Artificial Intelligence Data Engineering Leadership

Leaders in Asset Management: Ben Butcher

Benjamin S. Butcher is the Chairman and CEO of STAG Industrial Inc. (NYSE: STAG). STAG owns 92 million sq.ft of industrial real estate across 38 states. Ben has spent nearly 30 years in real estate and finance. Prior to founding the predecessors of STAG, Ben worked at Credit Suisse and Nomura.

Ben holds a B.A from Bowdoin College and an M.B.A. from the Tuck School of Business at Dartmouth.


Hi Ben, as a way of getting started, why don’t you tell us what you’ve been up to the past couple of months through the pandemic and the work from home environment? 


Thanks. At the onset of the pandemic, we were fortunate that we’d put Microsoft Teams in place last fall – so we transitioned relatively seamlessly into a virtual work or work-from-home environment. We also recognized that there are a few too many unknowns to continue to pursue acquisitions, which is a big part of our business.

So we we put a pause on acquisitions as we tried to determine what was happening to the to the inputs, what was going to happen to interest rates, rental rates, tenant credit default, etc. There was a pause from, say, March 15th to late May in terms of acquisitions.

At the same time, our asset management folks were very busy. I think we probably leased twice as much in the Q2 as we did in the first quarter without some of the typical things that you see in downturns. 

The downturn playbook is retention goes up, rental rates tend to drop. lease terms gets shorter. We’ve seen some of that, but not a lot of that. So the asset management folks were very busy during this time.


And on that note of the downturn playbook, so what are your thoughts on how the current pandemic differs from the [2008] financial crisis? 


It’s interesting – I’ve read in numerous places where you’re cautioned against using the term “unprecedented”. But demand, and to a lesser extent, the supply shock across the whole world that was felt in March & April really is unprecedented. So, this crisis is very different than the global financial crisis, which was a pure credit crisis. In 2008 liquidity basically just left the system. The banks weren’t prepared to step in.

The government stepped in eventually, but not as directly as they are this time. This time, the banks were in pretty good position.

A lot of capital outside the banking system ready to step in. And the government got involved much more quickly and more directly. So we’re still trying to piece together what the overall impact will be on credit defaults. But big tenants, which is what we generally have,  weathered the storm well and and appear to be in good condition to continue to weather the storm.

Having said that, we’re now moving into the second stage effects of this demand shock. Perhaps a cessation or at least a diminishment of the government involvement is going to be interesting to see. There are  people out there who are using the big D word – depression because of the, continued unemployment,  business confidence both by consumers and businesses, higher savings rates.

The continuing demand shock  will lead to lower economic activity for some time. So we’re still looking at it.


So with liquidity awash, and as you talk about the unprecedented at least nature of this pandemic – how should investors going into industry recalibrate for risk? 


Very carefully. It’s interesting because you’ve had this downturn, and that has affected supply and demand. But the industrial sector has not felt the downturn to any degree, as most other real estate sectors in the general economy have.

The question is – this is primarily e-commerce demand driven. People are setting up supply chains  for this period of the “new normal”, if and when we get there. A lot of that has been in the US has been driven by Amazon’s activity.

I’ve heard estimates that they [AMZN] are leasing at least as much as a million and a half square feet a week.

The question is – how long before they’re done setting up their system?

And the other people who are setting up e-commerce supply chains are done with their repositioning? And then, you do move into a later stage whether that demand is not there and you have GDP flat to declining.

Do you have enough demand? If that happens, whether the industrial sector can continue in a sort of Pollyanna-ish condition of weathering the storm?


Interesting. Related topic, in the industrial sector, several peers of STAG have stated that tenant retention is one of the primary goals. So in your experience, is that more of an art or a science?


Well, I think the the good news about industrial real estate is that tenant tend to stay unless there’s some valid business reason for them to leave. It’s not like the CEO doesn’t like the colour of the lobby or the CEO moves and  the business has to move. They are there for a reason. Unless their business changes to the degree that they need to to to find a different answer, they tend to stay put. The biggest reasons they leave buildings is because the buildings are not big enough either through organic growth or M&A activity.

So you have 70-75% retention. If you are just a typical landlord, there is no question that you can do things at the margin, both to the upside and downside to change retention. We certainly have seen tenants ticked off at their landlords so they say, they’re not staying.

but the ability to move your retention from whatever the predilection of the tenant has been at the outset to higher than that [is work]. Say, if it’s 75%, moving it to a higher number, you can do things, we believe, through being proactive in your tenant relations, being proactive in energy saving initiatives, to change that number to slightly higher.

But, you know, for better, for worse, the tenant retention is mostly determined by what their business is.


On that note of being proactive, you mentioned energy savings. So as you know, sustainability and energy efficiency  is a larger priority now more than ever. So what are your thoughts on green leasing? 


It’s a much more of a factor in office leasing and some other sectors than it is industrial leasing, especially for landlords such as us that are not generally developing buildings.

Most of what goes on inside the buildings is determined by the tenant and the tenants behaviour.

We can and have been proactive in terms of working with tenants on building improvements, LED lighting, roof insulation, HTC upgrades, solar panel installation. Things that will potentially impact the green-ness of the building. There are some things that we’re working with now, in offering passing through to tenants – working with them to implement software for better maintenance, lowering repair and maintenance costs, lowering energy costs. But it really is less of an opportunity for industrial landlords than it is in some other landlords.


Speaking of opportunities – as developers chase urban infill opportunities and go unicorn hunting, do you think repurposing self-storage can be an opportunity?


It’s funny. I remember the first time I talked to a self-storage developer back in the 90s. They made a statement that there’s never been a self storage facility torn down for higher use, because self-storage is the highest and best use of most land. I’m not sure that’s still as true as it might have been in the 90s, but I’m pretty sure the self-storage is still a pretty high use of of land, low capital cost, high retention, pretty dense,  development of the site.

So I’m not sure you’re going to see a lot of  self-storage repositioning.

I think it is much more likely that the trend is towards repurposing retail. Especially the US is more likely to be a place where this happens. But for the most part, at least initially, it’s going to be more repurposing and reconfiguration of existing space than it will be redevelopment.


And as an investor, what are some of the core investment principles you have followed? 


I think that first and foremost is the cash flow is is what matters and that cash flows can be estimated. You don’t have to use decision rules and can actually use probabilistic assessments. You can make a pretty good guess as to what future cash flow will be. And our mantra is, if we can buy it for less than we think it’s worth, based on its future cash flow returns, we will buy it. And if someone offers us more than we think that it’s worth, we’ll sell it. Very pretty simple mantra, but it’s actually, I think, pretty hard to assail.


It all seems like the devil’s in the details. 


 I would say, if we only owned one building, I would tell you that I you know.

The hubris of saying I can predict future cash flows is just that – hubris.

But we own 450, and with pretty low correlation across those assets. So I feel pretty good about our sort of our aggregated cash flows.


This will be our last question. Out of the 450, which has been your favorite property you’ve invested in and why? 

Ben Butcher

Well, this could be caustic. As I say, if if you see one industrial building, you’ve seen them all. So we’ve had some interesting credit picks, where we bought buildings subject to tenant risk. Where we were sure the tenant was going bankrupt, except everyone else thought that too. But I’ll pick.

We bought a Value-Add deal in Tonn, MA last year. Value-Add because it was subject to a short term lease to a known vacate. The building had some structural issues or some improvement issues that we could we knew we could address. We bought the building a little less than a year ago, made those improvements,  identified in e-commerce tenant, signed a 11 year lease. Effectively doubled the value of a building, so it’s worth about twice what we paid for it, including the cost of those improvements. Obviously, that is not the typical transaction for us, but that’s really one that stands out in the in the recent term. Now, that’s fantastic.


Thanks Ben. Any parting comments for tech or data enthusiasts


..Real estate has been dominated by people using decision rules. And in my opinion, that’s generally just laziness.

There is the opportunity to use [sophisticated] analysis . If you can do a little better than a binary choice, based on decision rules, you should.

Analysis almost always has to be better than just the application of decision rules.

So where we can, we continue to try and improve. The way we do it is with a focus on probabilistic assessments.


Got it. Well, thank you so much, Ben. 


Eric Kuusisto conducted the interview. Eric is currently pursuing an MBA at Chicago Booth. Prior to his MBA, Eric worked as a structural engineer and sales leader at Parker Drilling, CRH and Global Maritime. Eric has a BS in Civil Engineering from Texas A&M University.

None of the statements should be considered forward looking or construed as investment advice. Views expressed are entirely personal.

Artificial Intelligence Leadership Multifamily

Leaders in Asset Management: Ralph Pickett

Bio: Ralph Pickett is the former founding President and CEO of LivCor, backed by The Blackstone Group. LivCor currently owns 80,000+ apartments in the US. Prior to LivCor, Ralph was an SVP at Aimco (NYSE: AIV). Ralph is currently CEO of Graphite Multifamily consulting.

Beekin: Ralph thank you very much for being here, let’s jump right in. We’ve seen a lot of investment dollars flowing into workforce housing. Based on your experience, what are three of the biggest challenges that you’ve seen in managing workforce housing communities?

Ralph: Yeah I think there’s 3 big ones. Workforce housing and regular market rate housing are pretty similar with these [salient] exceptions.

One, resident income stability is a little more challenging, so you tend to see more skipping and evict situations, residents requesting some sort of work-out for their rentals or their financial situation to try to make it to the next month, so you tend to have to manage through that quite a bit more. 

Number two, this is these folks’ homes and they tend to have a lot more stability, which is nice in terms of retention. But the people living there also tend not to complain. They just want to not bother the operator. You tend to see less reporting of maintenance issues, leaks and leaky toilets and things like that that can create cost issues or bigger maintenance issues down the road. And your chance of getting in that unit because the retention is higher, you’re in there less frequently, your service team is in there less frequently, so it’s harder to catch these issues early.

And then the last and probably the most challenging aspect of it is the capital need for capital investment to maintain an asset, the opportunity for ROI on capital investment that you get in a B plus, A minus or better asset. Where you really have an opportunity to push the rate. Rental rate doesn’t really exist in workforce type housing as much, so you’ve really got to figure out how to balance that need for maintaining the asset with capital investment to get some kind of return around the capital you’re putting in.

Beekin: Great. Moving on to a different kind of theme that we’re seeing now because of the COVID situation, what are your views on possible conversion of hotels to apartments? Is this a successful turnaround strategy that some companies can implement?

Ralph: Well, I’d say it’s probably too early to make that call. That would imply a structural change versus a cyclical one.

However, if you’ve got an asset, a hotel or a motel asset, that was underperforming pre-COVID, then it’s certainly not going to all of a sudden pick up going forward.

On Hotels to Apartment Turnarounds

I think the fact that you’re not getting any, you’re not really having to give up any revenue. I mean, that’s always a challenge of conversion as you’ve got to shut down the existing operation and move on in the renovation without any income. Currently, in this COVID situation, there is no income anyway. 

As we’ve seen in prior cycles with conversions of old warehouses and downtown spaces and things like that, and old sort of obsolete office space, we saw a lot of that conversion and some motel conversions from previous iterations. I think that again, there is an opportunity for underperforming hotels right now to make a move like that. And if this gets to be a long-term structural issue for hotels, then that is another opportunity they could look at for conversion.

Beekin: Going along with what is going on right now, some people are calling it the COVID crisis. What are some of the similarities that you have seen now and back in ‘07 and ‘08 when the financial crisis hit?

Ralph: Yeah, it’s an interesting one. I think the bigger similarities I see is really COVID being sort of an extended version of the 9/11 situation. However, you know, similarities to 2008 in a way; I think it really forced companies to adapt and look at everything they were doing and get more efficient. It was just a very lean time.

So, you really had to kind of dig deep and look at your organizational structure, how you could get more efficient on site, things like that. I think the COVID situation is forcing companies to adapt as well.

But what I see here is sort of an acceleration to forced acceleration to adopting technology that enables a more touchless experience for both the onsite team through E-deposits, and virtual leasing too with virtual tours, self-guided tours, etc. Then E-leasing at the end of it so that people can sign their lease remotely. These have been in the industry for a decade now, but the adoption of has been pretty slow outside of a handful of REITs.

On COVID and PropTech

And I think this has obviously forced that and forced people to really look at whether a lot of these preconceived notions of people liking to have a leasing agent tour them around; or go see a model. In reality, when you do surveys, you realise that people like to do their own tours, they do not really want to see the model, they want to see their own unit. [COVID is making this a reality]

So these sorts of things, this COVID situation I think is forcing the acceleration of the adoption of some of these technologies to enable this touchless experience.They have existed for nearly a decade pre-COVID, but the pandemic is forcing efficiency and re-evaluation of status quo in many ways.

Beekin: It’s interesting that you mentioned technology. When you look at FinTech and banks, LegaTech and law firms, it has disrupted those sectors. And now with PropTech , what other ways can you see technology changing this industry going forward?

Ralph: Yeah, I think there are a number of opportunities and you mentioned them. I think sustainability technology with solar, for instance, is a lot more efficient. I really think probably from a technological standpoint, the biggest opportunity is in the space you guys (Beekin) are playing in revenue management, big data, bringing that all to bear on the way you test and push revenue.

I think that the revenue management systems out there, while good, have been in place pretty much in their early form for well over 10 years now and really are ripe for innovation.

I think that is probably where the biggest opportunity lies.

On Big Data and Revenue Management

Other than that, from an operator standpoint, I think it is largely about blocking and tackling and doing what they’re already doing better. While we’re upgrading a lot of units and giving residents control of their thermostats and things that are going on their unit and being able to see who’s coming and going and those sorts of things, and those are all nice, but in terms of really driving revenue, obviously 90 percent of revenue is on the rental side and revenue management, perfecting or improving revenue management, is really going to be your biggest opportunity there.

Beekin: And just to be clear, when you say perfecting revenue management, you mean screening better residents, reducing turnover, having clear insight in terms of rent increases and offers to give to tenants, is there something that I missed?

Ralph: It’s all of the above, yes, I think, again, the Big Data concept bringing that to bear on the revenue management matrix is a big opportunity for all those reasons you mentioned, on renewals, on prospects, you name it.

Beekin: Ok, great. And since we are on the theme of revenues, owners are looking to increase ancillary revenues to improve their bottom line, do you see any opportunities for this for multi-family?

Ralph: Yeah this is where I go back to again. This is the blocking and tackling. I mean, operators have been adding bells and whistles here and trying to pile on different ancillary opportunities. I really think the focus should be on the right now, on primarily the ones that are in place.

Going through and reviewing your RUBS (ratio utility billing system) program, and making sure that’s being effectively implemented and optimized is a huge opportunity we’ve found.

Parking programs, revenue share opportunities that might be converted to internalized fees such as insurance captive, big upside there. Another one that tends to get overlooked are the basic fees that properties charge for applications, for late fees, whatever it may be.

Some operators let that stay at or have that decision made at the property,  so you tend to see a lot of fees getting waived or not being implemented consistently and centralizing those decisions or controlling the decisions around fees and making waiver of fees (an exception that needs to get elevated) can really impact your ancillary revenue pretty significantly.

Then the other area I think that isn’t really on the revenue line item as much, but can help on your bottom line impact are the E.V. (electric vehicle) programs, E.V. Rentals, Solar EDI’s (being electric vehicle charging solar programs particularly) and LED retrofits, which may not really drive a benefit to your revenue side, but will in the long term help your NOI.

Beekin: Ok, it seems to be a point to have a consistent approach whenever you try to do ancillary revenue, like you mentioned with the fees, applying it consistently. The follow up question would be, do you ever feel like certain owners go a little bit too overboard, maybe with what you said, “the bells and whistles” that they may offer?

Ralph: Yeah, it’s funny. I think trying to do too many things is the recipe for getting nothing done. And I think I’ve done that myself, trying to get too many things done at once and not really getting anything accomplished effectively.

So, figure out where are your biggest opportunities are and execute those extremely well first before just adding a whole laundry list of initiatives and bells and whistles type things that may not drive revenue. They may not really be that important to the residents, and could be a big distraction to your team.

Beekin: Lastly, more of an personal question. In your experience, what has been your favorite community which you’ve invested in or lived in and why?

Ralph: Well, which one am I going to pick? Okay, well you know, the first one, I hated this place, it was my first investment of any scale in multi-family. I bought it with a couple of partners, bought a deal down in Texas that just crushed us. It was awful.

But I’d say that’s my favorite community, because in the long run, I learned a ton out of that. I mean, it was an expensive experience, but it was extremely valuable in so many ways.

One, making sure you know what you are buying. Looking around for location matters. Being able to get to it or get an employee out to it easily and quickly, to put some eyes on it or to jump in, in an emergency situation and be there, is very important. For example, I was living in California at the time, so getting to Texas was not going to be easy.

Scale matters.The asset was only 70 units; it was two little buildings. So how do you staff that efficiently? How do you put technology in place in a small property like that and allocate those fixed costs over such a small property?

On his favourite multifamily investment and what not to buy

What is the municipal and governmental regulations and behavior towards that asset class? This asset was in an area of Texas, a city in Texas that was known to be extremely difficult to new buyers of apartment buildings. They came through and tagged us for missing light bulbs and 800 violations; we thought they were going to bulldoze the place which is what they wanted to do for an expansion of their roadway. So just understanding some of those dynamics internally was important.

So, again, while I would say at the time and for years after I hated that property, it really taught me a ton. So, I would put that in my favorite category in the long run.

Beekin: Would you go back to Texas now to invest?

Ralph: I have been, with two companies that were invested in Texas pretty heavily and even in that one city that we were in and it just gave me awareness of what they’re like and how to navigate them more effectively.

So in the end it worked out in a lot of ways, that’s the only reason that thing could make it onto my favorite list.

Beekin: Ok, great. Anything else you wanted to say to wrap this up to all our viewers on multi-family?

Ralph: I still think it’s the best asset class out there right now; probably that and Industrial given where we’re at. People still need a place to live.

That’s one of those things you can’t outsource, and you can’t skip the components of a supply chain or distribution like you might be able to going around Retail. It’s here to stay. I think there is a real shortage of it, so I think it’s a great place to be from an investor standpoint.

On Multifamily as an Asset Class

Beekin: Ok. Well, thank you, Ralph. Appreciate your responses and your insight. It was a pleasure having you on.

William Marin conducted the Interview on behalf of Beekin. William is a former senior consultant at Deloitte, and an MBA at The University of Chicago, where he is a Toigo fellow.