Ep. 8 Sonny Kalsi

 

About Sonny Kalsi

 Sonny Kalsi, Founder & Partner, GreenOak

Sonny Kalsi, Founder & Partner, GreenOak

Sonny Kalsi is a Founder and Partner of GreenOak, based in New York. Sonny has oversight responsibility for GreenOak’s US business and is a member of the firm’s investment committees globally.

Sonny Kalsi was previously the Global Co-Head of Morgan Stanley’s Real Estate Investing (MSREI) business and President of the Morgan Stanley Real Estate (MSRE) funds until his departure from the firm in early 2009. Prior to that, Mr. Kalsi was the Global Co-Head of MSREI from 2006 to 2008. At its peak, the MSREI platform had approximately $100 billion of assets under management in 33 countries. Prior to managing MSREI globally, Sonny Kalsi and his team led the formation of Morgan Stanley’s property business in Asia and built it into a leading real estate platform in the region. Sonny has been named one of the 100 most influential people in private real estate from the past decade by PERE, and most recently, Mr. Kalsi received recognition as a finalist for EY’s Entrepreneur of the Year.

Sonny is a graduate of Georgetown University and a member of its Board of Regents. Additionally, Sonny Kalsi serves on the boards of the following organizations: the Hirshhorn Museum, PowHerFul, TeachingMatters, and Room to Read, and is a trustee of the Asia Society, an organization formed by the Rockefeller Foundation.

 

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00:50 CR: So today we have Sonny Kalsi, the co-founder of GreenOak on the podcast. It's a really interesting conversation. We go through the heartbreak of failures as well as the inspiration of leaders in the business. We talk about how you raise money in the environment that's out there today. We talk about the importance of trusting your partners. It's a really engaging conversation. I think you all really will enjoy it.

01:19 CR: Welcome to The Real Market with Chris Rising. I'm really pleased to have my friend, a long time associate in the real estate business, Sonny Kalsi with me. Sonny is a co-founder of GreenOak, a firm that has really exploded on to the scene over the last few years and has become a real player in the allocation business here, both domestically and internationally. So Sonny, welcome to The Real Market.

01:43 Sonny Kalsi: Thanks, Chris. Thanks a lot for having me.

01:44 CR: Well, I'm really pleased to have you here though I will tell you, I was looking through your bio and I did not realize that you are a big Georgetown Hoya fanatic when it comes to basketball.

01:57 SK: I'm a big Hoya fanatic. I'm really glad we've got Coach Ewing back down there. I wish the NBA had given him a shot. Their loss is our gain. So I think the Hoyas will be back in a couple of years.

02:07 CR: Well, as a Blue Devil, there are some epic battles when you and I were in college there. I graduated from Duke in '91. You were Georgetown '90. And I remember some great games over those years.

02:18 SK: Yeah, I have a lot of nice words in my brain for Christian Laettner, but that's a different story for a different day.

02:24 CR: That's true. Well, so you went to Georgetown and you're now running a company that has grown really quickly and done very well, but can you tell us a little about GreenOak?

02:37 SK: Yeah. I'm happy to. We started GreenOak in 2010 with two of my partners, my two co-founders, John Carrafiell and Fred Schmidt. The three of us had worked together for a long time at Morgan Stanley. I think I worked with John for 18 years and with Fred for 10 or 12 at that time. So add eight years to both of those numbers. We've been together a long time. John's at London. Fred's at Tokyo. I'm in New York, and we basically just thought it was a great time to start a new platform, didn't quite realize how hard that time would be just in terms of the vintage and the environment. But we put our head down and we're sitting here eight years later and I think we built a decent business. We invested seven or eight countries around the world. We manage about $10 billion of capital. And doing what we used to do at Morgan Stanley, just on a smaller scale than what we used to do there, but with a lot of people that we work with there. I'd say there's 100 people on our team, probably two thirds of them at some point in their careers spent time at Morgan Stanley, and we like that. We kinda feel like we brought some of the band back together.

03:41 CR: That's terrific. I mean $10 billion at AUM in eight years is quite a story. But when you started, I remember we had a... May have been at McGuire with my father had just left McGuire, and we had dinner when you all were starting, how has it been? You mentioned early that it was hard to raise money at first, but tell everyone a little bit about the process of you leave a big bank like Morgan Stanley where quite frankly there's less risk. It's not your capital. It's not your name on the door. Talk a little bit about that process of starting the company and going, "Okay, now we gotta build a business."

04:19 SK: Yeah, look, I actually remember that dinner very well. I mean anytime you have an opportunity to spend time with someone like Nelson Rising, you always remember that, but it was one of the things that I think, I'd say "Look, let's take a step back." I didn't leave Morgan Stanley on my own. I got shown the door. And so I get some credit from some circles about being an entrepreneur and starting a business and the timing we chose, and I always say, jokingly, I really shouldn't get the credit for this. The CEO of Morgan Stanley should probably get the credit for my timing of when I started GreenOak. But look, it was hard. 2010 was not an easy time to raise money. For sure, the performance of the last month that we had at Morgan Stanley was not good, and that was our fault.

05:03 SK: So I take responsibility for that. But the immediate prior fund had not done well. The environment was tough. People were licking a lot of wounds or a lot of money that had been lost in real estate. That was the bad news. The good news is real estate was cheap. And because we'd been in the business for a long time, we did have a couple of relationships. We had a couple of big pension funds who backed us pretty early, which was honestly very well, could not have happened in which case we wouldn't be here. We would not be having this discussion. And we also had some great relationships. We knew a lot of people. Honestly, the fact that we were able to spend time with you and your dad, Chris, at that time, I think if we had just been a brand new startup without having had the history and lineage of where we came from, and in our case Morgan Stanley, my partner, Jonathan on the West Coast from Lehman Brothers, it gave us the opportunity, even though we are a small startup, we had great access and it's still hard and I gotta tell you, everyone says, "Jeez, that first few months have been really tough." That first year was actually okay, because there was a lot of adrenaline.

06:04 SK: I remember by the end of that first 18 months, if you will, we started covering the summers, so summer 2010 at the end of 2011, I still had a fair amount of adrenaline in me. By end of 2012 by Christmas time, I was wiped out, it's like the adrenaline was long gone. I felt like I've been run over by a bus, I was like, "What the heck do we do? We got all these people that joined us to start this entrepreneurially. We've only raised a few hundred million dollars, we're not gonna be successful." Well, I don't think I ever got quite gave up, but I'm like, "There's a big risk here, if this doesn't work and this doesn't work, what do I tell all these poor people that put their faith in us?" And I think a lot of things in life just... What's the old saying, it's always darkest before dawn?

06:47 CR: Yep.

06:47 SK: Just as we got to the point where I felt like we're almost running out of time, running out of capital. We got a couple of lucky breaks and it worked out and I could get into lessons learned later on for anything about starting a business at least the ones we've learned. But it's perseverance and not giving up was... I know they're very cliche-ish things to say, but they're critical at getting this off the ground.

07:09 CR: A lot of what you said, I didn't realize how much we shared. I didn't leave Maguire necessarily because I wanted to, I was forced out. My dad, I think, do the disagreements over a lot of things, he left willingly but not really. We had really hoped to raise capital and we were working with Morgan Stanley at that time to do certain things at Maguire, but I'll tell you, that was a big driver for me, and quite frankly is still today that I'm gonna show you attitude, and I know even my father at his age and his experience, it still drives him. And I agree with you that there's a period where that really works and then it dies off, and then it becomes about something else. And you started to talk a little about quit and you don't quit when you feel something about that. But can you get in that more when you start to build a team and that insecurity hits that hits all of us when you're building a business, what is it that gets you up in the morning when that fear and that anxiety and that becomes oppressive? What do you do to push through that stuff?

08:12 SK: I'll tell you something really interesting. I was really fortunate so I made enough money at mortgage family that I have to worry about how to take care of my family. Now, whether I could have done that forever or not, I don't know, but I had no time pressure. And we started GreenOak, we had a bunch of people join us who had pretty good jobs, a lot of them at Morgan Stanley but they wanted to be part of this. I gotta tell you if it had been me and maybe just John and Fred and we had been on our own then we were sitting there two years in, and things that weren't going well, we hadn't raised a lot of money. We may have quit, and it's a hypothetical field that will never know the answer to that question. One of the big reasons I didn't quit, if I had 20 other people who had made a big bet on us to be here as part of this and taken a big risk, and I didn't do like I let them down. Even though I was down and wiped out it, and honestly, we started to get more financially tapped as we completely defined the business which was losing money on an operating basis. Actually the reason I didn't quit was because I felt incredible sense of responsibility of these folks had taken the big chance on us. I'd like to think I wouldn't have quit anyways, but that kept me going, so that was number one.

09:22 SK: Number two, we did make a couple of smart decisions, we started the firm, we sold a minority stake to someone early on, they gave us some money that kind of a working capital for some other reasons. It was expensive money to get and we had a big debate amongst the three of us of how much of it we should take. We could have X million or two X million, and the cost of it was linear, and we ended up doing the two X million. And that obviously had twice the cost of what one X would have been, at the end of the day, we used all of it to fund losses and fund co-investment and do everything else we needed to do. I think there's a lot of cliches that exist in the old hope for the best prepare for the worst, we definitely came into the business hoping for the best. We were lucky that we had done some stuff financially to prepare for the worst, so we needed every penny of it. But if I would say the combination of the sense of loyalty, the sense of responsibility, the guilt, I felt about the folks that had joined effort kept us going through some of the real low points, because even though I could have quit gone on the beach and been okay. I know that both of my team couldn't have, and that combined with some of the financial security we bought by selling probably more of the business that we had helped here originally means that we're here eight years later.

10:42 CR: Well, not only here, you're actually proven at least from the outsider perspective have built yourselves into one of the few, one of the things that I see happening in your side of the business is that more and more money is going to a few and fewer people and the idea that one can just start a business today that relies on raising pension fund money, that's a tough thing to do. When do you feel like your firm move from the start up with the first fund into a well established and kind of a marquee name now in the real estate allocation business.

11:18 SK: Well, I'm not sure I feel that we're there yet, which is probably part of the issue, right? My wife always tells me that her biggest criticism in me is that I'm never satisfied. And I said, "Yeah, but I'm always happy."

11:32 SK: Look, I'm very happy right now. I'm happy with 100 people we have, I'm happy with the business that we have and all that, but I'm not satisfied 'cause I mean that trend is gonna continue. So when we were at two or three billion, we thought, we'd better get the five or six because the guys that are small are gonna get squeezed out and then to get to 10. Now I'm like we're definitely look... We're too big to be small but too small to be big. And that's a very uncomfortable place to be if you will in the middle. That being said, I think where did start feeling some degree of more being able to hail a little bit more. We lost money on an operating basis for the first five years. We started making money in year six on an operating basis and we in kinda an 18 month period we went from being lost making, to being not only being profitable, but also being profitable enough to where we could repay any of the loans of the money we had borrowed from the financial partner to start the business. That was probably the beginning 2016 when we got to that point.

12:33 SK: So, I would say that was probably the first point which had less to do with AUM and more to do with the cumulation of paying off any of the money we had borrowed and also comfortably being in a place where our run rate revenues forget carrier or anything that's lumpy but run rate revenues where covering our run rate expenses. Look, that was almost six years right, but now we started, and I would say our original portfolio we put together so it would take us three years. So, it probably did take twice as long.

13:04 CR: Well it's a very similar path. I think one of the things when we all make these performance, we realize if we're really to realistic with ourselves maybe we don't get a finance, maybe we don't want it done. But at the same time, we always have great confidence in ourselves. But, one of the things that I see in dealing with your team is not only did you... These are not just people, these are real professionals, and we talk to your team all the time. Tell me a little bit about your philosophy about how you hire and what do you look for and how you put together this team of professionals that's doing so well.

13:42 SK: Well, first of all, thank you for the kind words about the team. I do agree, you work mostly with my wife Kristine and they're awesome, right. Look, I'd say if we start with the senior team, of the senior team that initially started green out, every one of us with almost no exception worked together for a long period of time before right, so mostly at Morgan Stanley, but there are a couple of people like Johnathan Epstein who leads our office on the West Coast. He never worked at Morgan Stanley although he jokes that he's heard this so many times in business meetings, and whatever else, that he feels like he did work at Morgan Stanley, but he worked at Lima, but he was an agent when I was. He was the head of Lima. The real estate Asia. Morgan Stanley real estate Asia. So the two of us actually did a lot of business together in partnership, we became friendly our children were the same age, our wives were good friends, so, he's as much family as some of the guys I worked with at Morgan Stanley so almost without exception, the senior group of us had worked together for a long time, knew each other well, were friendly.

14:44 SK: We then the next level down, we very actively recruited out of Morgan Stanley, or we got recruited by these guys because it was a really tough place to be in. 2010, 2011 working on Wall Street and real estate and private equity being out of favor with the regulators, etcetera. So, I've never added it up, but I'd say on the first 50 people we had probably 35 or 40 worked at Morgan Stanley, and the other group were people like Johnathan who feel like they worked at Morgan Stanley after they kinda had been immersed in all of that with us. That's completely diversified with the next 50 that we hired. But, with the next 50 the big thing that we do we just spent a lot of time on it, we will almost never hire someone that we don't know somehow or someone on the team doesn't know, and that's partly because I just think that's the big X factor from a culture perspective are people gonna fit ultimately?

15:40 SK: I'm less concerned about whether people have the technical capabilities, my view is if they've worked at a good firm and they went to a good school, and they've got relevant work experience. Their gonna be able to do the technical side of things. What really matters is are they the nice kind of people we want around right? And you hear a lot of people talk about the no asshole rule at work, we definitely have that rule. And so we'll have people meet a lot of people, it's not meant to be a grueling process like we're trying to test they're IQ. We're actually really gruelingly trying to test they're EQ and make sure that we wanna hang out with them and that's an important part of the process.

16:13 CR: I think it's a common theme that I've seen for companies that have grown the ways yours has, that the culture, the people are really important. And you started from day one as an international firm. So, you had three main offices and now that's grown. Is there anything that you do beyond a very stringent hiring process to make sure that the culture is strong? Is there anything as a company that you all do, is there anything in the use of technology that you all use that really has this green culture run throughout the firm?

16:49 SK: Yeah, looks so. First of all, each of the regions are led by long job being in London being in Asia, but all their deputies kinda being people that have come from either in most cases from Morgan Stanley, but if not, people that we know really well, So, we know who they are as people. So, I think we've got the right senior leadership around the world that shares some of the same core cultural attributes and things that are important to them. And then that filters down kinda within each region, so their different. No question that team in Japan and how that culture works is different than the one in New York. But, look I lived in Tokyo for eight years, and a lot of the guys who were on our team there used to work with us at Morgan Stanley and so we knew that they were used to that culture. Interestingly this culture is actually very similar to the culture at Morgan Stanley real estate until that business got really big. And so that helps. I can't say we really so much to do stuff, via technology, but we do try to have fun right, so whenever any of us are in different parts of the world, we take the team out, we spend time together, we want to spend time together socially.

17:54 SK: On our five year anniversary we did a survey monkey and figured out where everyone wanted to go to get the entire global team together, and it was in July of 2015 that the team voted for Las Vegas. And it was because, and all the Americans were like Las Vegas in July is horrible. Why do you wanna be in Las Vegas? The Japanese all wanted to golf, the Europeans just wanted to go somewhere warm, and we wound up there, and it was awesome. To have everyone together in one place, in fact the number one request we have is not to wait 'till our 10th year to do it again. So we gotta figure out a time to try to do that again, to make up an excuse before then. But all kidding aside, a part of it is we don't have a... Some companies have a Chief cultural officer and stuff like that, We don't have any of that, but I think culture is really important to all the senior people at GreenOak, and I think therefore, we attract the type of people that culture is important too, as well. So it's probably less programmatic, and it's just more something that's kind of part of the DNA.

19:00 CR: I think that's so important, we spend most of our time whether it's an office or multi family focused on where the business is going, and what we see so often is that the office is important because it's important around culture. But office can't make culture. You either have the culture and the office amplifies that or you don't. Is there anything that you all... I'm always interested in how you run your business day to day. Are you a company that relies on the old squat box or do you rely on video? Are you an email based company or do you use a project management software? Do you use something like Slack? What are you doing to have the conversations on a daily basis amongst the firm?

19:46 SK: That's a good question. We definitely are more email based in terms of how... Especially with a global business, how stuff gets communicated with different time zones et cetera. If time zones overlap, we are very video oriented. So we have video conferencing capabilities connecting all of our offices. I love video calls, so if you can't be together in person, I think there's no substitute for at least being able to see each other. It's a much better way to express both good and bad news to basically gauge reaction, to do a lot of things. And so we do actively use video conferencing. Some of the other stuff you mentioned, we're not quite there yet. I think we do, my children give me a very hard time because they think I'm not very tech savvy. I feel like I know what I'm doing 'cause I can unlock my iPhone myself. But we do try to be...

20:41 SK: One of the things we do do is we have a very... You will quickly test my depth of this, but we do have a brand new, relatively brand new IT system which is very flexible. It's really easy for people to work from home, It's really easy for people to work from the road. It's one of the things we stress. I don't believe that people being around for the sake of being around. I want my team to not burn out, so I want then to enjoy themselves. But that means that they need to be home every now, a couple days a week, or they need to do stuff when they wanna do stuff from remote locations, it's all good. As long as things get done, It's all good. And one thing I don't worry about is we have enough, what I'll call family time built in that I know people have an opportunity to spend time together. So we don't legislate how people get things done, as long as they get them done.

21:30 CR: That's true, I think that's just the reality of the world we live in today. That it's all about you cannot confuse activity for achievement and it's about achievement, and if people are gonna achieve, you can't really expect them to work 15 hours a week, seven days a week. Cause we are now in a place in the world where you can be, there's no where that you can't be got in terms of email or access. So I think that's terrific.

21:55 SK: Airplanes were the last great sanctuary until WiFi came up. They're best... My international flights, the only good thing about flying to Tokyo is you have peace and quiet for 14 hours, but no more.

22:07 CR: That's right. I'm really interested to understand where you all are as a business. What fund are you on, and what do you see right now, and I guess I probably should start with the number one thing I get these days, which is why would we invest at this point in the cycle? So maybe tell us where you've been in number of funds in the AOM, and how you're out there raising money, and what you view of where we are in the cycle.

22:34 SK: Yeah, so the way we raise our money is we've got our primarily focus. We have an equity business, and a debt business. The debt business thus far is only in Europe. We've raised a couple billion dollars of equity capital to let it primarily the UK and Northern Europe. The rest of what we do is equity, The majority of our equity based products are kinda value add funds, and series of funds, which we have a series for the US, one for Europe, one for Asia. We've also have some core capital that we manage in the US, but we have a lot more core capital that we manage in Europe. But I'd say our main business or our core funds if you will, are our value add funds. So in the us, we are just wrapping up our third fund. The first one was 250, the second one was 750, this one will be closer to a billion and a half. We've got that, we've got a sister fund of that in Europe, we've got a sister fund of that in Asia. The fundraising environment has been a lot more constructive. Everything that was really hard about raising money in 2010 and 2013, the bad news is it's really hard to raise money, the good news is you wanted to buy everything you saw because it was cheap and if you bought it, just like you did Chris, the stuff you bought that did really well. And so that created the track record to then be able to raise money now.

24:00 SK: And look now, we went out to raise a billion dollars, we raised a lot more than that, which is great. Honestly, we have a tremendous amount of incredibly appreciative of the investors for having that confidence in us. Which in our marketing strategy has been really interesting. It's been... I love Seinfeld, and my favorite Seinfeld episode is the day George Costanza decided to do everything opposite to his natural instinct. And he was incredibly successful. In our fundraising, we went out a year ago, we said, we have no pipeline, things are getting cheaper, but they're not quite yet bottom yet. I know if we bought anything in the last couple of years, it's got headwind. But please give us new money for a new fund and guess what, we've raised more money then we've ever raised. Using the opposite approach, right? But all kidding aside, the reality is I tell investors, I said, "Look, I think real estate today at New York at least is cheaper today, than it was two and a half years ago. Values have come down, they haven't crashed, but they've come down.

24:57 SK: And I think they're gonna go down some more before they start turning the corner. But if you wait for the absolute bottom, you're gonna miss it. And if you wait till then to raise the money and get yourself organized and all that, you're gonna miss it. And at least with the commingled fund structure, with the backend pulled promote. And where if they're paying your management fees, they go through the waterfall first. We're kind of alike. We have an incentive not to raise more money that we can sensibly deploy. Because it's gonna hurt us too. Certainly at a performance fee basis. And I think if you can earn the credibility from investors, and look we basically bought nothing in the US in the summer of 2015. Kind of summer of 2017 one apartment building in New York, one office building in Boston. That's it. For a two year period. Right now our pipeline is as deep as it's been, deeper then it's been at any time since the beginning of 2015.

25:53 SK: As people are starting to see some capitulation out there. I don't think we're gonna see distress. But you've started to see some capitulation. People that have held on to their investment for now five, six, seven years that they wish they have sold a few years ago, but they missed a window. And now they're realizing that the market's not snapping back anytime soon. Rents aren't gonna turn around, and start going at a different direction anytime soon. That or some degree of... There's a little bit of refinancing pressure that certain people have and all that. And this becomes a little bit of a waiting, until you find the right opportunity, then pouncing. But you can only pounce if you have the money. If you're trying put the money together at that time, it's to late.

26:36 CR: That's very true. I think... Do you get a lot of the question of where we are? Why would I invest where we are in the cycle? And then it sounds like you're saying, This is the time to give me money because when the opportunities come, I'm ready. But how do you deal with that filter that you have to deal with with consultants and things like that? Beyond that? Can you point to a marketer to that you, across the globe that you say, this is why we need money now, or why you should be investing money now? Is there anything of a global perspective that are good case points?

27:12 SK: Yes. I think Western Europe has probably been the place where we've been the most active for the last three years. And if you had looked at the market four or five years ago. 2013, 2014 outside of the UK, it wasn't really clear. People did not have a lot of conviction on the continent, wasn't really clear where to go. The best economy was Germany, but it wasn't cheap. We basically said, look, we think that the best opportunity in Europe risk adjusted is Spain and to a more limited degree Italy. For a lot of reasons, because they took the most of Spain and... After the crisis, they did the most restructuring. Spain is in the best performing economy in Europe with Ireland for the last five years. And it took us a while to convince people to do it, and then they gave us some capital to do it. And we made some early... What have now proven to be very successful investments, but it was hard to get to kinda get that done. And then with conviction, we've continued to invest in that recovery and that's gone really well. And I think that's been informative to people because the first investors that gave us that money, when it wasn't clear the opportunity was gonna be there we're really well rewarded.

28:15 SK: We use that as an example. Look with the US... Chris, you guys are primarily focused on Los Angeles. And I think LA lagged, certainly New York, Boston, San Francisco, it's kind of coming out of the downturn. And therefore on the flip side I think it's actually continued to have more strength for longer, New York City, not effective office rents are down 25% in the last few years. This is definitely a market where asset prices are lower. It depends on the asset class, but we don't have any condo exposure in New York. But I'd say condo prices are down 25, 30% at the peak. Hotel prices are probably down 20%. Office prices, depends on the asset class, are down 10 to 20%. My response to whoever is challenging us, and this is the right time to cycle is, look, we've had a... Maybe not in every market in he US, but certainly in New York City. We've seen number values come off the top. We think that they're most of the way down to where they're gonna go, because on the flip side, the economy is in pretty good shape. Interest rates are going up, but they're still at historical levels pretty low.

29:20 SK: And we don't think that they're gonna go up rapidly. We think that they are gonna continue to go up. And the supply situation, part of the issue is that there's a little bit of oversupply, but it's very measurable. You could see it, it's coming online. We'll be through it in the next two years. It's got the right recipe at my mind for the right time, where if you're not, I don't think it's the right time to back up the truck and just make a market call at New York City, for example. It's definitely the right time to have money. And be surgically smart about it.

29:47 CR: Yeah, I think you hit on something that's very unique to real estate from other asset classes out there. And I think one has to either believe that we're gonna have another black swan event where the infrastructure of finance around the globe is gonna be shaken to its core. To say, you gotta be outside of real estate, because real estate is so specific to geography. So specific to what's happening within the government structure, whether it's international or local, and just to hit on Los Angeles. What I often say is the Los Angeles that will be here in five years is being built right now.

30:22 CR: And so the markets like the West LA, very mature, very supply constrained, hard to go wrong if you can buy there as long as you don't have a lover. But you get outside of that for Southern California with the infrastructure that's being applied here in Southern California. It's hard to really... You have to really be a local Sharp shooter to be able to articulate where the growth is gonna be. And I think that happens around the country, and I think that happens around the globe. So as an allocator who sits there and you're looking across the globe, how do you look at different markets as it relates to partners, as it relates to opportunity? What are the snipers on the ground for you that are... Tell me a little bit about that process so that... Are there operators out there or other potential borrowers? What do you all do in identifying a market and then getting it down to the operator or borrower?

31:19 SK: Yeah, look, I've said if we start with the market, I think we're not all that clever. 90% of what we've done in the US is New York, Boston, LA, San Francisco. We focus up and the other 10% are include Washington DC and Seattle. We are focused on major MSAs where there's employment growth. Where there is continued household formation. Where young people wanna be... Where increasingly I'm unfortunate that part of my life that where people are moving in the city 'cause they get rid of their kids there.

31:51 SK: The empty nesters are moving back to the city. So all those demographic trends, which you can't fight, you have to either... You have to go with them or you certainly don't go against them. Are the big macro things which drive us. That's the overall background thing. Then within that we look for, okay, where do we think that there's an arbitrage opportunity? So Chris, you guys were early to go downtown in LA. We were a little bit behind you, but kind of same call, four or five years ago. Your case a little longer where we basically just said, with this subways coming in, we think that that market is gonna change because West LA's got so damn expensive that we just... It doesn't have a cool factor anymore. It's a little bit what we saw in New York City. When I came to New York City 25 years ago, 28 years ago, the coolest market here was Soho. Soho is really nice, but no one's ever call it cool anymore. So it's way overdone. The cool neighborhoods in New York, depending upon whether it's Brooklyn or four, five years back when it was midtown South.

32:53 SK: A big part of our job is to try to identify, not so much what's the next cool neighborhood, but what's the next neighborhood that we think has an opportunity now to perform? But within the envelope of being in one of these major MSAs, we don't wanna get out of that. Then by far, the most important thing is who we do business with for all the same reasons, it's really important who we hired to be part of our team. If you got a... I think I would rather have a deal that's doing so, so with a great partner than a deal that's doing better than so, so with a crappy partner. Because in a partnership is... That relationship is super important and it usually doesn't get tested until there's a problem of some degree or something of some adversity and so we spend a lot of time on that. The dating process for us before we do business with someone first you... We have dated for a long time right, so now we're just trying to find the first place to do... The things that we could do together. But that dating process was really long for us because you buy real estate asset together. It's not a liquid security. It's not something you can turn around and sell the next day if the partnership is not working. So you better make sure you spend a lot of time making sure it's people you wanna be in business with.

34:07 CR: I agree with you whole heartedly. 'Cause from the operator side too, I'll tell you. A lot of people I know who think they wanna be operators. Look, I'll take any money I can get and I try to advise people. That's a very scary way to go because at the end of the day, you've got have a good partner 'cause nobody buys a low number and sells the high number with nothing in between. It is a process and it takes a lot of communication and a relationship. So let me switch gears a little bit because I think it's always interesting to people. So you've got a company out it's a global business with about 100 people, but yet you've gotta get up every morning and put on your pants the same way as everybody else. Can you talk a little bit about what you do to keep yourself in a mindset and physically in a way that you're healthy?

34:57 SK: Yeah, no, I'm happy to. On the healthy part, that's a tough battle, but I'll come back to that. Look I think When I got fired by Morgan Stanley, it was actually one of the worst things that's ever happened to me. And in hindsight I feel it shows you how lucky I've been in my life, 'cause that was one of the worst things that ever happened to me. It was a tough thing to go through. I had to 12-month effectively not compete as part of it. During that 12 months, I took a lot of stock of myself and I didn't like some of what I had seen. When I worked at Morgan Stanley I was on the road all the time. I can't say that I lived... We lived in Asia for a number of years. We moved back to the US in 2006, and my kids were six and four at that time. At the time I got fired they were nine and six. I didn't... I did... My relationship with them was okay, but it wasn't great... My relationship with my wife was okay, but it wasn't great. In that 12 months, I did a lot to work on that. And that was really important to me. I went to every sporting event. I had a lot more quality time with my wife.

36:00 SK: And when I started my own business, I made it a conscious effort to make sure that I could be much more present than I ever was when I worked for somebody else. Now, look, you're an entrepreneur, Chris. Sometimes the toughest boss that anyone can have is themselves. And so you have to moderate that. And sometimes you just gotta do what you gotta do, but they're plenty of times where you don't have to do it, right? You can not go to a certain meeting, not do a certain business trip. Yes, it could always help to do it, but you gotta balance that against life. My older child is off to college this fall, and I don't even know where it went. I feel like I blinked and 18 years just went by right. So I'm really glad, I think the universe works in strange ways but I've been a much more present dad and husband in the last eight years than I was, in his life I guess, in the last nine years that I was in the nine years before that, right.

37:00 SK: And that's because I have much more control over my life now. And if that means that, look, I'm happy with where our business is, I'm happy with what we got. Maybe we could have done even more had I made that my 24/7 objective, I would not trade that in a second, at all right. But it's hard. You have to make a conscious effort to do it. It's gotta be something that's important to you. I will tell you, I'm a big fan of the millennials for a lot of reasons but one of the reasons I am a fan of the millennials is I think they definitely have a better sense of work-life balance than maybe my Gen X generation did or does.

37:32 CR: I agree with you on that, 100%.

37:35 SK: I think there's something to be learned about that. Because, life it is not a sprint, it is definitely a marathon. And then look coming from a personal standpoint, look I think you got to take care of yourself. I turned 50 earlier this year and I feel pretty good, but I'm not 25 anymore. And so, I think taking care of yourself is part of what you gotta do for your family, it's part of what you gotta do for your team, your business. So I try, look, unfortunately, I'm the type of person that if I look at carbs, I gain weight.

38:04 CR: I am too, yep.

38:07 SK: You just got keep doing it. I wish I was 15, 20 pounds thinner, and I wish a lot of things, but I'm not, but I'm glad I'm not 15 or 20 pounds heavier than I am now. So, but I try to work out four or five times a week. I try to run. Fortunately my wife is super healthy. So, there's no junk food in our house, fortunately, or unfortunately. I think that whole thing, you gotta look at life holistically and overall, I spent the first 18 or 19 years of my professional life working all the time, and that was the only thing that mattered to me and that's how I measured my success. Interestingly, what was less important to me was the money, what was more important to me was all the accolades I would get from busting my butt and working so hard and everyone talking about that. And then I won't name names but [38:53] __ example. I get fired and within a year of getting fired, a friend tragically passed away pretty young and I go to his memorial service. And he was a well regarded private equity guy, and everyone at his eulogy was talking about how great a deal guy he was. And you know what? He was a pretty good dad too, and whatever else. And I thought to myself, god, if I die tomorrow, I don't want my eulogy to be about how good a deal guy I was.

39:20 SK: That's not what I want, that's not how I want to be remembered, right. So I wanna be remembered first and foremost as a great father. I'm not sure that any of our wives, my wife would ever call me a great husband but if I can be a good husband, I'll take that. I wanna be a great friend. I've been an Adjunct Professor at Columbia now for almost 10 years. I wanna be viewed as a great teacher, mentor, a leader to my team. But leader, not in the sense of being the head of the business, but leader in the sense of people who they think is a good role model. That's actually, that's really important to me 'cause I feel like that's the pay-it-forward part of this right. And that part is really important to me, and that's why, look, I'm involved in a number of things, community wise and a lot of different social causes which are important to me, whether it's education, gun safety, some other stuff, which are all honestly, I think that's the kind of stuff that I think is, you have to make time for all that stuff because it's really, really important.

40:28 CR: I really appreciate your answer. I'll tell you, I think there's something unique about our generation, Gen Xs, we're about the same age, in that we came into business with the baby boomers who were influenced by the silent generation. But technology was so different to them. And what it meant to be successful was different than what it is, how one became successful is different. And we hit this technology thing where you could run a global business and have conversations, there wasn't a delay. And I find so many people in our generation and I put myself in this, where I will literally, at times, feel guilty about work, and I can't figure out why. And I think it's because it was really easy when I showed up at 6.30 or 7.00 in the morning, and I got patted on the head for that. And I stayed til 10.00 and I got patted the head and there was a sense of, okay, I'm being acknowledged.

41:20 CR: And that's not the way the world works today. And I think that we might have to have a podcast with a bunch of Gen X's talking about our transformation and how much we all secretly admire the millennials, because I think they just don't do it. And I get thrown back at me all the time is, did I get done what I was supposed to get done? Yeah, you're right, that's all I really need done. That's what I need. I don't need you to just show me your face at 7 o'clock in the morning. I really appreciate what you're saying.

41:45 SK: Yeah I agree, by the way. I think that that Gen Z, which are what my kids are part of, are further up the curve from the millennials. I had heard from a lot of that. I mean...

41:56 CR: I couldn't agree with you more.

41:58 SK: I know this is not meant to be a political podcast so I will not make it political other than to say these kids, after the shooting in Parkland, the way they have mobilized themselves and how important this is to them... So regardless of what side of the issue you're on, I haven't seen anything like this in my entire life and to me it's really... It made me really proud of them. I'm really proud of them. I'm really proud to have my children responding to this whole thing.

42:24 CR: Well, on that point, and I agree. I don't wanna be political either but I think what it shows and what I think has been scary to those people who are on the other side of the issue is that it didn't take a George Soros funding all this stuff. It was a bunch of kids via Twitter and Facebook and a few other things that have galvanized them and it'll swing back, depending on what side of the issues you are, but it was a real statement about how technology has changed and given opportunity in a way that we didn't have when we were... I laugh all the time with my kids. I have two 13 year old girls and an 8 year old boy and I'm, like, "How come no boy has to call the house and I get to answer the phone? You guys just text each other. You've taken that all out of it. The dad's no longer the middle man and I don't like that so... "

43:15 SK: Exactly. I don't own a shotgun but if I did, I don't get to meet anyone at the door.

43:20 CR: That's right. I think that's an important point and not even... My son... Every morning I hear, "Alexa, what's the weather?" Just think about where that generation's gonna be. Keyboards are gone. No one's gonna be using a keyboard and it's all gonna be about whether you can creatively create and that's what you'll get paid for but while we're talking about kids, I do always like to ask if there's a young person in their 20s... And I think it really has to be someone in their 20s for our audience... But what kind of advice would you give somebody today coming out of college or out of grad school about, you know, when they say, "Sonny, I really wanna be just like you. I really wanna be running a big fund and blah, blah... " What advice would you give someone when they came to you with that kind of question?

44:11 SK: So it's interesting, Chris. I think the older I get, the more I sound like an old man right now but what I would say is, look, I wound up in real estate. For myself, look, let me start with the advice I'd give. I'd give a couple... Two bits of advice. One, be really open minded. Don't be so dogged and set in your way that you have a plan and that plan's the plan that's gotta be and there's no other plan other than that plan, number one and number two, this is something that I think every generation hates but, for right now, we can blame the young ones for this but we were the same way. It's not gonna happen overnight and so a combination of flexibility and open-mindedness and patience are super important. In my own case, I got out of college. I worked in mergers and acquisitions for a year and I hated it. It just wasn't for me. I had an opportunity to move. An analyst, you get to move to a different group and I... The opening was in real estate and no one else wanted to be in there and I said, "I don't care. I don't know anything about real estate. My dad's a retired nuclear engineer so I don't know anything about any of this stuff."

45:16 SK: I met a couple of people in the group. I liked them. They're all a little bit weird and odd, which I like, and so I did it and I thought I would do it for a year or two and go to business school and figure out what was next. I never left. I ended up doing it so I wound up in real estate because that's where the opportunity was. Well, then when I got in it, after my first year or two, then I had an opportunity to go to California. I did it. I went there for two years. I didn't know anyone out there but I thought, "Why not? It'll be an adventure." I came back to New York a year later. I had an opportunity to go to Europe for a year, then I went to Australia for a year, and then I went to Asia for... It was supposed to be another year or two. I was there for 10 so being open minded, being receptive to opportunity, et cetera, was really important. And, look, with Green Oak, honestly, I couldn't have started Green Oak 20 years ago. I wasn't ready. I didn't have the relationships. I probably didn't have the personal net worth. I didn't have a lot of the stuff you needed to have and, look, I already said at the beginning of this discussion that I wasn't smart or savvy enough to figure out what the right kind of of cycle of to start an entrepreneurial firm.

46:13 SK: I got fired. I was pissed. I had a chip on my shoulder. I had something to prove. I couldn't see myself working for someone again, certainly not at that time, so I said, "You know what? I'm gonna try something entrepreneurial," and I did and we did and a big of part of it, as you know, Chris, is not just what you do, it's who you do it with and I got really lucky. I've got great partners and so it's worked out but it didn't happen overnight.

46:41 CR: Yeah. No, I think I agree with you. I think that's... It's part of the curse of being young is you want it right away and I think as we sit where we're at and you just go, "If I hadn't have had this failure or that failure... " I think that's key to it. So when you... We've been talking for a bit here and one of the things I wanted to ask you, outside of the failures that motivated you, are there people in the business or personally that are a daily inspiration to you to get up and keep trying to do the things you're doing or what inspires you?

47:15 SK: Yeah. Look, I would say it's two things. I'd say just more... Very broadly, I'm sure a lot of your guests will say about the same thing but my parents have been a huge influence on me. From India, both born and raised in India. My dad, in particular, had an opportunity to stay in India so as a young guy who was edu... Who got the benefit of getting off his farm and getting educated and... He took a big leap and took a big risk and went to London because he just thought that there'd be a better opportunity in London versus India. He did that. I was born there. He's newly married and then after he got established in London, he took the next big leap and came to the US. Both times he knew no one in London, he knew no one in the US when he made the move.

47:57 SK: He didn't have a job but he just thought it would lead to a better future. I think about that, people give me credit for being a risk taker. Honestly, Chris, compared to my parents I haven't done shit. My parents were the risk takers. Just the risk that they took, they're just... That's been incredibly inspirational to me and it's something that I definitely did not appreciate enough when I was 18, 25 but as a 50 year old, I totally appreciate that. So that's definitely... So they've been inspiration in a way that has nothing to do with real estate. I'd say within the real estate industry there are a number of people I look at, there are a lot of people who've been in the business for a long time that have stellar reputations, they've conduct themselves in a way that there's never... You'd never hear a negative thing said about 'em, your dad is one. People like Ken Hubbard who... Long time at Heinz...

48:47 CR: Yeah, I was just with Ken last week, he's just an amazing man, amazing guy.

48:51 SK: Yeah, an amazing person and a fellow Dukey.

48:53 CR: Yep, that's right.

48:55 SK: Of yours. But Ken is someone who I find to just be really inspirational and very thoughtful. Owen Thomas who was my boss at Morgan Stanley for the longest time, obviously now the CEO of Boston Properties, I just ran into him last night. Just thoughtful, fair, also not afraid to kick you in the pants if he thinks you need it. So just... But the... I mentioned three people just then, I gotta tell you I've never heard anyone say anything negative about these folks, and that is really amazing. Having been in the businesses for 30, 40, 50 years and to have that kind of reputation, that to me I'm much more inspired by that than I am by someone who's managing $100 billion. I don't care about that, numbers are just numbers. I think that other kind of, I don't know, I don't know what the right word for it is, but I think you know what I mean, Chris.

49:50 SK: I do, I do. Well, this has been just a terrific conversation. I really, really appreciate it, Sonny. I may ask you back 'cause I do think I wanna do something on us Gen Xers trying to find our role in this world with the baby boomers who did so much, and with this huge millennial and inspiring millennial population. We gotta figure it out for ourselves I think us Gen Xers, but thank you for being on I really, really appreciate it.

50:18 SK: Chris, I enjoyed it thanks a lot for the opportunity and hope you have a great day and I look forward to the Gen X discussion.

50:24 CR: Terrific. Thanks. Well thank you Sonny, that was a tremendous conversation I really appreciate you being on and being so honest and sharing with our audience all about your personal life as well as your business life. We'd love to have you subscribe to The Real Market With Chris Rising, you can do so at my website chrisrising.com or you can go to Apple iTunes or any of the other podcast services and hit subscribe on The Real Market With Chris Rising. And don't forget to follow us on Twitter @chrisrising, thanks so much.

Kenzie Gallagher