Elizabeth Bell

 

Liz Bell (0:00 - 0:25)

I do think there's this disconnect and there's natural churn in the industry too. And so how many of my clients are, people in my seat are around for 15 years to say, look, I finally outperformed. It is such a short term game.

 

And when we look at returns, we're always like, who's top quartile? How often are they top quartile? That push is incentivizing additional risk and, I think, creating this opening for additional loss.

 

Nancy Lashine (0:25 - 2:35)

Hello, and thanks for tuning in to Real Estate Capital. I'm your host, Nancy Lashine of Park Madison Partners. Capital is a lifeblood of the real estate industry, but the decisions on where and how it's allocated are driven by people and personalities.

 

Who are they? What motivates them? What can we learn from their experiences?

 

On this show, we introduce you to some of the real estate industry's most influential thought leaders and decision makers. And we talk about what is important to them, how they make critical decisions, who has influenced them and a lot more. Today, I'm excited to welcome Liz Bell, managing director and co-head of real estate at Hamilton Lane, one of the largest private markets, investment and advisory firms in the world with roughly 1 trillion in assets under management and supervision.

 

Liz helps lead the firm's real estate platform, which has more than 110 billion invested across funds, secondaries, co-investments, and joint ventures. Liz's career has taken her across several continents and to both the GP and LP sides of the table. She spent nearly a decade with Equity International and then Jaguar backing real estate operating companies in Latin America and Asia.

 

And she did a stint with Aberdeen Management before joining Hamilton Lane in 2022. Liz has been a principal, an allocator and a platform builder often in some of the most complex markets in the world. And that perspective makes her an especially insightful voice on today's market.

 

In our conversation, Liz reflects on the lessons she learned early in her career and how they inform her work as an LP today. We also discuss how Hamilton Lane approaches real estate, what she looks for in the managers she backs and where she sees the most compelling opportunities right now. I hope you enjoy my conversation with Liz as much as I did.

 

So we met when you were at JER. Is that when we met? Let's put this all together. It's been a long time.

 

Liz Bell (2:35 - 2:45)

So I graduated and did equity capital markets at Deutsche Bank with Jeff Morterra. And Jeff Morterra after my two years, I wanted out.

 

Nancy Lashine (2:46 - 2:50)

Was that the Peggy DaSilva or Kia? Had they already left?

 

Liz Bell (2:50 - 3:08)

They had already left, but he knew Debbie. And Debbie was looking for an analyst to work for her. And Jeff literally told me, he's like, this is a great opportunity. If you'd be open to DC, I'm like, I'm open.

 

He's like, if you can keep up with this woman, you will learn so much. Like take it. And I was like, I don't even know what that means.

 

Nancy Lashine (3:08 - 3:15)

Right. So going back so you were working for Jeff. You went to work for JER as Deb's, like–

 

Liz Bell (3:16 - 3:17)

Her analyst, her dedicated analyst.

 

Nancy Lashine (3:17 - 3:19)

Oh my gosh. Did your head explode?

 

Liz Bell (3:20 - 4:08)

I really didn't know what I was getting into other than a great opportunity. She moves at a fast pace.

 

It's so funny. I was thinking about this recently in the world of AI at Hamilton Lane. We talk about like, we are a mentorship business and we don't really need to hire analysts anymore.

 

And you've got a lot of that work can be done with Claude AI. So do we see potentially a scenario in the future where you're hiring people just to shadow and like, do some work, follow up meetings.

 

And that's what I was doing for Debbie. Like I was literally like going to conferences and transcribing in an audio recorder. Writing it at home, late at night, giving her the materials. Like it was just, it was the followup. It was the, it was trying to give her broader reach with me literally just verbatim to, not scrubbing.

 

Nancy Lashine (4:08 - 4:15)

You must've learned so much. So you did that. Then you went back to business school.

 

Liz Bell (4:15 - 4:19)

Yes. So in the GFC I went back to business school.

 

Nancy Lashine (4:19 - 4:29)

Right. So we were at JER around the same time I was doing consulting, right?

 

Liz Bell (4:25 - 4:35)

Yes. For this LATAM fund. So I joined in 2006. Yeah. Yeah. And they had just launched the Russia fund. And they actually raised a lot of money for it, but it was harder to deploy.

 

Nancy Lashine (4:35 - 4:56)

The placement agent was from Marbleton. It is on the Park Madison website.

 

We don't often fess up to it, but it's on their website. All the omissions, commissions, everything is there. Maybe we should scratch this from the podcast or maybe not.

 

But so we had raised the Europe fund for JER. So I–

 

Liz Bell (4:56 - 4:58)

321 million. I remember it.

 

Nancy Lashine (4:59 - 4:59)

Marbleton.

 

Liz Bell (4:59 - 5:00)

Yes.

 

Nancy Lashine (5:00 - 6:01)

That's exactly right. And we had amazing investors too. I mean, look, everybody thought that Russia had made sense at that point.

 

At some point we were all investing in China, right? I mean, it's not that long ago, but yes, we thought we would be the placement agent for the emerging markets. So we were focused on Russia and Brazil, and then we did spend a lot of time looking at India. Didn't end up doing anything. Thank goodness.

 

So we personally invested in China and in India to kind of figure out who we liked and lost most everything, but that's much better than having lost institutional money for people. So yeah, we learned a lot, but that's why I did think, Equity International was so amazing and Jaguar was such an interesting concept, but we've jumped ahead. You. So you're at JER. And then we worked on this LATAM.

 

It was Mexico primarily, right?

 

Liz Bell (6:01 - 7:21)

It was. So the thesis at the time was everyone else, the BRICS phenomenon, everyone else was going India, China, JER would go Russia, Latin America. And we formed a fantastic board with very well-known stakeholders in each country to provide fiduciary cover to know that we were doing business the right way.

 

And to help us make local hirings. We hired a lot of people from GE, quite frankly. And so we had people in Brazil, senior people in Brazil, senior people in Mexico.

 

I sat in McLean, Virginia, as kind of the analyst helping throughout the region. We've raised, I think we got 200 million from a California pension, and then the world stopped in 08 and we couldn't raise more. And at that time, I'd always thought about business school, decided to go back to Wharton, like you'll appreciate this in my essay, I was convinced I wanted to do emerging markets.

 

So I was like, I would love to work as an associate at Equity International after business school. And then, raise my own emerging markets, private equity fund one day, right? Applications.

 

And then I got to school and my friends are like, you actually said what you want to do. You really want to do that? And I was, yeah. So that's what I'm here for, ? So, it is funny. And then subsequent to graduation, I joined Equity International.

 

Nancy Lashine (7:22 - 7:24)

Right. Right. Fabulous. And so you moved to Chicago.

 

Liz Bell (7:24 - 7:25)

Yes.

 

Nancy Lashine (7:25 - 7:27)

And what were you doing at Equity International?

 

Liz Bell (7:28 - 7:31)

So this was 2011. I think I was an associate and her VP.

 

Nancy Lashine (7:32 - 7:33)

So the markets were starting to recover.

 

Liz Bell (7:34 - 8:09)

Yes. And we were on fund five. We had just made our first investment in Brazil. So it was self storage, which was a new concept for Latin America in general. And we were looking globally. So that was still a global fund, everyone based in Chicago.

 

And it was just a phenomenal learning experience. What drew me to emerging markets was this concept of innovation that you're doing things for the first time in markets. You're helping develop capital markets. You're developing a lot of assets, new asset classes, not without its risks.

 

Nancy Lashine (8:09 - 8:11)

Did you have exposure to Sam Zell?

 

Liz Bell (8:12 - 9:30)

Yes, I did. And actually, what I found phenomenal about him. So every two weeks we did this port and we invested at the portfolio company level.

 

So we were investing in companies, not assets. And so every two weeks we would present the two week snapshot of what was going on in your companies that you managed.

 

And we called it speed round and we would go around, the IC would sit and then the materials that you delivered went to Sam. And I was an associate, Sam Zell has so much going on. Is he reading any of this? I don't know, but I found out as I started to get in front of him a little bit more, he read every page and he knew what was going on. And it was, it was shocking that this guy was reading about, not only everything he had going on in the U S but he knew, this company in Brazil is over leveraged. What are the– how long of visibility do they have on their cash flows?

 

When can we get in front of banks, et cetera. So he was on every detail and he picked up on just the psychology of a lot of the founders we worked with very quickly. In Latin America, they were, the, the people we worked with were very well known and had some egos at times. And Sam understood how to play into that. Especially in negotiating.

 

Nancy Lashine (9:31 - 9:33)

Yeah. He was really good at that, wasn't he?

 

Liz Bell (9:33 - 9:34)

Yes.

 

Nancy Lashine (9:31 - 9:43)

Yeah. Amazing. Such an incredible experience. So you had a kind of an up-go-prop-go background before anybody knew those words.

 

Liz Bell (9:44 - 9:49)

Yes. Everything we did, it was private equity style investing. It was at the company level.

 

Nancy Lashine (9:49 - 9:55)

So you were valuing like EBITDA or doing pre-e-multiples and.

 

Liz Bell (9:55 - 10:37)

Pre-money value. And a lot of what we did. It centered on asset level underwriting. So what are the assets worth?

 

So we had to know how to value the assets, but in more of a roll up fashion. So it was, what did they roll up to? And then what was the ask from the other side and how much of that Delta is the pre-money value you're ascribing to the operating platform that we didn't like to ascribe a lot of value to at the beginning.

 

The idea was you can benefit it on, on the exit potentially, but if you're going in at the asset, the net asset value, not the pre-money company level, you can grow over time and hopefully create alpha beyond just the value of the assets.

 

Nancy Lashine (10:37 - 10:46)

Do you feel like investing in platforms sort of early in your real estate career has helped inform you think about how to invest in real estate?

 

Liz Bell (10:47 - 11:27)

Yes. Especially in my seat at Hamilton Lane today, where we are LP investors. So platform level investing, you aren't in the day-to-day operations of the assets.

 

You need to understand the assets and how to value them, but you're not the one executing on the value add business plans, doing the lease up, right? You are looking at the picture holistically. And in that case, a lot of him, it was growth equity to grow businesses, but you were dealing with the senior management team.

 

You were thinking high level of kind of governance items, financing. And so that translates pretty well to what I'm doing today as an LP, especially when we're looking at funds, right?

 

Nancy Lashine (11:27 - 11:29)

So say that sounds like fund investing.

 

Liz Bell (10:30 - 13:01)

Yes. And so, if it's blind pool fund, what are you looking at? You're looking at the strategy top down, which is what we did before platform level.

 

And then you're saying, okay, can this management team execute? Best form to look at is their track record. Have they done this before? Again, very similar. Who's the management team? Who's your partner?

 

That's so important, especially in emerging markets. But as an LP, we're giving up all, a lot of governance rights. If not all, we're relying on this team to execute on behalf of our capital. The trust factor is so important. Those are the same.

 

There's differences, right? Like I did a much more value pre money valuation. And I had a say on that on the direct side versus an LP.

 

If you're going into a seeded fund, it's take it or leave it. Do you like where the marks are or not? You're not negotiating and saying, I want a 10% discount on this. If I'm LP coming into a fund. So the valuation discussion is a little different and the governance negotiation is different. When we were on the platform level, I sat on boards.

 

We had strong major decision rights. We always had decisions over liquidity. We left the day to day to our partner. In a fund format, the documents have built in term, but we all know in today's world, like that's loose and you don't have that control over it. You sit on an LPAC, but it's not the same level of decision-making. But beyond that valuation negotiations and the governance, there's a lot of similarities.

 

Nancy Lashine (13:02 - 13:15)

So tell us about Hamilton Lane. I don't know that our audience knows what Hamilton Lane does. You obviously, I think I originally knew about you as a consulting firm, but you have a huge amount of discretionary capital as well. Explain the business model to us.

 

Liz Bell (13:16 - 13:51)

Great. Yeah. So Hamilton Lane is a trillion dollar private markets investment management firm.

 

We manage over a trillion AUM, AUS, broadly speaking within real estate, we manage over a hundred billion AUM, AUS. So we're about 10% of the overall business. The overall business focuses on private equity, venture capital, private credit infrastructure, and real estate.

 

I sit on the real estate team, lead the real estate team and we have kind of shifted over time to be discretionary managers. So we're not taking on advisory assignments anymore.

 

Nancy Lashine (13:51 - 13:53)

You're not even taking them on. Wow.

 

Liz Bell (13:54 - 13:56)

It's a rare case for us to take on.

 

Nancy Lashine (13:56 - 13:57)

Why?

 

Liz Bell (13:57 - 14:41)

We like to be aligned with our LPs. And if we're putting discretionary capital, it's going on our track record. I have a say, whether I like things or don't, I think it's much better alignment with our capital partners and they're getting a better service from us than them coming to me.

 

And this happened in the prior life where I had to underwrite a fund that I truly did not believe in or like, and I wouldn't put my own money there, my own track record with that fund. And yet my client wanted us to do it. And I think we did the report and I highlighted the risks as needed, but I don't think that's the right model, especially for a firm like us that has the capabilities to do discretionary investing. I think you want us fully aligned with our picks.

 

Nancy Lashine (14:42 - 14:47)

Interesting. So are you discretionary on most of that hundred billion of assets?

 

Liz Bell (14:48 - 15:08)

No, that includes the supervision. What we're investing around two and a half, 3 billion a year. And I would say 90% plus is discretionary at this point. And that's across funds and secondaries. We're doing a lot within the secondary space today and co-invest and some straight up JVs.

 

Nancy Lashine (14:09 - 14:11)

How big is your team?

 

Liz Bell (14:12 - 15:16)

We're about a 20 person team globally with the people that touch real estate on a day-to-day basis.

 

Nancy Lashine (15:16 - 15:22)

So, and that's a lot of capital for a relatively small team.

 

Liz Bell (15:22 - 15:23)

It is.

 

Nancy Lashine (15:24 - 15:36)

Are you thematic? Like, do you, are you sort of focused on, okay, thematically 2026 is going to be about this and this, or are you more reactive and opportunistic? Some blend? How do you think about it?

 

Liz Bell (15:36 - 17:30)

There's a lot to unpack there. And I've learned a lot since joining Hamilton Lane on how the ecosystem works.

 

We have some clients where there are pools of capital or such. We're only doing two primary investments for them per year. Righ.

 

You have a whole different lens on portfolio construction for a client like that to get diversification and then maybe some alpha to compliment that versus a client where we can invest up to seven funds a year. You can sprinkle in some deal level capital. So secondaries are co-invest.

 

So the portfolio construction lens, sometimes, we're doing large diversified opportunistic and always also depends on their cost of capital, but an opportunistic fund plus an a smaller alternatives manager to compliment what they're not getting from that. if it's only two picks, if we have a much more capital deal with and more leeway, what's best for the client today, we have our themes, right? Everyone likes industrial multifamily and that's a big part of our top down allocations. And we like alternatives. No surprise. We're looking at retail more.

 

We're still not looking at office, but I think where we are at this very moment is our view is that it's much more of an operator centric model today that you're going to make money in today's market by working with the operators that know how to drive NOI at the asset. It's not a sector allocation game. It's an asset selection game.

 

And with that, we are trying to get closer to the operators. We're trying, where we can to curate the portfolio of alts with specialists. So a specialist senior housing operator will go into that fund.

 

We'll compliment that with a specialist senior housing operator in their fund. Maybe we'll do, we'll get medical office exposure through a deal, a secondary or a recap. So we have much more levers to pull depending on the client.

 

Nancy Lashine (17:30 - 17:33)

How about investing in the platforms themselves? Do you like that business?

 

Liz Bell (17:34 - 18:24)

We don't do a lot of that at Hamilton Lane, to be honest. It's not something we've done in the past. Occasionally we'll do co-GP positions, but we're not usually taking a piece of the opco.

 

And in some ways, given my experience in prior roles, I understand how much more complicated opco level investing is and that thesis, especially in the U S that you can create additional alpha beyond the value of just the assets, I think isn't always proven here. And so if you're going in and paying pre-money value beyond the assets, are you going to ever get paid for that on the exit? Unclear.

 

And so I think sometimes going in clean and getting the portfolio of assets directly and paying NAV for that isn't or in the world of secondaries discount to NAV is a much better proposition for us.

 

Nancy Lashine (18:24 - 18:54)

Right. No, I appreciate that. I'm just, I can't help but push on it a little bit and say, how do you reconcile that with say the Blackstone's approach that many other firms today are emulating or trying to where they buy a platform or build a platform so that they can then be vertically integrated to manage their assets.

 

And then when you invest with them and their fund, you have the vertical integration and presumably less fee drag and presumably better performance. How do you think about all that?

 

Liz Bell (18:55 - 19:39)

I see that most effective for the larger players and they are getting closer to the assets by acquiring or building their own operating platforms. But they're usually held within evergreen vehicles. And so that concept of what value are you maximizing beyond the assets is more muted because you're not thinking about getting a pop on it at the exit.

 

You're getting your return from, fee efficiency, probably, even better skill sets at times, having that operation in house. And so I think if they're doing it in that manner, it's a whole different ballgame. And yes, I see a path where there's a, especially if an evergreen fund that you have to put out a lot of capital, if you have the ability to do that with your own operating team, it's a good strategy.

 

Nancy Lashine (19:40 - 19:52)

That is such a good answer. How are you thinking for your investors generally about investing in evergreen funds versus closed end? I mean, there's arguments both ways. Are you doing both and when?

 

Liz Bell (19:53 - 20:49)

We are doing both. I think it depends, again, getting back to this realization for me in the world of LP working with various pension funds and endowments, they're all different. They all have different needs.

 

And so you can't just blanket, say we're not doing this or doing that. For certain clients, we always look at what's their benchmark. And if the benchmark is Odyssey, we want to make sure we are playing into that benchmark, getting some beta there.

 

We will pick the funds that we like in the Odyssey. And I definitely think there's have and have nots in that world. So hopefully we're outperforming the benchmark with our picks in Odyssey. And then we compliment that with a non-core allocation of mostly closed end funds. So, I think there's definitely a place in the portfolio for both and it depends on each client. If you've got a client and endowment, that's just, higher cost of capital, you probably don't want to put in Odyssey funds. You're looking for more value add opportunistic type funds.

 

Nancy Lashine (20:50 - 20:58)

When you think about core and value add, do you feel like there's a clear, like one is a better buy today?

 

Liz Bell (21:01 - 21:58)

No, I think the lines are blurred between the two. I think you can achieve value add returns with some core plus assets, especially because of this valuation reset and because of the need for capital today. So you can come in and get a really nice portfolio of core plus assets that maybe have a little bit of lease up.

 

Maybe you have to replace a roof five years from now versus what we're seeing or what we like on the value add side is, is light value add. We're not looking to take on complexity in today's market. There are more than enough risks out there.

 

And a lot of times if we're seeking low teens returns, we don't have to strive for major overhauls on value add business plans or opportunistic investing. I think for us, the downside risk is much higher, the higher up the return target you go today, more exponentially, more than it has been in the past.

 

Nancy Lashine (21:58 - 22:04)

There's less downside risk as you take on more higher yielding assets.

 

Liz Bell (22:04 - 22:17)

No, no, no. The higher up you go, the risk return spectrum, it becomes incrementally more risky. So to get a 15, but I think it's almost an exponential curve more so than I've seen in the past.

 

Nancy Lashine (22:17 - 22:18)

It's a steeper curve.

 

Liz Bell (22:18 - 22:37)

It's a steeper curve. And so to eke out a 16, we're not looking to hit a whole bunch of twenties. We're bet, and a 16 is even higher. We're mostly focusing on 12 to 14 and we don't have to take on much risk to get there. The higher up you're going, you're taking on exponentially more risk.

 

Nancy Lashine (22:37 - 23:24)

Of course, in the past you could just lever and get that excess return. And today it's, I had such a, I had an interesting kind of one of those moments in a conversation with someone last night at a dinner where we both kind of looked at each other and went across the board. We were talking about why multifamily is so everybody's, it's like somebody, it's like you go to a funeral.

 

If you walk into a room full of people in the multi-business, everyone's so sad, but it's, for a long time, people got used to investing with a big spread to debt and rents were going up and you really could get mid teens to high teens returns. It's just probably the wrong target number. And I don't know that we're going back there anytime soon.

 

And that's a shift that doesn't happen overnight.

 

Liz Bell (23:25 - 23:26)

Yeah, I agree with that completely.

 

Nancy Lashine (22:27 - 23:40)

Yeah. So what is your target for your clients in their portfolios? How do you target their target returns for real estate? Is it based off inflation? Is it based off their actuarial assumptions? How do you think about it?

 

Liz Bell (23:42 - 24:13)

We're not telling them necessarily what their return target should be. I think real estate plays a different role in nearly all of our clients. They have different purposes and you usually have that set at the board level for many years.

 

We try to help them revisit it and see if it's still an appropriate benchmark. It's usually an odyssey plus some sort of spread. Is it inflation? Is it just a, 200, 300 bps out performance? I see that most commonly across our pension clients.

 

Nancy Lashine (24:13 - 24:16)

200 bps out performance over?

 

Liz Bell (24:16 - 24:16)

Odyssey.

 

Nancy Lashine (22:17 - 23:18)

Odyssey. Okay.

 

Liz Bell (23:19 - 24:31)

Where, and again, these are kind of our pension clients that have this set in stone for many years. And I don't see that changing.

 

I don't see the return target changing. I unfortunately see allocations to real estate changing at the board level.

 

Nancy Lashine (24:31 - 24:33)

And what is, why is that unfortunate?

 

Liz Bell (24:34 - 24:43)

Because it's going down now, I don't see a lot of clients or even just talking to groups in the market, increasing their real estate allocations today.

 

Nancy Lashine (24:44 - 24:45)

Tell us what you're seeing.

 

Liz Bell (24:45 - 25:35)

Yeah. I see a lot of the allocation going to infra. Infra is a newer asset class within the real assets theme that I think is taking a little bit of allocation from real estate. And then, if you have your strategic band for real estate, if there's tactical opportunities, I even see boards saying real estate has been the underperform in the alts world for four years now, tactically, I don't want to, I want to lower my allocation.

 

If I have that ability to go tactical. I think there's an argument made now is a great time to invest, but there's a lot of risk in the market. And so are they valid? Maybe. I think if you are a sophisticated investor and can decipher the good from the bad, where the risk is, where the opportunity is, it's a fantastic time to invest, but broad strokes, I can see where people are hesitant.

 

Nancy Lashine (25:36 - 25:48)

When you say there's a lot of risk in the market because of rate interest rate volatility. So we don't really know where cap rates should be and certainly not exit cap rates. Or is there something else?

 

Liz Bell (25:49 - 26:07)

No, I think it's more exogenous risks. So interest rates and impact directionally on cap rates. Yes, that is a risk.

 

You can underwrite that. Geopolitical risk, other risks in the economy of the leverage impact at the consumer level, that buy out, pay later–.

 

Nancy Lashine (26:07 - 26:13)

Doesn’t it affect everything? It affects the equity markets and affects private equity. I mean, it's not unique to real estate, is it?

 

Liz Bell (26:13 - 26:56)

No, that's not unique to real estate, but I think as an investor putting on any investor hat today, there's a lot of risk out there and there's a lot of opportunity. And I think this is why you have to go with specialists who really know what they're doing. To your point earlier on multifamily, the syndicator model of five people leaving investment banking, putting their bonuses into a multifamily asset in the Southeast and hoping for rent growth and cap compression on exit is not the model that will be doing well going forward.

 

That was a moment in time. In fact, I think the sophisticated investors are licking their chops to access those deals today. But you have to be a little bit more careful in today's world.

 

Nancy Lashine (26:57 - 27:00)

So what separates the top managers from the rest?

 

Liz Bell (27:01 - 27:09)

This is a good question and I chew on it a lot. I think it depends on how you define top managers and over what timeframe.

 

Nancy Lashine (27:10 - 27:10)

Okay.

 

Liz Bell (27:10 - 29:11)

I always go back to Howard Marks in one of his letters. He talked about, looking at investment returns over time. And he said that if you, talking to a pension, a corporate pension client, they were saying that, when you look at their best managers, how they define best managers, they're usually second quartile between call it 27th and 49th on any given year.

 

They're not shooting for the stars to be top quartile every year, but over a 14 year time horizon, if you're in that band, you're top five. And it's because managers that shoot for that top quartile all the time are taking on risk. We talked about the risk band, it's shrinking.

 

And so if you can avoid big losses and have consistency over time, the compounding effect will show that you will be a longterm manager. Now here's the problem. People in my seat or any LP seat are judged personally on a one year basis, your bonus, your compensation.

 

If I just picked second quartile managers for all of my clients, I don't know that they would be happy. And so I think there’s this disconnect and there's natural churn in the industry too. And so how many of my clients or people in my seat are around for 15 years to say, look, I finally outperformed. It is such a short term game. And when we look at returns, we're always like, who's top quartile? How often are they top quartile?

 

That push is incentivizing additional risk. And I think creating this opening for additional loss. So I struggle with this one that is kind of judging managers on performance alone.

 

There's other factors that I think are extremely important as you think about, again, going into funds where you have little control. This gets back to kind of, when I think about my GP days being on that side and knowing probably more than I should now as an LP, our business.

 

Nancy Lashine (29:12 - 29:13)

That's gotta be helpful though.

 

 

Liz Bell (29:13 - 31:28)

It's so helpful. And our business, especially having been on the GP side, listen, it's a hard job. You're creating something out of nothing that's meant to achieve high returns.

 

I don't know that LPs always appreciate how difficult that is. The negotiations closing something, the stress of getting banks, there's so much of that that can go wrong and we expect zero mistakes. So there's pressure there.

 

And so I always have some empathy towards GPs and what they're going through. And I try to say like, okay, what went wrong, but why? And there's some things where, okay, bad luck, bad timing, something happened completely unexpected.

 

But then you start to see the other side of it where I was on the GP side. Our business is based on many decisions made at the margin and those are not clear. And there's probably no right or wrong answer truly for an LP or a GP.

 

But I find that some GPs will consistently push, maybe not for the LP's best interest. And it's small things. You're at the end of a fund, you're on fund two, your team is talented. You want to retain them. Your bonuses are shrunk because you can't get to fund three. Finally we see a time in the market. Do you do two more deals that will get you over the 75% threshold? What's the pressure from the top to the deal team? Get that done. Get that done. A deal team can make anything underwrite well and dress it up. And so these are the incremental decisions that aren't obvious to someone and they might not even be conscious to be honest.

 

It's this push, push. And over time you'll see the GPs that do that often. And you'll see the GPs who constantly do the right thing for the LPs. And that is a distinct, it's a very subtle distinction. And I try to monitor that behavior. What decisions are made? Exits. When are you exiting? Really? Did you have an opportunity? Did you want to hold on longer for more multiple? Why didn't you transact?

 

And LPs may not even know that there was unsolicited bids. And why are they not transacting? Those are the subtle constant decisions that are being made that I think can make a fund and a GP stand out or not.

 

Nancy Lashine (31:30 - 32:06)

Wow. But that is exactly, so true. And it's just so perceptive because I remember early in my career, one of the consultants, there were only three saying to me, the hardest thing to underwrite is the GP's process.

 

We can ask lots of questions, but it's really hard to understand how decisions are made. So to figure out what the options were and what decisions were made when you come in for a meeting four times a year, it's pretty darn hard to do.

 

Liz Bell (32:06 - 32:38)

Yes. And you always hear about the investment decision-making process. Okay. And that's binary, right? And that's there. That's not easy. However, that doesn't necessarily drive the full picture on your return. You still have to execute and you still have to exit. And I never see in pitch books and here is our monetization committee.

 

Here's our process for this or quarterly valuations. Usually there is a process for that, but that stuff's not highlighted. And to your point, it's an opaque decision-making process that has significant outcomes.

 

Nancy Lashine (32:38 - 32:45)

So I don't know if you want to give away any secret sauce, but what questions do you go in and ask to try to uncover this?

 

Liz Bell (32:47 - 34:02)

I try to spend time with the team as much as I can and pick up on things, right? I think one telltale sign is team turnover. Who's coming, who's going, where are they going next?

 

You can usually tell a lot about what's going on in an organization with that. Yeah. Talking to people beyond just who they want to present to in the room.

 

And so if we have the luxury of being at AGMs and talking to the broader organization, the people that, if you're in a pitch meeting, they've got– and we do it too, right? Like curate it, pitch. Here's what I'm going to say. It's all buttoned up. It's polished. You're talking to co-heads and heads of capital. And it's a very nice, neat story. When you talk to more junior people, you get a little bit more of, oh, what are you working on? Or how's that going?

 

A little open-ended questions and let them talk and not, I'm not trying to catch anyone. I was a junior person on the GP side. I know how hard it is, but you start to pick up on things and it's like, oh, or trying to figure out this financing.

 

It's such a big deal. I'm like, why is an LP haven't heard of that? Or why did these types of things, what is your, and then you always like, oh, what's, what's something a lesson learned and that's very curated.

 

Nancy Lashine (34:02 - 34:02)

Yeah.

 

Liz Bell (34:02 - 34:06)

So it's hard. It's subtle. There's no one magic question.

 

Nancy Lashine (34:06 - 34:29)

Right, right. So let's talk a little bit about the current market because it is such a challenging time to invest. As you said earlier, maybe it's a fantastic time to be in real estate and all those folks who are shifting over to other things maybe are going to miss it, but still lots of risk and lots of uncertainty.

 

What, what are you seeing in the markets today? That's not showing up in the numbers yet.

 

Liz Bell (34:32 - 35:32)

I worry about where the tenure is right now and the broader implications. And to your point, we're at a 24 year high for the 10 year treasury at the bond market is speaking. And I've learned, I don't understand the bond market as well as I do the equity markets, but I know when it speaks, you need to listen.

 

There's risks inherent in the system that I want to be alert. I want to be on alert. Where could this have implications? Clearly we talked about kind of the pressure at the asset level, whether it's, um, higher interest rates for longer, whether it's creating pressure at the GP level for funding. I think the availability of capital right now is tight and some GPs are going to suffer. They've been hanging and, and operators too, quite frankly, probably even more so than some of the GPs.

 

Because they don't have the balance sheets. And so they're hanging on by a thread. I think this latest round of hikes, which we saw coming was sort of a dagger for–

 

Nancy Lashine (35:32 - 35:38)

Anybody saw the tenure. I mean, not anybody, but most people didn't see the yield curve flattening the way it has.

 

Liz Bell (35:38 - 37:04)

Correct. And so I think one thing I talk about, and I'm trying to be perceptive too, is I think, four years in to a longer down cycle, senior people, this is a test of endurance and mental strength. I think coming in to work every day, motivating your team, finding the pockets of opportunity, because I truly think there are great pockets of opportunity out there.

 

But being disciplined to that and having that mental strength to kind of say, okay, well, it's going to be rocky. When do I pull back? One of the hardest things I think to do is to actively pause on something, actively do nothing.

 

And you don't mean do nothing, but we're type A people in this industry who are prone to action. You want to fix things. You want to do things.

 

Sometimes you have to just pause, not try to fix things. I mean, open end funds are a great example. And, we've seen this where do you try to lock in investors by coming up with a deal to say, here, I'll lock you up for three years if you stay in.

 

That feels like an active choice by a GP. I'm trying to do something. I'm trying, I'm doing something active equals reward, but it doesn't because that might trip some investors to say, Whoa, Whoa, Whoa, I got to get out now.

 

And you accidentally may trip a bigger run than you would. And so these are kind of the balances of just some things I'm seeing in the market.

 

Nancy Lashine (37:05 - 37:15)

Yeah. So if you, what you said, there are some really good pockets of opportunity. If you could write your tickets, what would you, where would you be putting capital today?

 

Liz Bell (37:15 - 37:27)

Yeah. I think it's mostly through a secondaries lens, where you're coming into assets that an operator has held onto. You're recapping for the most part. I'm talking about mostly GP recaps.

 

Nancy Lashine (37:27 - 37:28)

Property types?

 

Liz Bell (37:29 - 38:14)

I would say any, to be honest. I mean, we're not very bullish on office, but there's pockets of opportunity.

 

I think the dynamics are as such when you find a secondary, what's the story? Is there a forced seller? Does the operator stay in who in today's world, again, looking at a street corner, you've got the option of four assets.

 

They know which asset to be in, which is not attractive. Where can they drive NOI? If they're already in an asset and you're recapping someone, they know the risks of that asset. They know the opportunity. They know, in an apartment building, which unit is difficult to lease because of the views. And they already have that operating history.

 

So what you're stepping into a little bit. And usually if it's a forced seller on their side, you're getting at a discount. So I really love that. The recap with operators staying in place.

 

Nancy Lashine (38:14 - 38:36)

But for all property types, like you mentioned multifamily, which is a little more homogenous. There's lots of folks who can manage multifamily. Aren't you better off in a way saying don't recap it, just sell it.

 

And then, maybe there's more distressed pricing in the market.

 

Liz Bell (38:37 - 39:02)

From new money going in. I love the recap. If it's with a distressed seller, I think the name of the game on the secondary side is to target the story where there's a distressed seller.

 

It's a distressed capital stack. The asset isn't distressed, but even in those distressed seller situations, like I don't know that I want to touch something if I don't have the right team in place to really know, even with a discounted value, how to drive value going forward, because–.

 

Nancy Lashine (39:03 - 39:05)

Is there a deal that you've done that you'd like to share?

 

Liz Bell (39:05 - 41:10)

Yes. Two examples of these recaps. One was essential retail. So a sector that, I think is getting much more attention today, but we did this about a year ago. Operator in place, sophisticated operator.

 

We knew them well and they had an asset that was in a affluent suburb, Northwest of Las Vegas, simple assets, smaller deals. This is where I'm seeing a lot more opportunity is kind of that lower middle market where the owners don't have deep balance sheets. They are more stressed and you can pick off really attractive opportunities.

 

And so we were able to get in at a cap rate that was at least 160 bps over the cost of debt. It was a great opportunity. The operator stayed in and this was kind of in place yields.

 

But the beauty of kind of these types of assets, they have unsophisticated tenants. The beauty and the risk, right? Your credit quality is lower, but your tenant sophistication is lower and oftentimes they miss their rent renewals.

 

And if that's the case and you have a sophisticated operator, they try to improve or they will say, okay, I'm bringing someone in, your rent was 30% below market and I can, move you out, bring someone in. These are low TI type of opportunities. So that's not, we won't assume someone misses their renewal, but that's upside.

 

So additional rent growth. So that was one we've recapped. And then we did a recap in New York city with operator who had been in an asset for four assets.

 

So it was a portfolio we came into. They'd been in it for 10 years. They're operating their LP partner, need it to recycle the capital. We were able to step in at close to a six entry yield cost of debt was a four two. These are market rate apartments. They're small.

 

So this is the opportunity we're seeing it's under the radar. There are real liquidity needs because the operators stayed in. They knew where the issues where they could budget the CapEx for the roof, that they needed.

 

And we assume the debt, which was an asset in that deal. So these are the types of opportunities. Again, it's middle market type of plays.

 

Nancy Lashine (41:11 - 41:19)

Yeah. Yeah. It's a lot of work. Do you think the midterm elections are going to have an impact on the business?

 

Liz Bell (41:20 - 41:40)

I think where we sit today with the capital markets activity, cause of debt, et cetera, and then 30 date, less than 30 days out. I think you're going to see a slow month of October on deal deployment. We're seeing repricing asks of three to 4% on average. Will they get it? I don't know. Will people just sort of–

 

Nancy Lashine (41:40 - 41:41)

Only three to 4%?

 

Liz Bell (41:42 - 41:44)

For the most part is what I've seen.

 

Nancy Lashine (41:44 - 41:46)

Interesting. I'm probably seeing more than that.

 

Liz Bell (41:46 - 41:46)

Okay.

 

Nancy Lashine (41:47 - 41:52)

And well, it depends upon the property type, but if you're going to move your exit cap rate, yeah, that's at least 25.

 

Liz Bell (41:52 - 42:45)

Yeah. So I think, yes, it depends on location and asset type bid ask spread. Does the seller sell again? Do they have to, we'll see, but I think it'll be a paused transacting environment between now and November. Do I think the outcome will really impact what's going on?

 

I think there's so many other factors that will impact real estate that I don't view it as a major change. We all know I am bullish on data centers. We know the challenges today.

 

I think both parties are aligned on kind of slowing the growth of data centers. In addition to just the access to power being such a hurdle to begin with. So I don't see that really changing with either party and housing affordability, both parties are behind and that's a real crisis for the country. So if anyone can find ways to solve that, great. It's a lot harder than that too. So I don't really see it impacting much.

 

Nancy Lashine (42:45 - 42:49)

Right. If you could start your own fund tomorrow, what would it look like?

 

Liz Bell (42:51 - 44:01)

That's a good question. I don't think I could tell you the what, I could probably tell you the how very well. The what, I'm not an operator. I've never been that close to real estate. But I can't say that I could do something better than someone at the asset level. The how, having studied a lot of emerging managers, having worked at merging managers, I think the best way, and this is me speaking, I would find people I've worked with in the past, who I trust, who I know I can work with, split economics evenly, sweat equity to begin and have it even with a trusted group, have opportunity for young people to come in and get real economics over time and start off small and probably go to a group that will seed assets, however that looks. So, it doesn't have to immediately start with a fund, seed, find a deal here, one-off, one-off, aggregate that, build the track record, start slow and small and build over time with people you trust in an ideal world.

 

That's what I would do. We all know the world is not ideal though.

 

Nancy Lashine (44:01 - 44:32)

Well, we can, we can keep working towards the ideal. You've been in the business for a while. There are very few firms that can stay a hundred percent owned by their employees.

 

The costs of everything are so significant and clearly to compete technologically is that's added a whole new level to the playing field. What are your thoughts about alignment of interest and governance? And what do you look for when you're investing with a manager?

 

Liz Bell (44:34 - 44:54)

It's so complicated. I think with emerging managers in particular, when you take on that outside capital at the GP level, that's where you're wearing two fiduciary hats. And that's where the decision-making on the margin is so blurred.

 

Nancy Lashine (44:55 - 44:56)

Oh, that's interesting.

 

Liz Bell (44:56 - 46:04)

Whose return are you really fighting for? The fund level LPs or the person who, the outside capital who really is paying your salary? And what are their motives to grow AUM?

 

Now I think some GP level investors have recognized this and have put, their GP stakes business into evergreen vehicles to kind of eliminate the time pressure and to more build a steadier income stream. And so I think that helps, but that's an expensive cost of capital you're usually taking on. And so it just creates conflicting incentives at times.

 

However, if there isn't that path, I think very talented managers who don't have deep balance sheets themselves or family and friends that have deep balance sheets, it's a good way to give them a chance to do what they can do. And so I think that it requires a very special manager owner to be able to manage that conflict a little bit clearly and to do, because the longterm doing the right thing for the LPs is what will keep you in business over that 15 year time horizon. And so it's, it's challenging.

 

Nancy Lashine (46:04 - 46:08)

So at the end of the day, will you invest with managers who've done both?

 

Liz Bell (46:08 - 46:11)

We have. Yes. And again, it's getting back to the story.

 

Nancy Lashine (46:11 - 46:11)

Yeah.

 

Liz Bell (46:11 - 46:27)

No. And we always understand the story. Right. Try to dig through. We always ask for the GP economics. What is the ownership? How is it split? Is it, what succession planning is a big topic today? All of that.

 

Nancy Lashine (46:28 - 46:50)

Yeah. Boy, none of this is simple, is it? How much of your time do you spend on the investing front versus marketing for new clients versus going to see your existing clients and just explaining what you've done for them?

 

What'syour division of labor look like?

 

Liz Bell (46:51 - 47:46)

I wear many hats as do I think many people in our business. If you are managing discretionary capital, the more senior you get, you have to wear a fundraising hat to a degree. You have to be able to speak to LPs, whether they're your existing partners or a prospective, and that takes a lot of time.

 

And so it's tough to wear both hats cause you're not in the office all the time overseeing things. But if you grew up on the deal side, you can identify the risks and ask the right questions very quickly. And this was something I learned from many people I've worked for, Debbie, Sam Zell included, where they don't need to read a hundred pages.

 

They can quickly get to the point of the risk in seeing a deal cause they've seen so many things over time. But as you get more senior, you are splitting, you have to have that ability because you are spending a lot of your time on the road capitalizing. So, um, I have a mix as do many peers, managing discretionary capital.

 

Nancy Lashine (47:46 - 47:49)

Who's had the greatest influence on your career?

 

Liz Bell (46:50 - 48:06)

Hands down working for Debbie at such an early age, it was framed as I would get to work with a woman, at a very high level and see the industry top down. And this was 2006, see the industry top down and see if I get a glimpse of it.

 

Nancy Lashine (48:06 - 48:16)

She was still at JER. That's right. She was president for about a year and a half. We started in 2006 at Park Madison and JER was our first client.

 

Liz Bell (48:17 - 49:18)

Yes. And so I worked with her for a year and a half there. And I learned so much of seeing a woman in leadership in that role to begin with, that it's possible. And the speed at which she operated, this ability to see through the deals very quickly, but she only did that because she did it from analysts and worked her way up.

 

She had experienced all of that. It's not like you snap your fingers and jump into that role. You have to earn in and work your way up. She always put LPs first and it's the lifeblood of our business. And I think that was something that I identified and didn't really appreciate till many years later how important that is. And I think having seen what she's done with Artemis, people trust her.

 

That is built over longterm. Those marginal decisions add up. And, I got to see in 06 how she thought and fast forward till now, that decision making is consistent.

 

And I think that's why Artemis flourished. So that has clearly impacted my career.

 

Nancy Lashine (49:18 - 49:41)

Yeah. I don't think there are too many people who've had fantastic success who haven't had just a moment where they just got beaten up. And it's the year you don't put on your resume.

 

You lived through that too. So I think it, it just makes you much wiser to appreciate that trees don't grow out of the sky. This is not a straight line. And nobody's career is a straight line.

 

Liz Bell (49:41 - 49:54)

No, no. And I can tell you, I would get beaten up in Brazil or Colombia after not having slept on overnight flights to do it. So I have seen how tough it can be when things go wrong.

 

Nancy Lashine (49:54 - 50:07)

Thank God for strong coffee in Brazil and Columbia with all those flights. I used to down a lot of them.

 

Yeah. Tell us about the best and the worst investment decisions you've made.

 

Liz Bell (50:07 - 51:08)

I think honestly the best decision is purposely pausing and not taking action. And I think that is so hard as I alluded to earlier, I'm inclined to action.

 

I like doing things I think that usually drives progress, but there are points where you should pause, evaluate, slow down and it's purposeful. Talking through some things that we have on our side, I said, what are your options to do? We can do this. We could do nothing. We could do X, Y, or Z. But if we choose do nothing, I want it to be an active decision to choose nothing and let this play out because meddling sometimes creates more problems, but it has to be active.

 

And I think that has been very tough, but plays out in the longterm to say, okay, there's times that you do that. And that is not an obvious best investment decision, but passing on something that you've worked on so hard, actively choosing not to, is almost the right call.

 

Nancy Lashine (51:08 - 51:12)

Sometimes. Sometimes it's the wrong decision,

 

Liz Bell (51:12 - 51:38)

But you'll never get penalized for it, right? That the opportunity costs to miss out by not having absolute full conviction on something. I'd rather miss out on something that shoots to the sky versus not having that conviction, whether it's a change in the market, change in assumptions, or just having to fight my own IC so hard on something that you just feel, this isn't worth it. And I mean, I need to pause.

 

Nancy Lashine (51:38 - 52:38)

I'm going to ask you this question again in five years, because I hear what you're saying and clearly sometimes, you don't get credit for the acts of omission, right? But you know that you avoided something, but and you certainly can get penalized for the acts of commission, but you clearly aren't suffering from FOMO right now.

 

And when I think about, like someone like Berkshire Hathaway and their very, very long track record and as Warren Buffett would say, you really only have to make one great decision every 10 years, whether it's buying Apple computers. But you can't make big mistakes either. Like, and Charlie Munger would say that, just don't have the donuts. You said that earlier today, but you have, sometimes you just have to you have to take risk.

 

Liz Bell (52:39 - 53:20)

A hundred percent. And I think probably what I didn't state as well as I should have is the level of risk and the reach that you're taking today. I feel very comfortable putting out capital in core plus type assets.

 

I think it's a great opportunity to step into high quality assets at a good basis. Is it the best basis? I don't know, but it feels good. I can underwrite it. I can achieve low teens returns, meet our cost of capital. I feel great about that. I have no hesitation. Is it kind of boring? Yes. Does my mind lead me to do something more complicated or, Oh, I could actually get a 16 on that. That's the type of investment that I feel like I have to hold myself back on.

 

Nancy Lashine (53:20 - 53:21)

Yeah.

 

Liz Bell (53:21 - 53:58)

Don't test your own intellectual capability in this market. If it's simple and it's there and you can achieve it and there's cashflow. And I think this gets to Warren Buffett a little bit of the more resilient cashflowing oriented companies that are a little bit boring, but over time they add up.

 

I think that's the mantra we're in. And having been in emerging markets, that level of complexity, I got out of emerging markets because I love that thinking, but that is not that time right now. So I have to hold myself back at times and be disciplined and say, should I push here? Should I push? How much risk am I taking? No, hold back.

 

Pause. Don't do it. But put out money in a simpler way.

 

Nancy Lashine (53:58 - 54:40)

It's so interesting if you've ever read like the… was it the psychology of money? And it starts by talking about how everybody's view about money is completely based on your own framework as, as a young person, what you learned about it. And if you think about it, you grew up investing in the emerging markets, which was the ultimate almost bottomless risk.

 

And so, yeah. So you would have a different perception of risk than someone who started out working in an odyssey fund.

 

So when it's not your day job and you're just looking for fun or stimulation or is there anything you're reading or listening to or watching that is really entertaining right now?

 

Liz Bell (54:41 - 54:56)

Nancy, I wish I could tell you my best version of myself is reading, academic books and watching podcasts or something. What is on my radio is Disney radio because my four-year-old demands it. And what I watch is too much Bluey.

 

Nancy Lashine (54:57 - 54:58)

That's great.

 

Liz Bell (54:58 - 55:00)

That is my world right now. And I wouldn't trade it.

 

Nancy Lashine (55:01 - 55:01)

Yeah..

 

Liz Bell (55:01 - 55:03)

That is what I'm doing.

 

Nancy Lashine (55:03 - 55:07)

How are you finding the mom work travel balance? Like what, what have you learned?

 

Liz Bell (55:07 - 55:35)

It's hard. My daughter traveled with me for the first two years. And that was a challenge. It was great, but a challenge. Now I find the wheels kind of fall off after two nights away and she's capable. She's four. She's capable of being away from me. But there gets a point where, after two nights away, so I just balance it. I do day trips where I stretch the definition of day trips as much as I can.

 

Nancy Lashine (55:35 - 55:35)

Right.

 

Liz Bell (55:36 - 55:36)

Yeah.

 

Nancy Lashine (55:36 - 55:39)

San Francisco is a day trip from the East coast. I gotcha.

 

Liz Bell (55:39 - 55:56)

Yes. And so you make it work and I feel, I feel good about it because I want to do it for her.

 

And so I don't– it doesn't beat me down to go San Francisco back. It's like, yes, I can do it back and be back to see my daughter. So it's invigorating and you make it work.

 

Nancy Lashine (55:57 - 56:22)

That's wonderful. Well, the most important stuff. And that, that is, at the end of the day, you, finding that balance and being the person you want to be, it's all you can do.

 

So I love talking to you. You have an incredible background and just, perspective on the business that you say within a quiet sort of patience and intelligence that I hope lots of people can really hear it.

 

Liz Bell (56:23 - 56:24)

Well, thank you.

 

Nancy Lashine (56:24 - 56:26)

Thanks for joining us. Really appreciate it.

 

Liz Bell (56:26 - 56:27)

Thank you for having me.

 

Nancy Lashine (56:27 - 57:01)

I hope you enjoyed this episode of real estate capital. Before you go, I have a quick favor to ask.

 

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