The Hidden Risks Of Private Real Estate Markets With Hunter Hopcroft – RFP 56 Transcript
Hunter Hopcroft (00:00): From an investment standpoint, when you’re young and new to the industry, there’s a huge focus on technical proficiency. How well can you model? How well do you understand the balance sheet? But the difference between somebody at the 80th percentile and the 90th percentile isn’t that much value add. What makes people great investors and great capital allocators is knowing how to nurture their curiosity and being willing to have, and articulate, a differentiated view of the future.
Gordon Lamphere (00:36): Hi, I’m Gordon Lamphere, and welcome to The Real Finds Podcast, the podcast that interviews key entrepreneurs, activists, and researchers shaping real estate and, as a result, our world. On today’s podcast, we’ll be speaking with Hunter Hopcroft. Hunter is a director at a large asset manager focused on REITs and real assets. Before that, he developed several exchange-traded strategies and indices focused on REITs. Hunter began his career as an analyst and an allocator to private alternatives for several RIAs. He writes Lewis Enterprises, a Substack covering REITs and the asset management industry at large. On the podcast, we discuss the evolution of alternative investments and the nuances of evaluating public versus private real estate investments. We take a deep dive into the risks and rewards of industrial and office REITs and uncover structural challenges in data center investing. If you’re interested in public or private real estate investing, this is a must-listen. Hunter, thanks for hopping on the podcast today.
Hunter Hopcroft (01:51): Gordon, thrilled to be here. I think we were connected by our mutual friend Scott Robinson, who’s a great guy I’ve gotten to know pretty well over the past few years. So I’m excited to be here.
From Hampden-Sydney to Alternative Investments
Gordon Lamphere (02:02): Before we get into real estate, I wanted to start with something that connects us. I have a cousin who went to Hampden-Sydney as well, which is a very small college. What got you from Hampden-Sydney into the world of real estate and finance?
Hunter Hopcroft (02:28): For listeners who aren’t familiar with it, it’s a very old, very small, all-male college in Virginia that’s very liberal arts focused, which ties into how I approach investing, as I’ll get to later. I was one of those people who went to college knowing I wanted to do something in asset management and investing. When I came out, I was hired by an RIA in Richmond, Virginia. This was the 2010 to 2011 era, right after the Great Financial Crisis, and there was a big focus on alternative investments, which we can put a definition around. They were starting to come down market into the ultra-high-net-worth and high-net-worth market.
So my first job was really going through one of the first or second vintages of things like non-traded REITs and oil and gas partnerships. Those early iterations of alternative investments were not great. They were pretty bad. At the time, I thought, “This is not what I thought an investing job was going to be.” I was reading all these documents and going through prospectuses. In hindsight, it was a great experience. I joke that I learned where the bodies were buried early in my career. Even though it wasn’t what I expected right out of school, I’ve come to really appreciate going through the documents and actually understanding what’s going on in these structures.
What Counts as an “Alternative” Investment
Gordon Lamphere (04:21): Speaking of understanding things, what is an alternative investment? I think plenty of listeners understand it, but there’s probably one or two who might be curious how you’d define it.
Hunter Hopcroft (04:35): I’ll try not to let my own cynicism seep too much into this conversation. But something the asset management industry loves to do is find a term that’s in vogue or has momentum and then stuff a bunch of things they were already doing under that umbrella to benefit from the brand halo of “alternatives.”
The classic definition, or the one most people apply, is basically private markets: private equity, hedge funds, private real estate, and so on. Anything that’s not publicly traded gets thrown into the alternatives bucket. I’d propose a better way to think about it is to go back to what David Swensen at Yale emphasized: low correlation to other asset classes and low exposure to other economic factors. Take private equity. Using a lot of leverage to buy a small company isn’t necessarily an alternative investment. There are plenty of highly leveraged small caps trading in the public market. If a sponsor comes to me wanting to buy a 300-unit garden apartment complex in the Sun Belt, it’s private, but I don’t know that it’s really an alternative investment.
There are true alternatives. At various points in my career, I’ve looked at funds buying music royalties, purchasing firefighting planes to lease out, or buying container ships. To me, those are true alternatives, because whether someone needs to lease a firefighting plane has nothing to do with the level of the ten-year Treasury. That’s what you want in the alternatives bucket. Of course, practically speaking, alternatives
Hunter Hopcroft (06:45): cover a much wider swath for most people, including REITs, business development companies, and other things that aren’t, for lack of a better term, vanilla equities and fixed income. And of course, the alternative du jour today: private credit.
Evaluating Alternatives: Know What You’re Actually Exposed To
Gordon Lamphere (07:07): How does one evaluate an alternative investment? I know that’s been a big focus of your career. For me, as a real estate guy, the ten-year Treasury does matter.
Hunter Hopcroft (07:26): Not to get too academic, but it really does all come down to cash flows, just like any investment, including real estate. What’s the source of the cash flows, and how much confidence do you have in them? With a property, you have leases that lay out your likely cash flows for some time. With other alternatives, like private equity, that’s less certain.
The other, much harder part is figuring out what economic forces you’re actually exposed to by allocating capital there. Focusing on real estate, especially through this last cycle, there are a lot of stories of sponsors who bought multifamily assets and executed their business plans very well. They grew rents and NOI, and that value add was completely subsumed by a move in rates and an expansion in cap rates. When you’re looking at alternatives, especially private or illiquid ones, it’s really important to understand what bet you’re actually making, to know the game you’re playing, and to know where the risk factors lie.
Gordon Lamphere (08:35): Yeah.
Hunter Hopcroft (08:53): That’s harder than doing the due diligence and checking the underwriting: figuring out what you’re actually getting exposure to, and making sure it’s something you want exposure to.
Public vs. Private Real Estate: Busting Two Myths
Gordon Lamphere (09:07): How do you evaluate the risk-reward of public versus private? A lot of people say one is better than the other, and often they’re either looking at it from a grass-is-greener perspective, or saying, “I’m in this section of the market, and you should come invest with me.” Where do you see the risk-reward playing out between private and public markets?
Hunter Hopcroft (09:40): We’ll keep the focus on real estate, because it’s probably the most salient and easiest to understand. I’ve always tracked REITs as part of my job, partly because of their public disclosure. They’re a great way to keep a pulse on various markets. As public companies, they have to disclose a lot, so if you’re looking at private deals, it helps to look at what’s going on in REITs to understand those markets.
Especially in the 2021 era, when I was looking at a lot of private deals for a family office, it would be a two- or three-hundred-unit garden apartment complex in the Sun Belt. I’d take the sponsor’s assumptions about rent growth and expense growth and overlay them on what was available in the public markets. And I’d say, “If this sponsor is right about the growth of this market, the price per unit you could pay in the public markets is so dramatically lower than this acquisition.” I’m not saying the sponsor was necessarily right about his underwriting assumptions, but if he was, the public REITs were a far better option. The pushback you get is, I think, a good opportunity for some myth-busting.
The first myth is that private is less volatile than public. We all know that’s purely illusory. Yes, public market equity is marked every day, but public REITs typically use much less leverage than private owners. If you have two like-kind assets, and the private one carries more leverage than the public one,
Hunter Hopcroft (11:45): in reality the private equity position is much more volatile, because it’s much more highly leveraged. You can’t log on to the computer and see the volatility, but that doesn’t mean it isn’t there. And depending on which index you use, public and private real estate returns basically reconverge about every five years. They come apart and come back together, again and again.
When they come apart, and public dramatically underperforms private, there’s a tremendous arbitrage opportunity: cash out of your private investments, buy public investments, and wait for the convergence. You saw this very publicly with BREIT and its redemptions. You’re looking at two lines on the screen: a BREIT NAV that’s steady Eddie, up and to the right, and a public REIT index that sold off 20 or 30 percent. You can’t short BREIT, but if you’re in BREIT and they’ll give you your money back at that NAV so you can buy public REITs with it, I’ll take that trade all day, and that’s exactly what happened.
The other pushback I get a lot on private versus public is that private has a legion of amazing tax benefits for investors. In reality, REITs have all the same tax benefits private real estate does. They just happen at a layer above your dividend. A REIT gets bonus depreciation, a REIT can do 1031s, and a REIT can participate in opportunity zones. All of those tax benefits happen at the corporate level before your dividend is paid out. Maybe there’s an argument that if you’re an ultra-high-net-worth person with a lot of K-1 income to offset, there’s some benefit to private. But I don’t know that it’s really a direct trade-off, because you’re probably taking a lot more risk than you realize, and over time, I think
Hunter Hopcroft (14:07): your foregone returns will more than offset the tax benefit you receive from investing directly in private real estate.
Industrial Isn’t a Monolith
Gordon Lamphere (14:17): As somebody who works for a private real estate company, I think there’s a very underappreciated risk in private real estate investing, as you mentioned. I fully agree that the biggest advantages of public over private are scale and more flexibility in getting in and out of deals. That’s really the only substantial difference I see. On the topic of where we don’t perceive reality correctly, what are you seeing right now in industrial? So many people are all in on industrial, and I’ve started to hear phrases like, “It’s a certainty it’ll keep going up and up,” which is always the worry we see in the market. From New York, what are you seeing in the industrial market across the United States, reality versus perception?
Hunter Hopcroft (15:33): Real estate is a really interesting category, because there’s an inclination to talk about sectors as monoliths. People say the office market is terrible. Well, the office market is everything from One Vanderbilt next to Grand Central to a four-story, low-rise brick building in suburban Arkansas. We can’t really talk about those as the same thing.
Industrial is very much the same. If you’re an outsider, or a little removed from the market, you think, “Industrial, got it. Metal boxes along the highway.” But in reality there’s a lot of asset specificity: ceiling heights, ingress and egress for trucks, and all sorts of other factors. It’s really hard to talk about industrial as a monolith. Over the past twenty-four months, you could broadly say the industrial market has been strong, or you could argue it’s been weak, but either way you’d gloss over a lot of really important details beneath the surface.
Port Logistics: Soft Strikes, Hard Strikes, and Border Industrial
Gordon Lamphere (16:46): Let’s dig into the details. One section of the market that’s done pretty well over the last ten years is distribution and logistics. What are you seeing in that market now and going forward?
Hunter Hopcroft (17:05): It was really fascinating in 2023 and 2024. If we frame it around port logistics, there are East Coast ports and West Coast ports. The West Coast ports are where most of the cheap goods from China come in. The dock workers are predominantly union labor, represented by different unions on the West and East Coasts. When the West Coast union’s contract came up, they didn’t go on strike. They did what you might call a soft strike. They wouldn’t stagger lunch breaks. They just slowed things down and pushed their leverage in less obvious ways.
Meanwhile, we’ve had two decades of hyper-optimized supply chains, with just-in-time delivery and very low inventories. Big retailers like Target squeeze every bit out of working capital. So if you’re a big retailer, say a Foot Locker, and that West Coast slowdown puts your inventory two or three weeks behind, you’re talking about millions and millions of dollars. In response, people figured out, because the global economy is very flexible and fast, how to shift a lot of that volume to East Coast ports, or at least diversify toward them. And as soon as they did, the East Coast dock workers’ contract came up for negotiation. We probably all remember the videos of Harold Daggett of the ILA saying, “We’re going on strike.” So a lot of that started shifting back west. There’s also been a lot of investment from Asia, some from China and some from elsewhere, in establishing nodes through Mexico,
Hunter Hopcroft (19:30): so border industrial has been very popular. Of course, all of that is now volatile basically hour by hour. So can you talk about industrial as a monolithic asset class? No, because of all these subcurrents that really drive capital flows to these areas. And to stay on my soapbox, that’s very hard to manage from a private capital allocation standpoint and much easier from a public allocation standpoint. You have REITs like Rexford Industrial, focused exclusively on Southern California industrial, and something like Plymouth, which covers a lot of the East Coast up through the Midwest. So you can be much more tactical in trying to understand a very dynamic world.
Industrial’s Hidden Risks: Shadow Supply and Asset Specificity
Gordon Lamphere (20:33): What do you see as the largest risk in the market? Are tariffs the largest risk to the industrial sector? Is it overbuilding? In some sections of Chicagoland, for the larger boxes, I could make a case for that too. What are you seeing across the industrial market as potential black swans?
Hunter Hopcroft (21:07): In industrial, a handful of big players, the Amazons of the world, really overinvested. I remember talking with people in Amazon’s real estate group who were leasing more space than they needed and putting up temporary walls, planning to grow into it. So one issue, and the data on this may be sparse, is that there’s a lot more shadow supply of industrial out there than people believe.
I do think there are some green shoots in renewed interest in industrial policy, for more flex industrial, manufacturing, and similar uses. I think logistics will continue to be very volatile as we work through a deglobalizing world, but some of those other uses, like flex and manufacturing, could be big beneficiaries. And to the point about asset specificity, if you have an industrial property tailor-made for logistics, it’s very hard to transition it to something else. These are not just metal boxes.
So the risk is that even in something like industrial, which people think of as a relatively simple asset class, asset specificity and the nuances of geography and product type will become more and more pronounced. Those things become more pronounced in a downturn or a softening market. On the way up, when cap rates are diving below 5 percent, if you can call it industrial, it trades, and no one cares. But when cap rates and interest rates rise, people start sharpening their pencils. Back to my original point: What am I actually exposed to here? What economic forces and factors am I actually investing in?
Small Bay Industrial: Diversification or Concentration?
Gordon Lamphere (23:15): Speaking of economic forces, one of the larger forces we’ve seen in our portfolio is the rising valuation of small bay industrial. It’s very hard to build small bay industrial in Chicagoland, and generally in Illinois, Wisconsin, and Indiana, and talking to other investors, I think that’s an issue across the board. There’s a lot of demand for the 5,000- and 10,000-square-foot spaces. How do you see that playing out in the institutional world? Until maybe the last 18 months, we hadn’t seen institutions getting into small bay industrial.
Hunter Hopcroft (24:04): I think it’s a very difficult space for institutions to play in, because the tenant base is so fragmented. You’re not negotiating with national tenants. You’re negotiating with the local landscaping company. So I think it’s an area where private capital, especially local private capital, will continue to have an advantage. It’s a very hard asset class to be in without a really strong understanding of your market.
With the disclosure that I’ve allocated to small bay industrial deals before, the pitch versus the reality goes like this. The pitch is: “This is industrial. To your point, it’s hard to build new supply. And your credit risk is spread across 20 or 40 tenants instead of one or two.” That’s kind of true. But then you look at the rent roll, and they’re all home service companies or contractors. Not only that, they’re all working on the same job. They’re all building the new Amazon logistics facility, or the new multifamily building. So some of that perceived lower risk
is actually higher risk, because these facilities are all basically exposed to the same industry. There’s also the qualitative side: all these guys go to the same bar after work, and you’re not there. They’re each other’s creditors. If there’s a downturn and the checks stop flowing, they’ll pay each other before they pay you. Again, it’s that underrated risk, and back to my theme: What am I actually buying exposure to? With small bay industrial, you’re primarily buying exposure to home services, the bet that people will keep paying to have their grass cut, their houses painted, and their windows redone. To me, that’s not a certainty.
Gordon Lamphere (26:17): I think that’s definitely true in some sections of the small bay industrial world. For us, our big focus has been machine shops, because they tend to stay and tend to be more resilient. But I 100 percent agree about contractors. Contractors do not like a recession.
Data Centers: The Capital Cycle Spares No One
I want to move to something seen as more recession-proof, or maybe not: data centers. The risk-reward there is tremendous. One thing we struggle with as commercial real estate folks is that, look, I have a law background and a commercial real estate background, and I know how to code, but I’m not a tech guy. How do you see data center and AI growth playing out in both the public and private real estate worlds?
Hunter Hopcroft (27:21): To your point, I think it was 2022 when I went to the Nareit conference and decided to sit in on a session by Equinix, one of the big data center operators. It might as well have been in French. I had no idea what they were talking about. I’ve gotten a little smarter on the space since, but it’s still very complex.
One of the attractions of real estate is that if you have an asset in a good location that meets the market, it can stay competitive for a very long time. That’s fundamentally not the case with data centers, particularly in this era. What makes a data center competitive is constantly changing. The requirements for a competitive data center, based on where the needs and demand are flowing, keep moving, and staying competitive requires a lot of investment.
In fairness, there’s a huge supply-demand imbalance right now. Demand is strong, especially as AI proliferates. And as we move from training models, which took up a lot of hyperscaler space, toward inference, the application layer, as costs come way down, the location and requirements for data centers will change. There’s still a huge supply-demand imbalance.
That said, one first principle of investing is that the capital cycle spares no one. There’s so much capital coming into the space, both private capital and public-company capex, and it’s very hard to predict demand accurately over any long duration. It’s hard to look out three or four years and know what the demand for AI applications
Hunter Hopcroft (29:29): or cloud computing will be. But you can look at what’s in the pipeline now and have a very clear idea of where supply is going, and supply is going up. There’s currently a supply-demand imbalance, but I think it’s very tenuous, especially with all this capital coming in. The historical analog is the fiber-optic build-out in the early 2000s, and it has so many of the same features. No one was really wrong. Internet usage was increasing exponentially every year, and more and more people were getting online, yet everyone who built out fiber lost money, because there was just too much supply. The demand picture wasn’t wrong. When you flood any space with capital, returns go down. It’s that simple. On the REIT side, I don’t particularly like data center REITs, but that’s more of a structural issue.
Why the REIT Structure Is a Poor Fit for Data Centers
Gordon Lamphere (30:31): Can you go into that structural issue? I’ve heard you talk about it before, and I think it’s a very unique insight into how public versus private can play out in an investment-heavy space.
Hunter Hopcroft (30:56): There are two sides to everything I’m about to say, and I’ll try to present both without sounding schizophrenic. REITs have a mandated return of shareholder capital, which is one reason I like them. REITs have to pay out 90 percent of their taxable income. Because it’s real estate, they have a big depreciation shield, but for most REITs it still ends up being around 50 or 60 percent of cash flow returned to shareholders as dividends. For most real estate, that’s a great structure, because reinvestment demands are relatively low. A REIT pays out half its cash flow to investors and reinvests the other half in new assets, TIs to keep tenants happy, and so on.
The problem with that structure for data centers is twofold. First, as we discussed, it’s a very capital-intensive space, and keeping facilities up to date requires a lot of cash. Second, because of that mandated return of capital, you’re procyclically sending out the cash you should be reinvesting. The more you make, the more you send out, right when you most need to reinvest. When these data center companies took the REIT election, I think I understand why. They wanted to be valued on a cash flow multiple rather than an earnings multiple, and a good way to do that is to take the REIT election so people stop worrying about earnings per share and start focusing on funds from operations and cash flow. I wonder whether, in time, they’ll rue the day they took the REIT election for this very reason.
The other side of the argument is that, because they’re public, they have access to corporate-level unsecured debt and to equity issuance through the public markets. A private operator has to use asset-backed debt and raise private capital, whereas
Hunter Hopcroft (33:19): an Equinix or Digital Realty can raise a billion dollars overnight through an at-the-market offering, or go to the fixed income market and raise corporate-level unsecured debt, no problem. So they have much better access to capital and a lower cost of capital than private players right now. You can’t have it both ways. You can’t avoid the public-market pressures and also get full access to the capital markets.
Who Captures the AI Profit Pool?
Gordon Lamphere (33:48): That’s a fascinating dynamic, and it’ll be interesting to see how it plays out, particularly as things change so quickly. Several players in our area are looking at data centers tied to nuclear power plants, even decommissioned ones. I think there will be a lot of change over the next five years, and it’s a space I’m not going to play in. I don’t have enough capital, and I don’t understand nuclear physics well enough to make a safe investment.
Hunter Hopcroft (34:34): Anytime there’s a new technology, and AI certainly qualifies as something novel in our economic makeup, it’s very hard at the outset to determine where the profit pools will flow. With broadband and high-speed internet, the profits certainly didn’t accrue to the Verizons and Comcasts of the world
Gordon Lamphere (34:53): Exactly.
Hunter Hopcroft (35:03): that provided the rails for the technology. They ultimately accrued to software and communications companies selling advertising or subscription services running on the cloud. I don’t think we have a clear picture of where the profit pool for artificial intelligence will end up. It doesn’t necessarily seem like it will be with the model builders. That’s highly competitive. I know beyond a shadow of a doubt that the twenty dollars a month I pay for Claude isn’t covering the cost of providing me that service. So what does that mean for returns on invested capital in the space? I’m not really sure.
Office: The Known Unknown Is the Product
Gordon Lamphere (35:47): There’s a lot of uncertainty there. Another area with a lot of uncertainty, and a space I have played in and continue to play in, is office, both public office REITs and private office. In the post-2020 world, what potential risks and rewards are you seeing? I think the risk-reward spread there is actually pretty wide, and I’d be interested in your perspective.
Hunter Hopcroft (36:20): My view is that the office, as a cultural institution in some form, is not going anywhere. I live in New York and work for an asset manager, and we have young analysts who are probably splitting a six-bedroom apartment in Murray Hill. The office is the nicest place they go all week. They’re dying to get to the office.
To quote Donald Rumsfeld, the known unknown for office is what the product has to look like to be competitive. I think there’s demand for workers to be in the office. Some of that demand comes from the workers themselves, and a lot comes from a giant layer of middle management whose only purpose is managing workers. So there’s a lot of social pressure to be in the office, because people whose only job is managing people need those people in person. But if you’re going to ask people to come to the office, it needs to be a place they want to go. On the build-out, the TI, the floor plate, all of it, the known unknown is what makes an attractive office property in 2025.
From a value investor’s perspective, to the extent there are any left, you look at offices trading at $80 or $150 a square foot, depending on the market, and think, “It’s got to work.” But you don’t know whether it’s another $200 of TI or $200 of capex to make it competitive. Someone will figure out the formula that makes these offices competitive again. I think it’s a huge opportunity for people willing to step into that risk and take on the challenge of what it takes to fill the building up again. A lot of New York landlords, certainly SL Green, have done a good job of this. New York is an interesting submarket.
Hunter Hopcroft (38:47): If you’re a white-shoe law firm, your office is a giant part of your brand. It’s why you can charge $2,000 an hour for legal work. So you could spend whatever you wanted building out an office and still lease it profitably because of that dynamic. Elsewhere, it’s interesting. I think the West Coast is a really interesting space right now.
Buying Office Through REITs at 90 Percent Implied LTV
From a capital allocation standpoint, this was one of the areas where REITs really shined. To keep it simple, think about a building: you have your debt, and your equity sits below it. For a REIT, the equity is publicly traded, which means the loan-to-value you’re stepping into as an investor is constantly moving. At the nadir, the peak of “office is dead,” you could buy office REITs at something like 85 or 90 percent implied LTV, measuring debt against enterprise value. It was an opportunity to step into a highly levered position in these offices that simply wasn’t available in the private market. I don’t know what your banker would have said if you’d asked to buy an office building at around 90 percent LTV. They probably would have chased you out of the building. But those opportunities were available every day in the public markets.
Gordon Lamphere (40:35): I’ll say this: we did buy some office space in that period, around spring 2021, and we bought it with cash. I think in that market you either have to be very well financed and very liquid, or use REITs, which are also a very strong option. I don’t think you can be a private investor in that space relying on bank financing, because they just won’t finance you in this world.
Hunter Hopcroft (41:14): It was a good opportunity to be opportunistic and say, “I don’t know whether it’s going to work out, but I know a 90 percent LTV position in some of these offices isn’t typically available.”
The Final Four: Real Estate Gets More Data Driven
Gordon Lamphere (41:31): Something that’s not typically available is ideas about the future that are actually grounded in reality, and we’ve been trying to focus on reality beyond perception. One of the things we love to do on this podcast is our final four, where we learn a little more about you and where the world is going. With that reality-versus-perception lens, where do you think commercial real estate is going over the next ten years, and how can we anticipate and make the most of that change?
Hunter Hopcroft (42:11): This may be a bit of a cop-out, but I think the asset class, from both the operator and investor perspective, will continue to get much more data driven. The data will improve, and so will the ability to make data-driven decisions about real estate. Controversy aside, technology like RealPage’s, which aims to price an apartment basically perfectly, will permeate all sorts of asset classes. Take the ability to value a lease. A lease is a legal document with a bunch of embedded options, and I think in the next ten years we’ll have the data and technology to actually value each of those options and get a much sharper valuation.
I think the real estate market will continue on its path toward greater and greater efficiency. If you’re a property owner with any kind of investable asset, you already get an appraisal thirty times a day from people calling to tell you what they’ll pay for your property. That will start to permeate further, and we’ll have much better information about values, how to build property, what makes things competitive, and what all the little options embedded in real estate are worth.
Gordon Lamphere (43:48): I think there’s a lot of truth to that. We’ve had people who run data-based companies on this podcast before. The big question I’d like to ask you is how we’ll gather all that data. I think the biggest gap in both public and private markets is that data is very siloed. From your perspective in New York, are more people interested in pooling data to gain that systemic benefit? Or will we see large siloed databases, with whoever has the largest silo holding the advantage?
Hunter Hopcroft (44:37): The siloed database is the world we live in now. Take CoStar. They’ve invested a lot of money, and they pull in some publicly available and semi-public data, but a lot of their product comes from hitting the phones. That’s because, to this point, the information has been very property-driven: “I want this address.” To get better data, I think we’ll move to an anonymized give-and-get relationship. I’ll hand over everything I have, anonymized to a degree, and you’ll be able to extract insights from it. By giving you that, I’ll get those insights back.
There’s a great value curve in data businesses, and financial markets illustrate it. First, there’s data production. The exchanges have a monopoly on it. They see what prices are. Then there’s distribution, which is where a CoStar sits. They take data and distribute it. But the highest-value data businesses are in the activation of data: S&P, Moody’s, and others that create credit ratings, indices, and other data products. They’re not in the production or distribution business. They’re in the activation business. I don’t think real estate has developed that activation layer yet. The future of real estate data isn’t just a slightly better user experience to log into. It’s going to be analytics, some novel IP that actually drives decision-making.
Gordon Lamphere (46:33): I agree. I think it’ll be a big risk for whoever builds it, because CoStar, Crexi, LoopNet, and the rest all love hitting the phones. Someone will have to take a real leap of faith to get there.
Advice for Young Professionals: Curiosity and a Differentiated View
Speaking of leaps of faith, we all take one at the beginning of our careers. If you could give advice to a young Hunter, what would it be?
Hunter Hopcroft (47:08): I’m thirty-six, and this is something I’ve really come to appreciate in the past few years, maybe as a post-COVID thing. From an investment standpoint, when you’re young and new to the industry, there’s a huge focus on technical proficiency. How well can you model? How well do you understand the balance sheet? How well can you pick up the terms and jargon of the industry and talk about it? Those are undeniably important skills. But the difference between somebody at the 80th and 90th percentile, or even the 70th and 90th, just doesn’t make that big a difference. What makes people great investors and great capital allocators is knowing how to nurture their curiosity and being willing to have, and articulate, a differentiated view of the future.
You constantly need to keep that at the forefront of your mind. There’s a great quote, I think unattributed, that investing is about having the market agree with you later. You need a view that’s sufficiently differentiated from everyone else’s for this to work. If you don’t keep coming back to that keystone, asking, “What do I think that everyone else doesn’t?” you end up just chasing momentum. If my three-year-old probably knows that demand for AI is outpacing the supply of data centers, could there really be much alpha left in that theme? I wish I’d realized much earlier that technical skills are important, but what really makes a great investor is relentless curiosity and a willingness to form a vision of the future that other people haven’t thought of yet.
Book Recommendation: The Aggressive Conservative Investor
Gordon Lamphere (49:20): I think that’s phenomenal advice, and it’s one of the reasons we started this podcast. We talk to people from a wide spectrum of real estate backgrounds, from trailer parks to data centers to REITs. One way we also like to expand our minds is through books. Do you have a book suggestion someone should pick up?
Hunter Hopcroft (49:47): I’m hesitant to suggest this one, because it’s definitely not everyone’s cup of tea.
Gordon Lamphere (49:54): That’s totally fine.
Hunter Hopcroft (50:12): It’s called The Aggressive Conservative Investor, by Marty Whitman, who has since passed. He’s my favorite investor of all time, and, as the paradoxical title suggests, it’s a very novel way of looking at investing. If you come up in investing, you read the Buffett letters and the tomes that define the genre of value investing, whether in public equities or real estate. It’s a mindset: buy something below what it’s really worth. But when I read that material, it just didn’t resonate with me the way it did with everybody else. Then someone pointed me to Marty Whitman, and I said, “This is it. This makes sense.”
The biggest difference between Whitman and what a lot of others teach, and why he’s so applicable to real estate, is that Whitman focused so much on the balance sheet. Most investors are myopically focused on the income statement, whether it’s real estate or Google: How much money will they make? What will revenues be? What will rent be? Whitman realized that far more value is created through what he called asset conversion activities: refinancings, sales, purchases, mergers, and acquisitions. That’s where far more shareholder value gets created than from driving bottom-line earnings, and that’s so true of real estate. Most people make their money in real estate by refinancing the property, not from the rent it collects. Developing that balance-sheet mindset for everything has been transformative in how I look at the world.
Who Should Be Our Next Guest?
Gordon Lamphere (51:48): That’s phenomenal advice. I’d never heard of him before, and maximizing value through refinancing is something we’ve really focused on here. The 2021 to 2022 period, before the markets corrected some of their liquidity, was hugely profitable for our business. We also find a tremendous amount of intellectual profit in reaching out to the men and women in the arena, the best voices in the industry, and we firmly believe the people involved know who we should reach out to next. Who’s the next person in real estate, or real estate adjacent, we should reach out to?
Hunter Hopcroft (52:50): If you haven’t picked it up from my general themes, I’m not a venture capital futurist type.
Gordon Lamphere (53:05): That’s okay. We know plenty of them.
Hunter Hopcroft (53:07): So my recommendation is to talk to my friend Brad Hargreaves, who writes the Thesis Driven newsletter. Brad is a great person for me to hang out and talk with because he’s so future-focused. He’s thinking about things that haven’t even entered my field of view. He’s big on the idea that
Gordon Lamphere (53:31): That sounds awesome.
Hunter Hopcroft (53:36): autonomous driving is going to change the shape of the real estate market tremendously. I haven’t even developed a view on that. And since I just gave you the advice to have a differentiated view of the future, talking to people like Brad helps me exercise that muscle. He’s on the far end of that spectrum. I think he’d be a great person to talk to. He comes from a real estate background with a very future-focused view of how things are going to be.
How to Reach Hunter Hopcroft
Gordon Lamphere (54:09): We’d love a connection. There’s one final question we have to ask before we wrap up: if somebody wants to reach out to you, what’s the best way to get in contact?
Hunter Hopcroft (54:19): The best way is probably through my Substack. My email and the best ways to reach me are there, and I write about a lot of what we talked about today: REITs and the asset management industry. It’s lewisenterprises.blog. I’d love to have people come and reach out to me there.
Gordon Lamphere (54:43): We’ll put all that information in the comments. Thank you so much for hopping on the podcast today. We really appreciate it, and we have to have you on in the future.
Hunter Hopcroft (54:50): I loved it. Thank you so much.
Gordon Lamphere (54:52): Thanks again to Hunter. We appreciate his insights. If you enjoyed the podcast, please give us a like, a five-star rating, and a review. Your comments, interactions, and subscriptions truly matter and help us continue to bring on quality guests. You can find us on YouTube, Spotify, or wherever you get your podcasts. I’m Gordon Lamphere with The Real Finds Podcast. Thank you for listening.
Van Vlissingen and Co. has been the Midwest’s oldest commercial real estate brokerage, development, and management firm since 1879, and today is independently ranked the #1 commercial real estate agency in Chicagoland, home to the #1 independently ranked agent, Gordon Lamphere, and the region’s #1 ranked commercial property management team. If you own, manage, or invest in energy-adjacent, mixed-use, or transit-oriented property across Lake County, the North Shore, the Northwest and O’Hare corridors, DuPage and the I-88 corridor, Will County, or southern Wisconsin’s Pleasant Prairie, Kenosha, and Racine markets, contact Van Vlissingen and Co. at 📞 847-634-2300 or 🌐 vvco.com. For a market-wide view of where these dynamics sit today, see our State of the Chicagoland Commercial Real Estate Market for Q3 2026.