a bunch of kids to do things for these new highways. Interstate 595 in Fort Lauderdale was being built, and they needed people to appraise the real estate, to buy the real estate, to actually go out and negotiate with homeowners, land owners. So from someone finishing school not knowing what he was going to do, in about a minute I had this amazing job with the state. I can't say it was a high-paying job, but I was what they called a right-of-way specialist. They sent me to school. My first six weeks were going to school to learn how to do things for the state. They taught us how to read surveys, how to read road construction maps. They taught us how to negotiate with people, how to read contracts, how to read leases, what things mean. And so that too was really helpful because aside from going to school and learning about contracts or learning about leases, when you really have to do it it's an entirely different thing. You actually don't know anything when you really have to go do it the first time. So this little extra training that we had was quite helpful. I mean just even learning how to read a survey was incredibly important and very helpful. I have to say that that job was one of the best times I've had in my career because for a few years there was this group of 20-some-year-olds, a bunch of us who went into this state bureaucracy where nothing moved very quickly ever, and we were like running all over the place. We bought this 595 project, which built this highway from Port Everglades in Fort Lauderdale to the western boundary of developable Broward County. It was at the time the largest interstate highway project ever. It was over a billion dollars, which at that time was a ton of money. The reason it was so expensive is it went through an urban area. Most of the interstate highway system went through rural areas when it was built. So in my first job, I went out and not only did I appraise properties, I bought them. I went out and met with owners and bought hotels, manufacturing facilities, trailer parks, movie theaters, all kinds of things. I learned all about every piece of real estate imaginable because we would buy someone's property but give them an easement through here, we'd keep part of it, or there was just every piece of real estate that you could possibly run into: permanent easements, temporary easements, just all kinds, eminent domain, that whole process. I was part of it, and it was just really fascinating. The reason I'm mentioning all that right now is because that was my first job. It doesn't sound like maybe it does sound like an exciting job, but at the time it was kind of a dud job. 'Oh, you're going to go work for the state, that sounds really interesting,' especially after you thought you were going to get some great job making a ton of money somewhere. But the reason I'm mentioning it is it was a great job and I learned a lot, and the things I learned I've used for the rest of my life. I would say to everyone in this room: start anywhere. When you're looking to get your career going, just get started is the main thing. It doesn't matter what it is, just get started somewhere because where you'll go from there, once you're in, you're in, and one thing leads to another and your careers will move right along. So that's my little tidbit of advice about getting started in this business in a tough economy.

I had other jobs. I've only had a few. I worked for a bank, we made loans. I worked for a savings and loan, and it was based in California but we were commercial lending on the East Coast, so we made a lot of apartment loans and that's how I got into the apartment business, learning all about apartments. Then I worked for a pension fund adviser, again primarily I managed every property type but we focused on apartments. Now for the last 15 years I've been at Equity Residential, which as Dr. Archer said is the largest public owner of multifamily in the US. When I started in this business, apartments were not an institutional asset class. Nobody wanted them. Life companies didn't own them. People didn't think of apartments the same way they thought of hotels or retail or industrial. Today, apartments — if you look at the title of my presentation today, it says 'Ahead of the Pack and Staying There' — today apartments are the number one asset class in institutional real estate, ahead of hotels, office, retail, etc. That is because of the demographics that drive it. So let me just go through a few of these things. Population growth: the US has about 300 million people, and adds well, you can see from the slide, we will grow by 33% in the next 20 years. That's 94 million people over a 30-year period. So we're growing at 3 million people a year. So one of the questions is: if you're growing at 3 million people a year, you don't need job growth to fill up housing. You need to house 3 million people a year. So one of the questions in our business lately has been: how are you filling up apartments? Because the reason apartments are so well thought of today is because they're so well occupied, they're generating so much money. But how are they doing that when the job picture stinks? The reality is households are what drive apartment occupancy. Household growth, job growth helps, but just adding households has filled up our buildings in a time when jobs went the other direction. So what this slide is saying is we need 60 million new housing units over a 30-year period. That's a lot of housing. A lot of people in this room are Echo Boomers. Does anyone know what that means? If your parents are a Baby Boomer, then you are an Echo Boomer, children of the Baby Boomers. The Baby Boomers were a very large demographic, I think the largest post-World War II demographic in this country. The Echo Boomers are even bigger. That demographic has 78 million people basically in what we call prime renter age. If you look at the slide, by 2015 there'll be 67 million people aged 20 to 34 in their prime renter years in this country. That's a lot of people who need housing, and 60 to 70% of that age group rents apartments. So these are why, if you look at the data points we're going through now, this is why our business is ahead of the pack and will stay ahead of the pack for many years to come, why the apartment business is such a great business.

In addition you have immigration. 85% of immigrants rent, so you have at least a million immigrants a year coming to this country. What's changed in the United States? For most of post-World War II, housing was defined by a married couple with children. At least 50% of all housing units were that. Married couples with children are projected to decline to 25% of housing units by 2025. So average household size is declining. That means you're going to need even more households, even given a fixed set of population, you'll need even more housing units in the future. By 2020, singles and unrelated individuals living together will comprise one out of every three households. So that's a lot of apartments, at least the way we see it. There are environmental factors to apartments that make sense. Let me just talk about our strategy for a minute. Our company used to own 240,000 rental units in the US in 35 markets. We are now in 10 or 12 markets and we have 130,000 units. The value of our company hasn't changed. So that means we're selling three units in Raleigh to buy one unit in Manhattan. So our strategy is really following what we're hearing and seeing: people want urban housing. People who are 20 to 34 don't want to live in the suburbs. I don't know if people in this room see that as where you're going to live after you finish this program. Are you going to live in the suburbs or an urban area? Where are people going? Our sense is you want to be urban and you want to be multifamily. So our strategy has been to get out of the suburbs into urban areas. I put up a couple of slides here to show the environmental factors of having more urban development where people live near where they work and don't need cars. Not only will you save pollution, you'll preserve green space, and you'll also look at this statistic about sprawl: nationally the US can save over a hundred billion dollars in infrastructure costs by growing compactly. So that's saying if we don't have to support highways out to the suburbs and all of that transportation network, we will save a fortune. Part of the argument here is that part of this money that went to build a highway can help build infrastructure in cities that make cities better places to live. So our strategy again: get out of the suburbs, get into the cities. These are just examples I wanted to show you kinds of properties that we own. When I talk urban living, these are assets we own in Florida and Washington and California. This graph shows the true decline in homeownership over the last five years. If you look back to the early 80s, the homeownership rate in this country was about 65%. During the housing boom between 2001 and 2005, that number increased to 69%. So you had all these people buying houses that many couldn't afford. That is trending back down. Today it's about 66%, and Moody expects that to go to about 64% by 2012. So you again have a shift out of single-family homes into rental housing. Just in the last year, 1.2 million more rental households were created in this country at the expense of single-family. This is a really interesting statistic: housing affordability. Because this takes that same rental percentage and says okay, today housing is the most affordable it's ever been. Prices are as low as they could possibly be in most cities. Maybe in another six months they'll totally bottom out. This graph shows that in spite of incredibly low interest rates and incredibly low home prices, so you have the most affordability, you have declining homeownership rates. People do not want single-family houses today. The notion of the American dream of owning a home and living in the suburbs has changed. Again, Echo Boomers are the key driver for demand in the prime rental group, which is the 20 to 34 year olds. Nearly 4 million people are turning 18 each year for like the next 15 years. So when you look at this demographic, you can see how fabulous the apartment business should be.

This graph shows homeowner home purchase. The average age of someone buying a house in the US is 30 years old. What you see here is a decline in the homeownership rate, which is the red and yellow line, and people turning 30. So in general, even though people are reaching 30 years old, fewer of them are buying homes. I'm going to skip this one and this one. I just want to show you a couple more of properties that we own, the types of things we buy today, types of things in the cities we're in that people are looking for. Now, why is our strategy more urban versus suburban? This is why. If you look at the national vacancy rate for apartments, which is the yellow line, compare it to what we call our core markets, which are Boston, New York, Washington D.C., South Florida, San Diego, L.A., San Francisco, and Seattle, which are the blue bars. You see that our core markets are actually better occupied than the nation. This is the breakout by individual market, year-over-year. It shows that as strong as these markets are in 2010, which is the blue line, they're getting even stronger in 2011, which is the yellow graph, so continuing to improve, strengthening of our business. Rental rates, it's the same thing. Again, yellow is 2011 and that's the percent growth in market rent rates in each of these markets. We were just talking about how markets are doing. Look at Boston: we are projecting 7% rent growth in Boston this year. In San Jose, just south of San Francisco, pushing 10%. In South Florida, 5%. I can tell you that in general, these are projections and for the most part they're being beat already. Today, again, another example of the type of asset that we own in New York City. The point of this is just to show you what apartment absorption has done. In general, I guess one thing I'd like to say about absorption: very little new product is being built today. It can't get financed. No one will finance it. So what you've had is a few years of virtually no new apartment construction. This country needs between 300,000 and 400,000 new multifamily units a year. Last year, about 70,000 market-rate units were delivered and about 50,000 low-income subsidized type units were delivered, so about a third of what's needed. But the other thing you have to keep in mind about the apartment business is every year about 150,000 to 250,000 apartment units leave the market either through fire or redevelopment. So what's been happening: we've had several years of very low deliveries, but at the same time we've lost product just to the normal cycle of obsolescence. There actually is a severe apartment shortage coming, which I think this says. Very little new supply, the industry is well positioned to reap benefits of an economic recovery. This just shows multifamily starts over time, how they've tapered down a lot in the last couple of years, which is the point I was just making. This graph shows household formations, and this is why the apartment business has been strong. Even through the recession, households have been added and those people have been renting our apartments. If you look at the estimate for this year and next, household formations will increase even greater, and 2012 will be a big year because you'll have a return of job growth, which means that more households will be created because people who have been living with their parents will move out, they'll get a job, they'll move out. Roommates who have been living together will get their own places. Those are types of events that create more households. Again, new construction at all-time lows. Another example of the type of asset that we own. The reason I wanted you to see some of our properties is to think differently about rental housing. When I was in college, rental housing was not a nice place. If you rented, you were a second-class citizen, you lived in a dump, and you couldn't wait to own something. Today, rental housing is nice like this. This is one of our properties in Southern California, a really cool place to live. Today, people who rent do so because it gives them the lifestyle that they want without being tied down to the old American Dream. If you rent today and your job changes, you can go to another city very easily for that job. A lot of people who bought houses the last few years and who have changed jobs are stuck with a house that they owe more on than it's worth and they have trouble making the decision to walk away. So I did want you to see the kinds of housing we provide. Let me think what else I wanted to tell you about our business. I want to make sure that you understand that household formations drive demand because it's not just jobs. A lot of what you hear in our business is that you need jobs to drive housing demand, but you don't. I mean it helps, and ultimately you want job growth, but you will have housing demand just because of the natural growth of population. The other piece is the swelling of Echo Boomers over the next many years, which are adding a lot of people of prime renter age for the coming time. The third piece is the fact that there's been very little new housing built, so the market is very undersupplied. Because housing can't be manufactured quickly, it will be undersupplied for a number of years. Even today when things are improving, very little housing is starting. People still can't get the construction financing they need to build. So we're not there yet. We're not at the recovery point where the market's back. So those are the four factors that will allow this multifamily business to be a great business for the next many, many years. Anyway, I'd like to see what questions people have.

Yep. Yeah, got to have a job. Yes, job growth is important. I'm not saying that it isn't. But the old notion, there was a notion even two years ago, read The Wall Street Journal from 2008 saying how the housing industry will collapse because there's no job growth. All that happened since 2008 in our business is we got better. We lost a lot of people to home purchases in '05 and '06 and '07, but in '08, '09, 2010, and 2011 we've had some of the best years ever because of household formation alone, because job growth went the other way. But yes, ultimately job growth is a driver, not the only driver. Well, if somebody lost their house to a foreclosure and they have a job, in most cases we'll excuse an event like that if they can pay their rent and if they qualify. We may require an additional deposit or something, but in general we'll take people. I would say, yeah, our segment these days is luxury housing. But the other piece of it is there are people who rent houses too, they don't just rent apartments. The interesting thing is in the same markets where housing is very well occupied, like in our portfolio we're 95% plus occupied for our apartments, in the same cities houses that are rented are not as well occupied. They're probably five to ten or more percent less well occupied. So I guess one other point I'd like to make: not everyone who rents a house is the same person as who rents an apartment. It usually costs more to rent a house than an apartment because you're generally maintaining the house yourself, the lawn and things like that. So they're different renter groups. You'll hear statistics today about the overhang of single-family housing in a market and that might scare you about being an investor in the apartment side of the business, but they're really two different pieces of business that don't have a lot to do with each other. Yeah, condos converted back to apartments. There was a ton of it. The reversions. In '05 we sold a lot of our properties to people who converted them, and then the other stupid thing they did aside from buying them at the top of the market was they emptied them out because they were going to sell them. They moved everybody out and all those people came and moved into our places. So in '05 we were like 99% occupied. We had just sold things we wanted to get rid of anyway at the top of the market. But then what happened? None of that stuff got sold, it's all messed up because they sold 20 units out of 200 and now it's a fractured property, and then those people are in foreclosure and the places are empty. So now they reverted back to apartments. But again, we call those apartment reversions and those don't compete with us much either because generally they're not professionally run. Nobody wants to live in a community where half the place is empty or where half the units are in foreclosure. It's interesting the dynamics that you think impact our business that don't. Like this overhang of condos or overhang of single-family homes, to some extent it impacts us but not really, not enough to do anything more than a point or two of occupancy out of our world. Well, obstacles to multifamily? There are a lot. One of the reasons that multifamily has been successful through this downturn is because of Fannie and Freddie. Because Fannie and Freddie, aside from providing all these single-family home loans, provided the multifamily business with financing and they still do. So even when the banks and insurance companies weren't lending, you could get a loan from Fannie on an apartment in 2009 when no one else would loan you a dime. The other thing about Fannie and Freddie is their rates are cheaper than the life companies and commercial banks, so they have subsidized the multi-housing business. The good news about Fannie and Freddie with respect to multi-housing is that the default rate is incredibly low. There's very little of all of Fannie and Freddie's trouble; it's all on the single-family side. The multifamily side has been incredibly profitable with incredibly low default rates. The risk to the business is that Fannie and Freddie are going to go away. They are entities that don't make sense anymore. The question for the multifamily industry is when Fannie and Freddie go away, what happens to interest rates? Because will they be artificially low like they have been? If they're not, if rates move up, then that means values move down. So all this real estate you think is worth $10 billion is now worth $9 billion or whatever the numbers are. The other frightening piece of it is that Fannie and Freddie have been around to provide financing, and if they're not and no one else is, then housing that's needed won't get built. So really, some form of government intervention into the financing of housing I think makes sense because it does allow for housing that is needed to get built. If we spend less money on building roads and put that money back into affordable housing for people, why isn't that a good trade? Yeah. Financing is coming back. In fact, a company like ours, we have a lot of business with Fannie and Freddie. Our company is Fannie's largest borrower. We borrow at any one time we'll borrow $500 or $600 million at a time, and we'll put in a pool of assets that are collateral, maybe 50% loan to value, and we have substitution rights so if we want to sell something we can yank it out of the pool and substitute a different asset for it. So Fannie and Freddie have been a big player, but the life companies want to get back in and commercial banks want to get back in. People are sensing that the economic conditions are changing and they want to start lending again. So we are getting quotes today that are very aggressive. People want our business. They love people like us. They want our business. 50% loan to value with great assets, who doesn't want that kind of business? So we're getting quotes today that match Fannie and Freddie's rates from other providers. For companies that are well capitalized, there are going to be other avenues for people who absolutely can't do a deal without a particular interest rate.

Okay, yeah. So our company, we started on this. You know, it's funny, I like our strategy and I get it, and what the slides show you is that you have better occupancies and higher rents and better rent growth in these core markets, so it all makes sense. It's like, of course you should be there. But our other strategy was we were highly opportunistic. If we saw a great buy in St. Louis, we went and bought it. You know, we just a great buy. We saw a great buy in Raleigh, we bought it. And so we were all over the place with what I would call opportunistic buys. And when you look at our IRRs on the deals that we bought and sold, we did quite well. And we're making a big bet because we're saying that in the long run it's better to own this high-value, high urban, high barrier to entry stuff. But we are creating a lot of dilution to get there. So what that means is dilution right now. We're selling a property in Raleigh for, call it a six cap, six cap rate, a nice deal in Raleigh, North Carolina. We're buying Manhattan at a four and a half cap. Okay, so we were earning... Now let me mention this, because the deal we're selling in Raleigh for a six, we might be earning a seven. We're selling it on a six with market underwriting, but we're giving up a seven and we're going and buying Manhattan at a four and a half. That's a lot of dilution. We were earning seven, now we're taking those same dollars and putting it into something that's going to earn four and a half. Now we're saying that in the long run you're better off in Manhattan, but until we get there, it's a big risk and a lot of dilution. I do think in the long run it's the right strategy, but when I look back at all the money we've made in Dallas and Austin and Houston and Raleigh and Charlotte and all these other places, I think you can be successful in a lot of places. The difference is those markets require market timing very much. That's the only way you're going to make money in Dallas, whereas New York, I think if you're patient and you just sit still, you'll make money in New York. It's a better bet. And to answer your question, we're probably 80 or 85% through our portfolio restructuring. I would say we have two more years and it's been about a 10-year process.

What, yeah. I mean, you know our horizon too. It's getting tougher to do business today because with nothing new being built, I mean nothing new being built, what are we going to buy? And with rents moving up as quickly as they are today because the business is so good, nobody wants to sell today. Why would you sell today if you thought your rent tomorrow was 10% higher? The only reason you'd sell today is if you need to sell or if you're getting paid for tomorrow's income today. So there's just very little to transact today. And it's funny because while the market's improving, it's getting tougher and tougher to reposition our portfolio.

Or acquisitions. I only like to acquire properties in places I like to go and that are near restaurants I like to eat in. I don't know. What are the things we look for when we buy things? Well, we again look for our demographic. So we're looking for single people. We like single people who have good incomes. Actually, the way we track our portfolio, we have better rent growth in our one-bedrooms than we do in our three-bedrooms. So we like people who – we like single people who have great jobs in urban areas. I mean, that's something we look for. And we actually have a very specific demographic that we try to go after. But in terms of geography, is that really your question, Drew? The locational aspects of things we look for – again, it's high barrier to entry, so where it would be hard to build something new. And we also look for places where it's expensive to buy a house. So I mean, Manhattan's a great example. You can't afford a home in Manhattan. Even a condo in Manhattan is very expensive. So owning in Manhattan, it's clear that renting is an affordable choice to owning. And even places like Southern California, the average home price is $400,000, so renting again makes sense. And because home prices are so expensive and because today, even with great interest rates, down payments are 20%, it's hard to get into a house. So we feel like people not only will they pay us a lot of rent, they're going to stay put, they're not going anywhere. So we can ask them for more rent because they're staying because they don't have anywhere to go.

Once we control the world. Um, well, I think we have a lot of work to do even in our core markets because in real estate you're always repositioning. And we're developing too. Today is a great time to build. Construction costs are low, they're really low. Land is cheap right now, construction costs are cheap, rents are moving up. I don't know why it isn't a great time for us to be building right now. So we will build. And to the extent that we can build and continue to reposition and get better and better assets even within places like Manhattan, we'll sell the stuff that isn't as good. So I think there are very few assets that we would never ever sell, but there are a couple. In general, I think you're always playing Monopoly in this business. And we're thinking too from the development standpoint, we're developing in all those same markets that I mentioned, the coastal big cities. Today, we're buying land for half of what it traded for three years ago. Construction costs today are about 20-25% below where they were three years ago, and rents have recovered to where they were three years ago. So when you put all that together, for us it's a very compelling time to build. But one of the funny things we were talking about at lunch was the chairman of our company is Sam Zell, and one of Sam's expressions is, 'I never want to be the first owner of any piece of real estate.' And what he means by that is, as the first owner you have all the headaches, all the cost, all the risk, and if it doesn't go well you lose the asset. That's what happened in this cycle. People built for way too much money, the deals didn't work, the banks took them back, and now people like us are coming in and buying those deals at half of what they cost to build. So we don't like being the first owner of real estate, but with where development prices are today, we think it's the right time to be the first owner of some of those things.

Yeah, I mean, we do factor all that in to things that we do. And certainly our insurance rates reflect those things. There's a premium on insurance in California, there's a premium on all of our buildings in Manhattan because of terrorism, and here in Florida hurricanes. It's funny because the one place we got out of, the Midwest, has none of those issues. They don't have earthquakes, they don't have hurricanes, they don't have terrorism, and they have water. Because water is a big issue, you know. But we don't have it anymore. The reason we got out of the Midwest is we saw all the manufacturing jobs leaving, we saw the jobs leaving the Midwest. So we exited places like Minneapolis and Detroit. And even though we're headquartered in Chicago, we don't own anything in Chicago. We just don't think the Midwest is the bet for US cities with declining population, household growth going the other way.

That's a great question. Because here's what happened. In 2009 and 2010, you could buy things at a discount to cost, a big discount. There were brand new assets that people built, they got into trouble, and they cut deals with their lenders like short sales, and you could buy something for 70 or 80 cents on the dollar. There was a window in there that about a year ago went away. When you were buying things like that, you were buying something at a big discount, but you weren't paying for it. Today, there are no deals. You are paying cost or more, you're paying for the upside. Today? Well, today cost. But my point about paying for upside today: you're paying for upside today. If you buy something on a four and a half cap, you're paying that cap rate because you expect rents to move up. So if you buy something on a four and a half cap today, you're really saying that's a 7% return in year three. Two years ago, you would have paid a 7% cap rate for the same asset. Today it's five, four and a half, five. So today you're paying for the upside. And in 2009, you didn't.

No, no, yeah. That's something too. But you know, we don't just pay for caps. We look at every metric possible. So we look at replacement cost, we look at trades. We really say to ourselves, from every angle, does this make sense? And the reason that's good is because if you're the first one who pays a four and a half cap, well, let me put it this way: we were probably the first ones to be back in the market. We were also the first of our peers. The way we judge ourselves is by how we compare to our peers. There are a lot of other public apartment companies, and we look at their results every quarter: rental income, total income, expenses, and net operating income. How do we compare to our peers? That's how we measure our performance.

So and so we say, you know, Camden has assets in South Florida, how did they do compared to our assets in South Florida? And I will tell you, because our sense about things even a year ago was that things have improved, we were very aggressive with our pricing of our rental units, our rents, before everybody else in the market. So we beat all of our competitors last year across the board as a company, period. And everybody looked back and said, at the time people were saying that you're crazy, but looking back they said you were right. And I think some of that same kind of risk-taking and sense about the timing of the market when it comes to acquisitions, if you're the first one back in buying, you're going to get a better deal than the next one buying because you're going to buy on a five cap when the next deal is four and a half cap. And so that's what happened too. We were able, when no one else was buying in the tail end of 2009, we overpaid for some assets. We were the highest bidder on several assets in Washington DC. These were condo buildings that were failed condos, but not fractured, 100% rentals, granite countertops, high-rise buildings. And in the middle of 2009, we started putting offers in on these buildings and working with the banks. And these weren't in the hands of the banks, working with banks with their developer, with the developers, and cut deals to buy things. And at the time, again, we overpaid. But a year later we look smart. Everyone's like, you're so smart, you bought in at the right time. Because those same assets almost immediately, a year after we closed, they're worth 20% more. So I think one other thing that's really interesting about the investment business: the money is made on the trade, on the buy and the sell. Being a good manager, you need to manage your properties, operate them well, and get as much income as you can during your ownership period, but the real money is buying right and selling right. I know it sounds obvious, you want to buy low and sell high, but that is the truth. And the more times you're right about that, the better investment manager you are.

So the way we look at it is we're a market leader. We try to think, we don't try to follow the market, we try to say to ourselves, independent of the market, what should we do? What should rents be? Even if our competitors are charging $1,000, what are our units worth? Maybe we offer more services, maybe we have a program that someone values, like we have this Coast to Coast program that allows you to move from one community in one city to another community in another city if you change jobs without having to break your lease. We let you do that. That has value to people. So maybe someone will pay more to live at our property because of that. So our sense about all of this is it's great to know what everyone else is doing, but it's better if you know to be the lead thinker, the first one to act. And a lot of that's just risk-taking, educated risk-taking.

Well, I will say we are a smaller number of units company than we were 10 years ago, but we're the same, we're a bigger value. So we're actually more efficient. We're managing $2 billion with a lot less people. We like that too, because every time you sell eight units in Charlotte and buy two in Manhattan, think about the overhead you're saving. You need two property managers instead of eight. And the other thing is, every time you buy a high-rise and you don't, one building, one roof instead of 30 buildings, 30 roofs. You might say high-rises are more expensive to operate, but in a lot of ways they're cheaper to operate. The events aren't as frequent. But I do think there's value to our platform. And we were talking earlier about how real estate traditionally has been a local business, local developers built things locally. The whole emergence of the REITs in the early 90s, in our mind, what we did is we said we're a national company, we're going to take this business national, we're going to create economies of scale that have never been seen before. We're going to, every time someone buys any service at any of our properties, we're going to run it through a central place. We cut deals with Whirlpool, we're one of Whirlpool's largest appliance buyers. I mean, can you imagine the pricing we get at Whirlpool? I don't think anybody has better pricing on appliances than us. We are one of the largest purchasers of carpeting in the United States. We have our own carpet manufactured for us. Many things that we do and many ways that we've thought about it have created very significant economies of scale that you can only do when you commit to the volume that we have. We're also big enough where we self-insure. So when we buy property insurance, we're insuring ourselves the first $5 million of an event, and we can afford to do that. But most people can't. But because we can do that, we're really only buying catastrophic insurance, which is a completely different price point, much cheaper. So in markets like South Florida, which is big hurricane risk, where a typical apartment property insurance might run $800 a unit, our insurance is $250 a unit. So think about that. Think how much more I can pay for something because of my economies. And I don't have to pay more, I only have to pay the market price for something. So think how much more NOI I'm returning to our investor because of our economies.

So I think the model works whether it's public or private today. I don't, I hate the public market. I just think it's an awful lot of reporting. And I don't know why anyone would go public today with this Sarbanes-Oxley. Since the whole Enron thing and Sarbanes-Oxley, we have all these rules that we never had before. We were much more nimble. Now we have rules and audits and weekly checks and all kinds of things. Some of which, the process in general is good, but it slows you down. And I don't think in our case has helped. I mean, that stuff protects the crook from the crook, but I don't think it protects a company like us. I will say, there's still the advantage though in a public REIT like ours. If you want to own real estate, you can go to the New York Stock Exchange tonight and buy our stock, EQR, on the New York Stock Exchange. You can become an owner of apartment buildings tonight if you want. And you can buy as much of it as you want. You never have to fix a toilet. You're not going to get a call at 2:00 in the morning that there's some problem or some issue at your property. And if on Friday or Saturday you decide to sell your position in that real estate, you can do it on Saturday. You don't have to put it on the market, hire a broker, and wait it out to see if you're ever going to sell at the asset. So the liquidity issue is huge. And I who am in the business love it. I love the fact that I can buy real estate by going to the stock market. I actually don't want to own anything myself and have to deal with the headaches of it.

I mean ultimately yes. I mean ultimately, if the market didn't like what we were doing, they wouldn't pay as much for our stock. But I think in general we try to operate by making good business decisions, which is the only way you can operate. The problem with Wall Street is Wall Street is a quarter to quarter thinking entity. And these stock analysts, that's how far they think, like the next quarter. Real estate, as you know, is this long-term thing. And we're taking this position today where we're willing to take dilution of one or two percent of our income to reposition our portfolio. And Wall Street gets it, they understand what we're doing, and they agree with what we're doing, but that itself was a hurdle to get the street to see what we're doing and to be okay with it. So I think no matter what you're doing, you have to make the right decisions for your business and not let the market tell you what to do.

Well, we do announce our strategy. We have a quarterly earnings call. I would encourage any of you to listen to some of these calls. Maybe you have. But aside from reading a quarterly earnings release, it's great to listen to the conference call. You've got the CEO, the CFO, you've got all the leadership team of a company talking about their business. And on the line also are the analysts, stock analysts who track these companies, and analysts ask questions. So what we do, we have a call every quarter and we talk about our business. Go listen to our call next quarter. I don't know, we probably have one coming up in April or I don't know exactly when, but it's online. Check it out, it's interesting. But you'll hear about our strategy. The great thing about public companies again in owning real estate is there's a lot of transparency. That transparency keeps everybody honest and levels the playing field. So anyway, that's just a benefit of the public markets. Anyway, really listen to the earnings calls of some companies that you like, and ours too. You should listen to ours because I've been here and you've heard me talk, and to actually listen to our earnings call now would be interesting because you've already heard some of the talk.

The biggest risk today. I think the biggest risk for a lot of companies are debt maturities. A lot of debt was placed in the last few years that is maturing next year. So what you have, it's not a risk for us, but this is a risk for a lot of real estate: assets that were purchased in '06 may have a debt maturity now or next year, and where the debt amount may be greater than the asset value. I think that's a risk for the business, and that's an opportunity for us. That's a way we grow, because people who can't refinance their debt are going to be forced to sell their asset in order to retire the debt, and we're there waiting, saying sell us your deal, we'll take it off your hands so you can pay Bank of America.

As apartments aren't overbuilt. I mean, retail in Palm Beach County is overbuilt, there's too much of it. But rental apartments in Miami are not overbuilt. In fact, there's a shortage. The occupancy rate in Miami for rental apartment is over 98%. Right? Well, I believed it because two years ago we were 95. You know what I mean? Because we saw the trend. But I agree that in general you wouldn't have predicted that. Overdevelopment of condos in Miami, there was. It's really interesting. Over 20,000 units were built in Miami in high-rises, and it was a disaster. A lot of people lost a lot of money because the way the developers got loans to build these buildings is they had to pre-sell 60% or 80% of the units. So they went and sold them and got 20% deposits from people, and then they went to the bank and got construction loans. But because everything was so heated up, the market was so good, people not only did they build too much, they overbuilt it. The specs were too good. Everything was granite and marble and high-end appliances and fancy stuff, because why not? If people are paying you and they're putting 20% down, what's the risk? The risk is that the only reason people were buying these units was to flip them. They never intended to move into them. So there never was an ultimate market at $500 a foot or whatever the price was for that product. But what happened is all this stuff is through the cycle. The banks have gotten involved, and the developers are gone, the equity partners are gone, the mezzanine piece is gone, the deals are in the hands of the bank. The bank is saying, 'I'm taking a loss, and the asset is worth whatever it's worth, $200 a foot.' Well, at $200 a foot, there's a market, there's demand at a price. And I'll tell you today in Miami, of the 4,000 units that exist in downtown and Brickell in Miami that are not sold, if you price them at $200 a foot today, you would sell them out in 90 days, all of them. So there's demand at a price. What's happening is prices are moving up, and people are saying, 'I don't want to sell today. I think if I wait, I'll get $400 a foot for this unit next year. Why would I sell today?' And that's what's happening. So is there an overbuilt condo market in Miami? The answer is no. I mean really no. And in fact, there is a potential shortage because again, if you follow the demographics and look at the household formations that are coming, you will need housing in 2012, 2013, and 2014. And in order to supply it at that time, you have to be building it today, and it's not being built. Right, I think yeah, I think it's really interesting because it is a disaster. I mean, a lot of people lost a lot of money, but on this end of it, a lot of people are making a lot of money because things are getting so much better so much faster. The position that you take, you know, if a bank sold you 100 units at $200 a foot a year ago because they thought they needed to liquidate, and those units are worth $300 a foot today, you made a lot of money. And that's what's happening.

The other piece of what's happening in Miami, 70% of the buyers of these units are paying cash, and they're foreign. So the political risk in other places affects that market a lot. People in Brazil or Venezuela or wherever who either fear political risk or devaluation of their currency for some reason, they like having a real asset in Miami. So anyway, that's the other interesting thing. Even without end unit financing, a lot of these units are getting sold to cash buyers.

Well, this property, this is really a beautiful property. We built this, and it's in Pasadena, which is a really cool suburb of LA. And even though it's suburban, Pasadena is its own market, and has train service into LA, so you can walk from here to the train into LA. But this asset also has a swimming pool and a lot of other amenities. But that chess thing, this whole area with these oversized pots and the plants and the chess game, it's just really cool. And it is, but they have to bring the pieces in every night so they don't get stolen. But people said they play it all the time. Yeah, it's really great stuff. But see, that deal is a deal that we built in, we just delivered it last year. So we paid up for this deal, built at the peak of the market. So again, do I want to be the first owner of that? Well, we are. But today I can build that for a lot less and have a better return than what we're going to get on this one.

Yeah, I think that's a good question. The type of housing that's provided, the quality of it, yes. I think the quality of rental housing is evolving into more permanent housing where people will stay put. So yeah, I believe it is changing. And there are the, it's confusing because in the 60s and 70s, apartment units were huge. A two-bedroom apartment had 1,400 square feet, it was huge. Then in the 80s, they got smaller, financially you couldn't build that, so a two-bedroom became 950 square feet. Then when everybody was building bigger for condos, the units got bigger again, 1,100 to 1,200 square feet for a two-bedroom. Today they're getting smaller. But the question is, if apartments become more permanent housing where people live in them forever, what is the exact right product that you really need? That's not temporary in a sense. So we're trying to figure that out, because it's certainly a long-term thing when you build it.

Thank you.