[Webinar] Multifamily vs. Industrial: A Framework for Allocating Across Real Estate Asset Classes

Introduction — 0:00

Slide 1: Webinar Overview — 3:30

Slide 2: Lightstone At a Glance — 4:42

Slide 3: Platforms — 5:59

Slide 4: Asset Allocation Framework — 6:55

Slide 5: The Real Estate Market Cycle — 9:08

Slide 6: Where Are We in the Cycle — 12:40

Slide 7: Where We See Opportunities — 16:15

Slide 8: Class B Investment Thesis — 19:51

Slide 9: Industrial Sector — 26:00

Slide 10: E-Commerce Still a Tailwind — 26:06

Slide 11: Reshoring Will Be Another Catalyst — 28:59

Slide 12: Shallow Bay is Undersupplied — 31:30

Slide 13: Shallow Bay Strategy — 41:25

Slide 14: Our Industrial Performance — 43:42

Slide 15: Multifamily Sector — 44:46

Slide 16: Housing Remains Unaffordable — 44:55

Slide 17: Apartment Demand is Growing — 48:51

Slide 18: Workforce Housing Strategy — 52:05

Slide 19: Our Multifamily Performance — 54:36

Slide 20: About Lightstone DIRECT — 55:31

Slide 21: Contact Us — 56:55

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Introduction — 0:00

All right, welcome, everyone. Thank you so much for joining us for this call with Lightstone. I want to introduce Jonathan and maybe more, you know, relevant for the folks in this call, kind of give a little context to why we asked Lightstone to give this presentation here. So, as a lot of you who are more experienced real estate investors know, it is not a single asset class. If you look at something like single family residential, multifamily residential, commercial, industrial, hospitality, raw land, and so on, they probably correlate in some ways if you think about underlying interest rates, but there's a lot of difference between them. I think you can just look at the pandemic, for example, of one where a downtown office space did horribly and something like Amazon Fulfillment Logistics did great. What you often find with a lot of sponsors is they are subsector specialists. Not surprisingly, there's a lot of good reasons to do that. But it means if you're asking, hey, how does multifamily look today? If you ask a multifamily operator, it's always going to look good today. But one thing we liked about Lightstone is they really have a significant exposure across quite a few asset classes. I'm sure I'm not going to name them all, but including the ones I just mentioned of multifamily, light industrial, hospitality, and some others. And so we asked them particularly to kind of give their perspective on how they think about looking across asset classes, both generically at any given point in the cycle. How do you think about the role these different ones play? And then specifically today, which asset, which subsectors are they interested in? And, you know, to kind of spoil the punchline there, you know, they'll talk more about multifamily and a certain subsector of industrial, the kind of shallow bay industrial. Those are a couple that they feel like, as of right now, have pretty good setups. So we'll both talk in general about the framework, how to think about them, and then Jonathan will deep dive into those two in particular. So, again, thank you very much, Jonathan, for taking the time to do this. Lightstone has done a previous webinar and, just in terms of the context for, you know, where they're coming from, until recently, they just basically didn't take any outside capital. They have started taking some outside capital. But they are a very large and established operator with, you know, many billions of AUM and tens of thousands of units across dozens of states. So have, you know, a track record to speak about these different asset classes here. Two logistical points. One is that it won't just be directly Jonathan talking the whole time. He will be leading the presentation, but I'll be interrupting and, or asking throughout to, make it a little more lively and thread in questions from the audience. And then in terms of, if you have questions, we would very much encourage. The way to do that zoom is to change the setup a little bit. If you click that chat button down at the bottom of your zoom screen, you will then see an option for everyone or new chat. If you click the plus new chat and then click on Long Angle community. Is that right, Hillary? Then that will end up getting to me, and then I will. I can't promise I will feed in every question, but a lot of times similar questions come through. So I'll try and consolidate them together and then ask them at the appropriate point. So with that, I will hand it over to Jonathan here. All right, thanks, Tad. Let me go ahead and share my screen. 

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Slide 1: Webinar Overview — 3:30

Okay, well, good. Good. Afternoon everyone. As Tad mentioned, my name is Jonathan Spitz and I lead the capital formation team at Lightstone Direct. And during our time today, I'm going to provide a quick overview of our firm and our investment capabilities. And then I'll walk through a high level framework for how we think about asset allocation. So essentially, how do we decide which sectors and strategies deserve capital at any given point in the market cycle? From there, I'll show how we've applied this framework to identify specific areas within multifamily and industrial that we believe are best positioned for outperformance in the years ahead. And then we'll just show quickly how those decisions have actually translated to measurable results across the broader Lightstone portfolio. I'll wrap up with some quick Q and A, but my goal today is simple. It's really just to give you a clear window into how we make investment decisions at Lightstone, and more importantly, to help you walk away with a framework for how to think about where the best risk adjusted opportunities are in real estate at any given time. So with that, let's get started. 

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Slide 2: Lightstone At a Glance — 4:42

So Lightstone, we're actually one of the largest privately held real estate companies in the country. Back in 1986, our co founder, or our founder, David Lichtenstein, purchased a duplex in Lakewood, New Jersey using credit card debt back when that was something you could actually do. Now, almost 40 years later, Lightstone has grown into a diversified real estate company with 12 billion in assets. We own 25,000 apartment units and 15 million square feet of commercial and industrial space, across 26 states. This multiasset strategy has been really a core driver of our success and really allowed us to insulate our portfolio from market cycles and allowing us to be selective in each vertical. And that's a theme you'll hear throughout this presentation. And while we've had numerous investment partners throughout our history, the majority of our growth has been driven by investing a significant amount of our own capital in every deal we do. And that allows us to remain entrepreneurial, opportunistic and resilient across multiple market cycles. In over 40 years of investment history, and over the past two decades, that philosophy has allowed us to deliver nearly 26% gross IRR and almost a two and a half net equity multiple across 55 realized investments. 

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Slide 3: Platforms — 5:59

So as Tad alluded to, I mean one of our Lightstone's biggest advantages is really the depth and integration of our platform. We're not boxed into a single property type and we're not limited to one part of the capital stack. We can invest in equity, debt development, multifamily industrial, hospitality, life sciences and retail. And this flexibility matters because in real estate it's where you invest often matters more than what you buy. And this is what Tad was talking about at the beginning. You, you can be the best operator in the world, but if you're in the wrong sector at the wrong time, you will get humble. The market will humble you quickly. And with operational teams across all of the major asset classes, we have real time insight into what's happening on the ground. And that intelligence allows us to opportunistically rotate capital as risk adjusted opportunities present themselves throughout the market cycle. 

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Slide 4: Asset Allocation Framework — 6:55

So this brings us to the heart of today's discussion. So how do we decide where and when to deploy capital? So most of your long term performance comes down to where you invest. So if you put your money into a broad basket of industrial properties five years ago, your returns would have meaningfully outperformed almost every other asset class. And again, I'm speaking specifically in real estate regardless, how, how well any individual building was operated. And every investment decision at Lightstone begins with a top down perspective identifying where we believe the best opportunities exist across various sectors. So I think it's important to start with how do we look at the world? And every decision we begin, really starts with two things really. Where's the secular tailwinds, and really the macro trends when we look at any asset class. The first question is, what's driving demand, not over the next quarter, but over the next decade. Then we look at supply. Real estate is one of the few asset classes where you can literally see your competition coming out of the ground. And if new construction is flooding a market, it doesn't matter how strong demand is, rents and occupancy will be under pressure. And we're actually seeing this in real time right now across much of the Sunbelt region today. And then once we establish what sector we want to be in, we want to understand where within each sector is offering the best risk adjusted returns. No matter what asset class you invest in, there is a quality spectrum. So for example, if you decide to invest in multifamily real estate, you need to decide if you want to invest in ground up development or existing assets. If you're investing in existing assets, you need to decide whether you're investing in a class A property, class B or class C asset. And that might require more ongoing maintenance but potentially higher returns. So these are just the trade-offs and things you have to think about that, that we think about where we're deciding when we're going to invest. And so together, these four factors really give us a 360 degree view of risk and opportunity at both the sector, market and asset level. And we'll talk through how we utilize this framework in subsequent slides. 

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Slide 5: The Real Estate Market Cycle — 9:08

So let's start by talking about where the market's been and where we are today. The image from this slide actually came from an old real estate textbook, but I think it actually does a really good job of summarizing different phases of the real estate market cycle we've lived through over the last decade. From around 2012 through 2022, we experienced one of the longest and most powerful expansion cycles in modern real estate history. Interest rates were low, capital was cheap, and for a long stretch, new development lagged demand. Whether you were buying multifamily or industrial, the wind was at your back. But by late 20 and early 2021, signs of overheating really began to emerge. Valuations had really been driven to record highs, fueled by cheap debt. And really development pipelines had hit multi decade highs, especially in class A, multifamily and industrial. And we started to see that this was just a classic late cycle behavior. Property pricing was really at unrealistic levels. Competition for deals was intensifying and investors were, I mean, I guess, convincing themselves that growth would continue indefinitely. And during this time, we became really substantial net sellers across our industrial portfolio. Over this period we sold over $250 million in industrial assets across nine properties. And these generated over a two and a half equity multiple. And in most cases we were doubling our money in less than 24 months. And our intention was never to generate those types of returns that quickly. I mean look, we're obviously very happy, but it was very clear that the market was acting very irrationally. And now you fast forward, over the last three years that really began in 2022 when the federal Reserve started, raising interest rates. You know, as, as the cat. The cost of capital rose, properties began to fall. And that's, that's really the recessionary period that we've been in here for the last three years. But interest rates weren't really the only driver of this sort of downturn that we're coming out of. Again, we had record levels of newly built supply that started hitting the market in 2023, particularly in class A multifamily and industrial. And again largely in the Sun Belt years of cheap financing, elevated construction costs, really just elevated construction pipelines really collided with a higher cost of capital and flooded the market with new inventory just as demand began to moderate. And that imbalance has really put pressure on rent growth and occupancy again, especially at the top end of the market. Now I want to take a moment to stop and say it's important to recognize that while the market has experienced real disruption, this has not been a repeat of the great financial crisis. We haven't seen systemic leverage, a systemic leverage problem. We haven't seen widespread default or demand collapse that's been caused by job losses. What we have seen are certain managers, often those who took on too much leverage or underwrote aggressive rent growth assumptions, struggle as the cost of capital resets. But these cases have been the exception to, not the rule across multifamily and industrial underlying operating fundamentals. So what's happening at the property level have remained largely intact. And what's really happening is a measured repricing of assets taken about three years. And the market has been slowly adjusting to this higher interest rate environment. 

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Slide 6: Where Are We in the Cycle — 12:40

So where are we today? Over the past few years? It's undeniably, undeniably been a challenging time to invest in real estate for all the reasons we just talked about, or I just talked about, as property values have slowly adjusted to the higher interest rate environment, we've seen just this massive wide bid ask spread in the market. So rising borrowing costs have changed the way buyers are underwriting deals. While many sellers have really just stayed anchored to the valuations. The froth evaluations you saw during and coming out of COVID. Yeah, Jonathan, if I were just to build on that, I imagine a lot of us are looking at this and saying a 20 to 30% correction, that's bigger than I had sort of heard qualitatively. Is it something you know, is that because basically the market has stopped having transactions so we don't really know the market clearing price, or are you actually seeing a sufficient number of data points to say with some confidence that yeah, that correction has really occurred? Yeah, no, that correction has absolutely occurred. So I mean just to do like basic math, if you're seeing like. And again a lot of this is even at the, at the property level. So what you saw especially at the peak was. And when you look at, especially within class A, both multifamily and industrial were trading at, let's call it a 4% cap rate or for those that think about earnings, that's a 25 PE, right. I mean and candidly they were even trading below that. If you look at the market today, the market is now five to five and a half to a six cap, just depending on the market, the asset quality, et cetera. So right there, I mean just the simple math, I mean you're 20 to 30% below where you were just based off of that math right there. And are you basically only getting distressed sellers at that price who really have to sell or are there willing sellers, for lack of a better word? No, there are willing sellers right now. A lot of the transactions. I think that's a big misconception in the market is that there has been this widespread distress and forced sellers. But because fundamentals have actually been intact, meaning properties are still generating cash flow, banks have been much more willing to work with owners to, you know, you'll hear the term frequently extend and pretend. Right. And that's essentially where you know, they're kind of kicking the can down the road. So yes, we have seen some distressed opportunities, but sometimes a lot of the buyers we've been dealing with recently have maybe just owned these properties for a really long time. And so they didn't really buy at that peak of the peak, of the, the, the cycle. I mean we act, we are dealing, we're actually in negotiations or negotiations right now on the multi family side for a few deals where that is the case. But for the most part that's, that has not been what we've been seeing. Thanks. And everybody please keep the questions coming as we go. So where was I? Oh, so, now while higher interest rates have certainly created plenty of headwinds, they've also brought new development activity to a screeching halt. We're already seeing a 60% decline, industrial completions, and that's construction completions and a 32% drop in multifamily completions. And that's just since their 2023 and 2024 peaks. And that slowdown is critical because it means that future supply is drying up just as tenant demand remains healthy. And over the next few years, we believe this limited supply pipeline helps stabilize occupancy, support rent growth and create a stronger foundation for long term capital appreciation as we start to enter a new expansionary cycle. 

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Slide 7: Where We See Opportunities — 16:15

So these next two slides will give a quick overview of where we see the most attractive opportunities today and then and how we think about them from a relative value perspective. After this, we'll walk through each of these individual examples and the thought process behind how we arrived at these conclusions. So across the multifamily industrial landscapes, there are multiple subsectors we analyze to identify where the best opportunities are. On the multifamily side, we've owned and operated everything from class A luxury apartments in New York City to class B and even class C workforce housing communities and more tertiary markets in industrial. Our experience spans large single tenant and distribution facilities, multi tenant industrial parks, light manufacturing facilities and everything in between. It's a much broader space. But in today's market we believe the most compelling opportunities lie within two segments. The workforce housing category of the multifamily sector and the shallow bay segment of the industrial market. So let's just start by defining these categories. Workforce housing refers to affordable market rate rental housing built for middle Income earners. So people who make too much to qualify for government subsidized housing, but often can't afford the high rents of new class A apartments or the ability to purchase a home. And this group is commonly referred to as a renter by necessity demographic and it forms really the foundation of the US rental market. Typical characteristics of a workforce housing property may be assets built in the early 1980s, the early 2000s, like, like the image you see here on the screen, rents are typically 20 to 40% below Class A new construction. So again really serving that, that, that affordable rental, component. Shallow bay industrial real estate refers to smaller multi tenant industrial buildings with suites that typically range, let's call it 25,000 square feet to 125,000 square feet. And these buildings really cater to a diverse set of local and regional tenants rather than companies like Amazon. You know, our common, our common users may be building material suppliers, your H vac, plumbing and electrical contractors, local distribution and service firms and Last Mile Distribution and any other firm that needs infill proximity, or that serves the local economy. And that's really critical. Right because when you think about this just the supply of tenants in this space, it is significantly larger than if you have, let's say if you have a million square foot industrial facility, you could probably count on you know, one or two hands like the types of tenants that can really fill that space. And so that's why we like to focus on these smaller industrial footprints now within these segments. And now you know, on, on the same thing on, on the workforce housing. What makes that more attractive than other kinds of Multifamily. Yeah. So we'll talk about it coming up. But a lot of it especially right now is just the amount of class A supply that has hit the market. Right. Just to give you, give it some context. We've had a 40 year high and new apartment supply and about 70% of that has come in the Sunbelt region. Now what that means is all of these, these buildings need to hit a certain rental threshold just because construction costs have been so high, they need to hit a certain rental amount. Right. And they're all competing with each other for this. 

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Slide 8: Class B Investment Thesis — 19:51

But, and actually this is a pretty good segue to my next slide which is Why we like class B. And this is really just specifically we can talk about workforce housing. And to start there is no new class B being built across any major property type, but that includes workforce housing. So right now again if, even when, if new supply comes online in markets that we already own in, by definition they have to hit a rental rate that is 20, 30, 40% above what our buildings need to for the deals to pencil. And so we're just going after. Go ahead. No, just to build on that. How do you. I could imagine a world where you say okay, if there's twice as much class A available as there are class A tenants, then you're just going to cut price in the class B and essentially poach from your class B tenants to you know, the best of them are going to fill that class A. Is there a reason why that sort of cannibalization across classes doesn't really occur or why, why you're not worried about that. Yeah, I think for starters right now, I mean what's one of the, what's been good is that where all of this supply has been going, and we'll talk about this in a little bit, is where the demand is. So as an example right now 70% of that 40 year high in supply went to the Sunbelt region. But we actually just had a record high as of Q2 in 2025 we had record high absorption, record highs. And that's compared to 2021 where that was when rents were climbing 10, 20% a year. And we'll talk about why that dynamic exists. But you're still seeing, you're not seeing softening as much softening in rents there as many would have thought given the amount of supply. Yes, there are certain markets like Austin, Texas that's again, we don't invest there for that reason. There are markets like Phoenix, Arizona, Charlotte, North Carolina where you're seeing rents get cut 4 or 5%. But on a whole rents have been pretty flat and which is pretty, which is incredible. What that tells you is wow, all the supply hit the market, but it was in markets that are experiencing a lot of population growth, that had a shortage in housing and needed it. And so that delta that we have to protect, which is between, let's say that we're charging $1,500 a month for rent and a class A building is charging $2,000 a month for rent, is still largely intact. Thanks. Yeah, so to kind of just continue down the slide, one of the other reasons we like class B is really, there's just, there's just a clear value add potential. When we say a property has value add potential, we mean it's underperforming to what it could be. Right. Maybe rents are below market operations are inefficient or the property simply hasn't been upgraded in years. And this is really the biggest mistake many sponsors make in the class B space is underestimating the true cost of executing a business plan that has a heavy capex component. And this is really again where our advantage at Lightstone is that we're not guessing. We own thousands of apartments and million square feet of industrial real estate and a lot of this is class B type of properties. We have access to real time data where we can literally see how fast units are leasing, where rents are moving, what construction costs are doing and how operating expenses are trending across markets. And that kind of insight lets us underwrite with accuracy and more importantly confidence, in helping us identify deals that others may overlook and we'll talk about some examples. But lastly, because properties do, older properties do require more capex, more ongoing maintenance, these buildings tend to trade at higher cap rates, right. Or lower multiples, speaking in that term, which enables us to generate better cash flows than what's available purchasing class A assets. So in other words, basically investors, you're being paid a little extra for taking on the work needed to keep that asset performing well. But again, because we see these numbers every day, we can accurately plan and budget for maintenance and improvements and reducing that risk that often trips up less experienced managers. But again, a key theme I want to emphasize on this is really just the importance to invest where scarcity exists. Right? That's where that pricing power and long term value can be created. But at the same time, like if you're investing yourself or you're investing with another manager, don't fall into the trap of just chasing the highest cap rate just because it looks attractive on paper. Right. If something's cheap there's almost usually always a reason. And the real question is can you or the manager you're investing with identify what those reasons are and do they have, or do you have the experience or strategy to solve those challenges better than most? And maybe just the last question for folks here who are not, you know, personally experienced doing class B versus class A multifamily, do they tend to trade at the same cap rates and just sort of lower rental, lower sticker price or is there actually a higher cap rate on average for, for lower tier units? Yeah, good, great question. Yeah. So in, in general, so cap rates, generally the spread between class A and class B on a cap rate basis, anywhere from 100 to 150 basis points. So like on average across most markets, depending on where you invest class A, cap rates in the class A space right now are around 5% in the Class B workforce housing, it's six to six and a quarter to six and a half depending on where you invest. So you're being compensated meaningfully right now to invest in class B, especially in a higher interest rate environment. A really unique phenomenon we've seen play out in real estate over the last three years is people have been buying class A properties where their debt costs are actually exceeding the cap rate they're purchasing deals at. That's called a negative carry or negative negative leverage. Right. That's just not the business we're in at all. We want to make sure that we're generating meaningful spread over borrowing costs where we can generate strong cash on cash yields to us and our investors. Again, that might have been a little bit too in the weeds, but hopefully that answers your question. Yeah, that's exactly the question. Thanks. 

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Slide 9: Industrial Sector — 26:00

So first let's talk about industrial. 

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Slide 10: E-Commerce Still a Tailwind — 26:06

So back to our framework. We start with a question. What's driving demand over the next decade? And even though e-commerce is no longer a news story by any means, it continues to be one of the biggest tailwinds driving the industrial real estate market. And that's not slowing down anytime soon. So just think about it. Every time you order something online, whether it's a pair of new shoes from Nike or groceries from Amazon Fresh or some pet food from Chewy, that product doesn't just appear at your door. It's moving through a massive network of distribution centers, warehouses and last mile delivery hubs. And the reality is, reality is e-commerce needs a lot more space than traditional retail. For every dollar of online sales, companies need roughly three times the amount of warehouse space they'd need for in store sales. That's because those products have to be stored, packed and shipped directly to customers, often with same day or next day delivery expectations. But you might be thinking, hasn't e-commerce already played out? Hasn't it matured? And you're right, it's not growing at a 30% a year clip we saw a decade ago. But here's the key point. It doesn't need to. Even steady single digit growth on today's massive base creates huge incremental demand for logistics space. Now most people think when you think of e-commerce and picture those huge brand new Amazon fulfillment centers that are a million square feet with robots zipping around. And yes, those class A properties are critical to part of the distribution network. But that's really only half the story. The other half, it's really not quite as glamorous is where our class B industrial strategy comes into play. As these big distribution networks get built out, the next battle is about proximity and speed. Consumers want everything faster. Two days became one day, now it's same day. And that means companies need smaller infill facilities closer to customers to handle last mile fulfillment. And those facilities often are in brand new industrial parks. They're existing class B buildings and established markets. These properties are the connective tissue of e-commerce logistics. There were goods moved from regional fulfillment centers to local delivery routes. And are your tenants there still the same Amazons and major players? Or are they, you know, smaller tenants for smaller properties. It can, it varies, it's generally not Amazon, but it can be smaller local, regional distribution, businesses that service the local economy. It can be, for instance, we'll talk about it, I'll give an example in a little bit of a tenant that their whole business is to serve BMW, to be in close proximity to them. So yes, it ranges from e-commerce and distribution to the service economy. 

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Slide 11: Reshoring Will Be Another Catalyst — 28:59

So again, back to the question, what's driving demand? Over the next decade, reshoring has become one of the most powerful long term catalysts for industrial real estate. And so for those unfamiliar, reshoring simply just means bringing manufacturing and production back to the United States. And this was a movement that gained momentum after there were major supply chain, supply chain disruptions during COVID And since then US manufacturers in a wide range of industries, predominantly specialized high tech, automotive, battery and biomanufacturing, have announced trillion dollars in new domestic investment. And so in fact in just this year alone we've seen over 1.2 trillion in US manufacturing investments alone. With a lot of that coming into the Midwest and the Southeast where our portfolio assets sit. So I mean, and according to JLL as an example, this could create an additional 500 million square feet of additional US manufacturing space that's needed over the next decade. But what's really more impact, again we don't invest a ton in manufacturing. So what's even more impactful for us is the multiplier effect that that manufacturing establishment creates. So for each new manufacturing operation that generates three to five times more demand for industrial space as suppliers, logistics firms and service providers cluster nearby, that clustering effect forms dense, really resilient ecosystems that support long term rent growth for those that own in these, these key areas. And at Lightstone, we focus on buying in markets where this activity is already underway, where major anchors are committed and supplier demand is building. One example of how we're executing this strategy is we're actually under contract to buy a multi tenant, building. We're actually closing on it next month. The property is located in Greenville Spartanburg area of South Carolina and it's one of the most dynamic, industrial, industrial corridors of the Southeast. The region's actually at the heart of what's called the battery belt, and has become a major beneficiary of the reshoring movement, really anchored by BMW's largest global manufacturing plant and a growing network of suppliers in automotive, aerospace and advanced manufacturing. So as an example, Isuzu actually just announced they will be investing about $280 million to establish another 1 million square foot of production facility, stone's throw away from our property. 

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Slide 12: Shallow Bay is Undersupplied — 31:30

So now let's go back to the framework again and talk about supply. And what's interesting here is that most new development over the past several years has really been concentrated in those big box categories. So these are the bulk and single tenant distribution facilities. There's been little, very little, construction activity in the shallow and small base segments, which is exactly where we're seeing some of the strongest rent growth and occupancy today. At the end of Q2 of, this year, vacancy rate, vacancy rates across buildings that were above 140,000 square feet was about 64% higher than for buildings, under 140,000 square feet. And again, that's just basic supply demand for the most part. You know, of the nearly 550 million square feet of buildings that's been delivered since 2018, only 13% of those would be considered small bay or shallow bay assets. So that again means that tenants seeking 20,000 to 140,000 square feet have very few limited options, throughout most markets and as. Oh, go ahead. So a couple questions come in on this Industrial, and then actually some other ones for multifamily might loop back to afterward. But, two things on Industrial here. One is, would you consider, is Shallow Bay basically the class B of industrial, or do you have class A, class B, Class C within any given footprint size? Good question. Yeah, no, we own across really the quality spectrum in Shallow Bay. So actually, I'm going to talk about an example in a minute of a deal that would really be like a class A minus B. But yeah, we like, Shallow Bay Industrial across class A and B. And you were talking about that meaningful spread between class B and class A assets. Does that hold true in Industrial here, same as in residential? It does, it does for the most part, yes. I mean, again, very market specific. But yeah, right now what we're seeing for the most part as an example of the deal we bought in, the Chalabay deal we bought in, Austin, Texas, out by the airport, that was at about, let's call it a six and a quarter cap right now. And again, if you wanted to go buy big box or again, you've seen cap rates move there a bit more, but it's a little different because the vacancy rates are so much higher. So the risk you're taking to generate the same amount of, return isn't like we Just don't see it in the big box right now. But if you're buying a stabilized, fully leased, triple net lease deal, you may pay, especially in a market like Austin or parts of Texas, you may be paying sub six, five and a half cap, but. Oh, go ahead. I know you had more questions. Oh no, there was a question around how you would define this quote. You said that I think about 100 to 150 basis points is a typical spread. Is that kind of a. Are you happy with that spread or do you try and look for a bigger spread when you're buying down the quality spectrum? And what would you look for? Yeah, I mean, look, I think markets are very efficient, right? So I think finding 7 caps, those just are not growing on trees. I mean we're actually, we've been talking with a lender recently about a deal. I mean even conversations with lenders right now, they're not, they're very difficult. A quote that someone told me once. There's a fine line between deals that are stressed and distressed. Like we want to, we want to be buying deals that are not even necessarily stressed, but maybe again have just some value add potential. We'll talk about that a little bit in our multifamily section. But then there's distress, right? And that's like deals you don't want to own at any price. So like that we don't really play in that space. We want deals in good markets to have strong, stable fundamentals. And because these markets are generally pretty efficient, you're not going to find, you know, super high cap rates unless there's something incredibly wrong. And then it goes back to is that a situ, is that something that we can cure? And again, we're just not seeing deals with that type of, you know, 200 basis points of spread right now. And you know, one more question on this shallow bay here. Is this the same as flex space buildings? And is the high demand, you know, makes, reduces the cash or sorry, the high demand makes the asking price, you know, reduce the cash flow. And so how do you address that? So you broke up a little bit right there. But I think, I think. Well, so two questions first came in. Is just, is shallow bay the same as flex space building? Essentially yes. I mean flex space can be in all different sizes. Shallow bay. What, what we really mean by shallow bay is essentially just is smaller suite sizes and they can be used for a number of different, different use cases. Right. So again, whether It's a 20,000 to 150,000 square feet. When you think about flex space, again part of what makes it called flex space is that you can use it for so many different things. So maybe people use it as storage, maybe people use it as again to store equipment. Maybe people are running distribution out of there. Maybe they're doing small scale manufacturing. So you see the amount of use cases really and we look for just clean boxes. So I hope that answers your question. But that's, that's that, that broad that, that total addressable market of tenants that fit that box is significantly larger. And that's also why you see you know, why you see again I would say compressed or compressed vacancy rates. And I think the trade off people make is well you're not always dealing with like again Amazon level credit, but that's part of again being a hands on asset manager with Lightstone. I mean we look at the underlying financials of this business, we understand how well they're doing. Are they going to be outgrowing our space? How likely are they to go dark? These are all things we consider in our investment decision framework when we are operating in a space like this because you are generally dealing with smaller tenants. And I'm going to rephrase the second half of this question as I think the member is asking which is okay, if I see very low vacancy in Shallow Bay, presumably you know that's going to drive up rental rates and that's going to asking prices does basically. And so maybe the question would be if you look at Shallow Bay versus large box, is it similar cap rates there or do you get a better or worse one cap rate for a comparable quality and location for these different sizes? Yeah, so it's you, you definitely, you def. There definitely is a spread because again you're usually that spread is, is being generated because you're the incremental risk that you're taking on. And what the market is saying is that when you own a big box industrial facility, a lot of people look at those essentially like, like investment grade tax efficient bonds. Right. Like that's essentially what people think about when they think about an Amazon facility. So those trade at very low cap rates because they're not worried about Amazon going out of business. But in the case of as an example what we buy where you don't have Amazon like credit, they're probably most likely our rent roll are going to be businesses that you've never actually heard of. So we're and so and you're dealing with sometimes 10, 20, 20 tenants, like our deal in Austin that I'll reference here shortly, that's 22 tenants. Right. And the average suite size 20. So like just the amount of work that you have to put in. And again you're dealing with like not as, not not the investment grade, credit tenants. They trade at higher premiums for that reason. But again we mitigate risk. But it sounds like you're saying that you think in some ways there are lower risks because if you lose an Amazon, there's not that many wayfarers to go fill it. Whereas if you lose, you know, Joe's Muffler Shop, there's a bunch of others to, to step in. Yeah. And there's also lease duration. So on these smaller bay, typically the smaller you go in size, the shorter the lease duration. So when you're thinking about Amazon, they're generally signing 10 or 15 year leases, all triple net. So it's very much, you know, set it and forget it in many cases where these are maybe three to five year leases or seven year leases. Right. So you're going to have churn or you need to renew. Now we see that as an advantage because for us it enables us to mark our leases to market. We, where you don't necessarily have that ability in an Amazon deal you might, I mean it just depends on the structure of the lease. But for us like it enables us to mark leases to market quicker. And when we think that, you know, especially what we're seeing right now in our shallow Bay portfolio where rental rates are growing quite significantly, those shorter delay durations are actually an advantage from both a cash flow perspective and an ultimately evaluation perspective. Thanks. Yeah, I'll let you keep going, but as I mentioned we will probably loop back to a few more questions that have come in. Anytime as well. Absolutely, anytime. And yeah, and I'll just to give you an example, like so we actually acquired a shallow bay deal out by the airport in Austin. And you know Austin has seen a major uptick in vacancy and rents have been flat to negative. Like if you Google Austin, you know, industrial occupancy, you'll probably see vacancy is at 10, 15%. You just say oh my God, why are you investing in there? But when you really like peel back the onion, you see that most of this softening has occurred in larger 500,000 square foot spaces. And when you look at our shallow Bay deal, it tells a completely different story. It's a multi tenant. Again I alluded to earlier 20 plus units in the Building average seats that suite size, 20,000 square feet. And the majority of these tenants serve the local economy. But, and we've maintained near full occupancy and have been able to push rents above our original projections over such a short amount of time period. And it's the perfect example of why focusing on the right size segment within the right markets can deliver consistent performance even when the headline numbers in a market may look mixed at first glance. 

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Slide 13: Shallow Bay Strategy — 41:25

So let's talk about our strategy. So when people talk about reshoring in e-commerce, again most people think about the billion dollar EV plants or semiconductor plan fabs and rather focus on shiny assets. And again we have some exceptions here in Shallow Bay where we will acquire newer assets. We really for the most part take a much different approach by focusing on buying functional, well located industrial buildings that sit at the backbone of the supply chain. We focus on properties that are universally functional and can serve a wide range of users. They work just as well for the BMW supplier for as the regional distributor, third party logistics company and the e-commerce tenant. Right. We want assets that are riding multiple tailwinds including reshoring, e-commerce, local consumption, regional distribution. We also place a strong emphasis on established infill, infill industrial markets that are close to population centers, major highways and existing infrastructure. These are areas that tend to have limited available land, high barriers to entry and new development, and that consistent tenant demand from businesses that are, that need to be near their customers. So this strategy has taken us to a lot of blue collar logistics corridors. So think Memphis, Detroit, Jacksonville, Greenville, Columbus, Harrisburg, Pennsylvania for example and a lot of other different markets. And the last part of this really you'll see this term clustering that simply just means we want to make sure that we are owning multiple properties within the same market and by doing so we're able to run these much more efficiently and cost effectively. So what you see on the right hand side is really how we've successfully executed this Strategy in Harrisburg, Pennsylvania. So we own nine properties here, total about 2.7 million square feet. And by clustering our app, clustering the assets within this logistics corridor, we've been able to streamline operations and really share resources across the portfolio. So again circling back to the last part of that framework, when we think about relative value, industrial real estate covers just a wide range of property types and quality levels. But when we look at class B or even some class A shallow Shallow Bay assets, we believe they offer just the most compelling risk adjusted returns right now. 

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Slide 14: Our Industrial Performance — 43:42

And we're seeing this trend playing out across our portfolio. If you think back to the reshoring map I showed a few slides ago, you'll see a pattern. The same markets attracting new manufacturing and supply chain investment are the ones where we already have meaningful exposure. Our assets squarely in these growth corridors like Texas, the Midwest and the Carolinas. It's exactly where companies are expanding production and distribution capacity. And as of at the end of Q3, we actually just got this report from our asset management team. We signed, I should say as of Q3, so the nine months ending in September, we've signed 23 leases totaling 1.2 million square feet of industrial space. And on average the rental rates on our executed leases are exceeding pro forma by over 20%. And these leases were signed with zero months of rent concessions. So again that just supports. What I'm saying earlier is that shallow bay industrial real estate fundamentals are being supported by that strong demand and significantly less supply. 

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Slide 15: Multifamily Sector — 44:46

Would you mind if we. Oh great, we're on the multifamily here then this is probably perfect time to put in a few of the questions that came in about that. Let's do it. 

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Slide 16: Housing Remains Unaffordable — 44:55

One question was when it comes to workforce housing, when you've got stagnant job growth or high inflation, aren't those the tenants who are hit hardest with delinquencies? That's just not what we've seen across our portfolio. For what we've. I think that's a common misconception and I think there's a big misconception between maybe workforce and then like lower income households. Right. These are people that are generally working more stable jobs, workforce housing. Especially when you look at like what we're seeing across our own portfolio is very stable collections, stable occupancy. So that's just what our proprietary data is telling us, is that we're not seeing our tenants that are getting squeezed. Is there sort of, when you say workforce, is there like an annual income distribution that you define as workforce? Yeah, it's a good question. And it's funny, I had a slide in here that touched on that and I removed it unfortunately. But yeah, we generally want someone that is making anywhere from you know, let's call it $50,000 to even on the upper end, maybe 100 to 150. You know, it just depends on what. But I would say like around that, around that spectrum. So right now that if, and again, I wish I had the chart that makes up about 70% of the overall renter base. And then if I'm looking at this chart here, I feel like there's two ways to interpret it. One would be to say, hey, renting is much cheaper than ownership now, so people are going to want rent. The other would be to say that light gray line, the rental price that basically represents the underlying income, the noi, the revenue base here and the black is how much people are paying for it. So you could look at that and say, hey, people are paying too much for these properties. We're going to have mean reversion that brings the purchase price much more down in line with, you know, the underlying earning potential. I presume you guys are more in the former category of saying hey, this is going to drive demand as opposed to the latter of saying this means that things are overpriced right now. But how would you decide which of those is kind of the right interpretation? Well, I'd say, I'd say to your point, the data is telling us the latter right right now. And that will show that on a subsequent slide. But just to like put this in perspective, right now, on average the cost spread between owning and renting is $1,210 a month. That is three times the long term average of around $430 a month. So let me say that again, on average $1,210 a month more average. Now this spread has become so pronounced that to your point Tad, a modest drop in interest rates, rates, and home prices wouldn't make a meaningful difference in the cost gap. Yeah, I was going to ask how much of this is really just is this a chart showing interest rates and that when you're at zero then there's no difference in price and when they're meaningful like today there is a difference. Is that the main driver here or else? Well the main driver here is just showing again The difference in all this is really showing is historically what has been the general spread between renting and owning which the long term average is about $430. We're about three times above that. But I think the point, the question you were asking is where does the mean reversion happen? Do you see it on just do for this for sale housing have to correct so that this becomes more affordable or does rent have to grow up? My guess is they probably meet in the middle like we are seeing. Like make no mistake, I live in Florida. We are seeing housing price softness but you're actually not really seeing it. In the Midwest or the Northeast. So it's actually very market specific right now. But like as an example, to make a meaningful difference in this cost gap, you would need to see home prices decline by 25% or more or you would need to see interest rates fall back to around 3.5%. Like we're not of the view that either of those things are happening right now. And especially because you're seeing like I'm a millennial and you're seeing my generation, the pent up demand to buy a home and start a family is there. So what we are seeing, what's boosting the demand? Well let me back up because it's, it's, let's talk about the demand. Let's just move on to the next slide. 

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Slide 17: Apartment Demand is Growing — 48:51

So what you're seeing here, I alluded to this earlier. This is really demand that's measured by net absorption on a quarterly basis. And what we see at the end of 2022 is that we have now eclipsed the all time high that was set during COVID where demand is now almost A net absorption is almost 800,000 units. So I think this really speaks to a couple things. One is the trapped renter phenomenon which we were talking about before, which is people probably want to buy a home, I have plenty of friends that want to buy and start a family and they just simply can't. They don't have the down payment or the monthly payment. Simply just doesn't make sense. But then also you have generational shifts in housing preferences. So like RealPage, which is a data analytics firm, did a serve a study in 2024 and what they found was that 1 75% of renters said they live in areas they could not afford to buy in. But 51% of renters that were Gen Z renters believed renting was a smarter financial decision than owning. So you have generational preferences that want to rent and then also people that have that trap render phenomenon. So we think that's really bolstering demand here. We certainly aren't of the view that maybe necessarily that this will continue, at this rate. But it doesn't. Again, it doesn't need to. And then two other questions. You know, if you go back one slide there. Yeah, you made the point earlier that you don't take these negative carry deals where you say, okay, we're going to overpay. Our costs are going to be higher than our income for a while and we wait for that income to catch up. How do you avoid Doing that in a situation like this where the cost of purchase goes up quite a bit and the rental grows more slowly, how do you avoid getting forced into a negative carry then? Well, so just, just to be clear, what this chart is showing is the cost to acquire a single family home versus the cost of renting. So it's basically okay, so single versus multifamily as opposed to the cost of purchase multifamily. Correct. Right. But I mean it's a, it's a. So I mean the way that like, look, it's a fair, it's a fair when you actually understand why people are doing, actually supports this a little bit. Because it's tough to justify when most people are buying existing assets, at negative carry, I think they're looking at it from two angles. They're looking at it from maybe they're buying it at a significant, maybe a little bit below replacement cost where it is today. And I think most people are buying it with the belief that they'll grow their way out of it for all of the reasons we're talking about today. Construction costs are still high, interest rates are still high and there's no development activity and that doesn't get fixed overnight. So like it's going to take four or five, six years for this to catch up. Sorry. And so I think that's the belief of why people are doing it. But again like for us that is, you know, our founder David Lichtenstein likes to say there is, there's speculating and then there's investing. If you're buying a negative carry deal, you are speculating that you are going to grow your way out of it. For us, we want to be buying assets that have day one cash flow where we have a meaningful positive spread over where interest rates are. We can deliver strong cash flow regardless of what happens in the future years. And if you go to. One more question came in. If you go to that slide that shows the different geographies you're in. 

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Slide 18: Workforce Housing Strategy — 52:05

There was a question about geographies and especially rent control. And I noticed that like New York and California are not on this map. Is that intentional? Because you guys say, hey, this strategy does not work as well in rent controlled markets. Well, I mean that was really the question is how to think about rent control factoring in here. Yeah, I mean look, we, we own, I mean look, or we're based in New York City. It's where our founder David is from. We own a large portfolio of New York, New York City real estate. But yeah, I think for the most part it's been, it's a very difficult market market to invest in because of just it's not a very landlord friendly state. There's rent control. There are a lot of factors at play that make owning their incredibly cheap, that make owning there incredibly challenging. And would you say the same for California? Yes. Yeah, we've built a Moxy hotel there, and we own some industrial there but that's about it. Multifamily, we don't have any exposure there. Thank you. Yeah. And so again just to kind of maybe touch on just what our strategy is then, right, is we focus mostly on tier 2 cities with really strong employment drivers and healthy supply demand dynamics because both of these are critical in our investment decision framework. We've talked about the Sun Belt there and why that's been popular and how much supply has been there over the last several years. The problem is that many assets there are still priced as if rents are going to keep rising at the breakneck pace that they did during COVID and that just isn't sustainable. And it's very tough for us to make investment decisions, decisions based off of that. So while we have been selectively allocating to multifamily across the Sunbelt, our growth has really been in the most of our portfolio investments have been in the Midwest where both fundamentals and valuations present just the better relative value. So like as an example in 2018 through 2021 Lightstone made significant investments in Michigan, Columbus and Chicago, which have all led the country and rent growth over the last two years. But five or six years ago, like I was in the business, no one wanted to invest in these cities at all. Right. Everyone was chasing deals in the sun melt sun Belt. But again like, like cap rates and entry pricing matter, the price you pay is just as important as location and striking that balance, is key to generating strong risk adjusted returns. 

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Slide 19: Our Multifamily Performance — 54:36

So like, how have we done? Like I talked about the performance, let's talk about how we've actually done. I know this chart may look like a lot, but I'll try to simplify it. The black bars in this chart represent the average year over year rent growth over the last 12 months across three Midwest markets, three Sunbelt markets and the national average. You can see how significant the outperformance has been across the Midwest. And Lightstone's portfolio assets have largely outperformed the average in several of those states. And we've significantly outperformed the US Average. If you, if you want to boil down performance, like if you had to boil one underwriting assumption, that is, that is ultimately what drives performance. It is rent growth. If you were in the markets where rent growth is happening, you will generally do better than everyone else. And that is a core focus of our overall strategy. 

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Slide 20: About Lightstone DIRECT — 55:31

So I won't spend too much time here. I know we're coming up on time. This is just a little bit about who we are. Tad touched on it. But, you know, we have Lightstone Direct. You know, over our 40 year investment history, we have primarily invested our own personal capital. And really just because of a lot of the stories we heard in 23 and 23 and late 2022 when we, what we saw was a market where a lot of managers just got over their skis, right? There were a lot of managers that were using too much leverage. Maybe they were born after the great financial crisis. And what we saw when we looked at a lot of these deals is that people were putting little to no of their own personal capital in the deals and they were navigating a challenging real estate environment for the first time. And so when the market conditions shifted, they didn't have the balance sheet strength or the operational infrastructure to adapt effectively. But at Lightstone, our approach has always been different. We've really built our business on investing a lot of our own capital. And really now for the first time, we've made it possible for individuals to invest, to really co-invest alongside us in the same institutional quality, multifamily and industrial deals, that you've heard about today. And we will always invest a minimum of 20% of our own capital in every deal, which significantly exceeds what we see across the industry. 

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Slide 21: Contact Us — 56:55

So, if you'd like to continue the conversation or have any questions about what we discussed today, whether it's related to the broader real estate market, portfolio construction, or just our investment approach, feel free to reach out. My email is jspitz@lightstonedirect.com. We've also included a QR code that links to our landing page. If you're interested in staying connected with us and hearing the education that we'll be putting out over the next several weeks. But, that wraps up my presentation. Thank you all for your time. Tad, thanks for the questions. Lauren. Hillary, thanks for setting this up. I'll turn it back over to you. Yeah, thank you, Jonathan. Really appreciate all of the education, the conversation. In addition to his offer to reach out directly. We do have two upcoming webinars taking place in November and December, with Lightstone on two additional topics. So, great opportunity to continue to learn more from Jonathan and from Storm. So thank you so much. Really appreciate everyone's time. And, Jonathan, we'll see you next month. All right, take care, everyone. Enjoy the rest of your day. Thank you. Thank you.

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