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—Mandi Wedin
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Episode 127 is a conversation with Mandi Wedin of Feroce Real Estate Advisors and Joe Gaspardone of Montgomery Technologies.
I’m excited to begin a new recurring series with Mandi and Joe where they educate the smart buildings community about one of their big customers - the real estate investment/owner - and what is happening to that customer and how that impacts the smart building industry.
Since this is a new series, let us know what you think!
Without further ado, please enjoy the Nexus podcast with Mandi Wedin and Joe Gaspardone.
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You can find Mandi and Joe on LinkedIn.
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Note: transcript was created using an imperfect machine learning tool and lightly edited by a human (so you can get the gist). Please forgive errors!
[00:00:00] James Dice: Hello friends. Welcome to the Nexus Podcast. I'm your host, James Dice. Each week I fire questions at the leaders of the smart BU industry to try to figure out where we're headed and how we can get there faster without all the marketing fluff. I'm pushing my learning to limit, and I'm so glad to have you here following along.
Before we get started, here's a quick note from our sponsor.
Longtime listeners will remember Brain Box AI from way back on episode eight of the podcast. In that episode, we unpacked how Brain Box allows you to add. Specifically reinforcement learning to your existing HVAC control system, turning it into a predictive brain that learns precisely how to use less energy and optimize comfort in all building zones at all times.
With Brain Box, you can reduce your carbon footprint, lower energy bills, and increase equipment [00:01:00] life. Learn more by checking out the Westcliff Shopping Center success story at the link in the show. This episodes a conversation with Mandy Wheaton of Furrow Real Estate Advisors and Joe Gasper of Montgomery Technologies.
I'm excited to begin a new recurring series with Mandy and Joe, where they educate the smart Billings community about one of their big customers, the real estate owner, and what is happening to that customer and how that impacts the smart buildings industry. And since this is a new series, let us know what you think.
So without further ado, please enjoy the Nexus Podcast with Mandy Whedon and Joe Gas.
Joe and Mandy. Hello. Welcome to the Nexus podcast. Welcome back to the Nexus Podcast. How are you guys doing?
[00:01:42] Mandi Wedin: Great.
[00:01:43] Joe Gaspardone: Excellent.
[00:01:44] James Dice: I'm so excited to, to start this new series, I think we're gonna call it CRE Market Talk or Talks. We'll see. We'll see what this ends up getting published as. This is version one of a potential quarterly series on [00:02:00] current happenings in the real estate investment market and how that impacts the smart buildings industry.
And I'm super excited because you two have taught me most of what I know about how the real estate business functions. So thank you. And we will, we'll be teaching more people these things here with these talks. So let's start with backgrounds. Mandy, you go first, Can you introduce yourself and maybe give us, uh, a little bit of insight into what your company does?
[00:02:31] Mandi Wedin: Sure. Thanks James. Hey, Joe. My name is Mandy Whedon. I am founder and CEO of Pau Real Estate Advisors, where we advise forward thinking real estate companies on how to position their real estate, how to position their teams to be successful during times of disruption. And today that means we work at the intersection of commercial real estate finance, esgr.
I add an R to the ESG for resilience and tech, [00:03:00] and I spent 20 plus years on the investor management side running portfolios of real estate office, retail, residential, industrial, and the major market to the US on behalf of big pension fund advisors and investment management companies, some. Now I bring that experience to bear for my clients at.
[00:03:18] James Dice: Great. Thank you, Joe, how about
you?
[00:03:21] Joe Gaspardone: So Joe Gasper, I'm the COO of Montgomery Technologies, and Montgomery is really a core infrastructure company in commercial real estate, high rise buildings. So we, um, primarily design for assess, design, build and install secure networks. Converge networks we like to call it now in, uh, commercial high-rise buildings and migrate new and existing technology solutions onto that infrastructure.
So we've been doing that for a long time, 12 years for networking and 20. [00:04:00] In the fiber optic net networking arena. And my background is, uh, kind of like Mandy's. Um, I've got about 15, 16 years in commercial real estate operations and then the other half of that, another 16, 17 years in commercial real estate technology.
So, um, it's always refreshing to have Mandy on and talk to her because she's one of the other people that has the perspective. And I think that especially as we're, we're looking ahead for the next five years, that having that perspective is really important.
[00:04:34] James Dice: Absolutely. Absolutely. And we'll put, You guys have both been on the show previously. We'll put those episodes in the show notes for people that wanna go deeper into your backgrounds and everything you guys do. Um, Mandy, I think you and I talked about Esgr and Joe, you and I talked about making the business case for technology and we talked about networking.
So those three episodes will, will link to those. [00:05:00] Let's not rehash those though. Let's talk about the, the market. Mandy, why don't you start for by sort of setting the stage for I, I think we should also say this is November, 2022. When this is being recorded, can you kind of set the macro stage for what the commercial real estate industry is sort of going through right now?
[00:05:21] Mandi Wedin: Sure. So with, uh, coming out of the depths of the Covid Pandemic and into 2021 and 2022, um, real estate was recovering from some shocks and experiencing some, uh, tailwinds. And then when the interest rates rose, The, uh, headwinds came again, and then after a series of those interest rate increases real estate, the institutional investment real estate market is, I say, frozen.
And the, the brokers and the, um, capital markets team are like, No, no, we're still doing deals. [00:06:00] It's not totally frozen. And so I will qualify that to say that capital is really tight. Liquidity is really tight right now. It's, um, if you went through the GFC great financial crisis, it's as tight or tighter than when we were in the middle of that.
So, um, it's hard to get transactions done and it's hard to figure out what the value of your building is today. And remember that investment is, um, pension funds and big investors put money into a pie, a diversified pie, cash, stock, bonds, and real estate and the alternatives. And so what happens in those other pieces of the pie impacts real estate and interest rates.
And that, uh, freezing of the market is impacting real estate, uh, significantly right now.
[00:06:48] James Dice: And Joe, you and I talked, I was in your office two weeks ago in San Francisco. We had a, had a about an hour's discussion on what the hell is going on right now. Um, anything to add to [00:07:00] that? Uh, you know, sort of big
picture, macro perspective.
[00:07:03] Joe Gaspardone: yeah. You know, there's a, there's a great chart out there which actually needs updating now that interest rates have gone up again. But, um, we were in the middle of the fastest rise in real estate, in, in interest rates in, in modern history. So, you know, in commercial real, commercial real estate's a very slow moving, slow adjusting part segment of our, of our economy.
So having that rise that fast, faster than ever before, um, you know, in Mandy's right? It's not. Necessarily a full lockup, but it's pretty darn close. Uh, it, it's, it takes these things a long time in commercial real estate to trickle through because you've got long term leases, long term financing. So these, these things tend to have a delayed effect in commercial real estate as [00:08:00] opposed to some of the other parts of the economy that are much faster to adjust and adapt.
We're, we're just not able to do that, that fa that quickly. And I think that's, I think you're, you're seeing that, that, that things are really just, there's a lot of pause buttons being hit to wait and see where we level off. Um, I would throw this in. I went and looked at, um, an old, uh, spreadsheet that I had when I, we used to do acquisitions and forecasting, and I took. And I just plugged in what the interest rate was eight months ago, nine months ago, and what it is today, and just not, not taking into account hybrid work and smaller footprints and, and everything else that's happening, but just taking the interest rate increases into effect. You are, you're looking today at about a 30 to 32% difference in value.
It's a
big
[00:09:00] number.
[00:09:00] James Dice: And when you say difference in value, you mean cut in
[00:09:02] Joe Gaspardone: decrease in value,
so,
[00:09:03] James Dice: decrease in value. The buildings are worth
less than they were before.
[00:09:07] Joe Gaspardone: You, I hate the word market or, um, you know, value destruction, maybe value reduction. But yeah, it's, if you're, like, if you had a hundred million building at the beginning of this year, you're looking at something that's somewhere in the ballpark of 70 today, if you could sell it, which is going back to Mandy's point, that, that's a tough proposition cuz nobody quite knows where this is gonna land.
Nobody wants to walk into a 70 million deal that's 60 million in two, in, you know, two or to six months. So that's, that's, it's a tough, tough, tough place to be
right
now.
[00:09:39] James Dice: Let's review real quick. So Joe and I had you on originally, you talked about the two different types of real estate investments. There's transactional, as you called it, a non-transactional ones that you're gonna hold for a long time. Right? Transactional is like, I like to think about like a house flipper, right?
A kind of like, maybe that's not the right way to think about it, but buying low
[00:09:59] Joe Gaspardone: 10. Give it a [00:10:00] five to 10 year horizon. Yeah. Yeah.
[00:10:02] James Dice: Okay. Okay. So give me a sense, um, either of you, whoever feels like, uh, answering this um, what types of those investments are we talking about here and are there more invest types of investments that this affects?
[00:10:19] Mandi Wedin: Okay, so, um, good question. James, Because if you're a, if you're a, an institution that owns real estate for the operations of your business, a hospital and uh, educational institution, yes, you pay attention to values, uh, because you probably use debt or some sort of instrument to fund it. So that's the non-transactional. The transactional is the investment side. And a house flipper is an opportunistic fund, right? There's a short timeframe. You're gonna, um, take investors money, deploy it into real estate investments, and tell 'em, after five years we're gonna sell it and give you your money back.
And then they have some [00:11:00] extensions, of course, so they don't miss the market timing. And then there's open-end core funds, which are, we're gonna take your, um, investors, money, pension fund money, uh, institutional money invested in real estate. The fund is open. And so you come and go quarterly for the investors and assets can be sold and capital recycled.
But there is a mindset that you're not holding it forever. You're maximizing value, selling it to someone else and then redeploying the capital. And so that timing really has an impact on, um, where we sit today in the real estate world. Cuz if you needed to sell your building this year because you have a sunset or a horizon in your closed end fund, you're in a tough spot.
And if you've already used your extension and your next extension, right now, you're going back to your investors and saying, Okay, gimme another year or two. And they're saying, Okay, will it be ha be done in two years? And you're saying that's the plan? Yes, it'll be done in two years. Right? That's how you're gonna get your [00:12:00] extension.
But if you're an open ed fund like Joe, And your, uh, interest rates go up. So that means your cap rate, your terminal capitalization rate, which is a, um, a multiplier that's applied to the cash flow grows, then your value comes down. So just by the fact that interest rates rose and the math formula that we use, that a hundred million dollar, um, building is now worth less.
And so that means that your portfolio is worth less across the board, um, where that applies and that causes pressures in your business and your investments.
[00:12:34] Joe Gaspardone: And I just, I would add to that, um, I think, and this speaks to the slow moving nature, which is, you know, helpful when you're dealing with a pandemic and you can kind of, you can kind of, um, you've got years to kind of, um, Hopefully waited out. Um, but now we've got the pandemic followed by the interest rate increases.
And so this is where you're gonna see a bit of a, [00:13:00] well, you could look at it as an exponential shift in what's happening in, in this sense. Um, you've got roughly 50 million square feet that's coming on the market today, uh, in terms of leases turning over and, and people scrambling to kind of figure out what to do.
But in 2023, you've got 250 million that's coming. Back on the market or needs to be renegotiated and signed up again. And by 2026, if you look out three years, you're looking at almost a, uh, 500 million square feet. So 10 x what we had this year. So there's, that's, that's, uh, that, you know, that there's a lot of planning that has to go into that.
And if you're sitting on the institutional money side and you're looking at your diversity and your allocations, you know that that's gonna be, those are gonna be factors that, that [00:14:00] determine to some degree how much you wanna hedge your bets away from a, and I wouldn't say all of commercial real estate, but certain subsets of the market for.
[00:14:08] James Dice: Okay. So I think that gives people a good idea of kind of where we're at. Big picture. Where would you guys say this issue is in relation to the other issues that we've kind of. Tangentially mentioned here, Esgr, uh, I'd say add climate change to that. Um, rise
or rising interest rates. We've talked about hybrid work we've talked about a little bit.
What about layoffs? Like, it seems like that's happening, especially in the tech industry. So if tenants are in the tech industry, seems like a lot of layoffs are happening. Where would you guys put maybe rank these different issues right now? Uh, for the real estate owner?
[00:14:49] Joe Gaspardone: That's a, that's a good one. I, I, I do think that, um, a silver lining of layoffs could be, um, a little bit more of a rebalance [00:15:00] in terms of, um, Return to work. So the silver lining would be that, um, with the counterbalance of the employment market softening over time, there's a good chance that you're gonna see a little more, um, hey, we need people in the office.
We've got, you know, we're retrenching, we're refocusing, we're pivoting, and we need our team together to get the sort of internal collaboration, cross-pollinization, whatever you want to call it, um, together again to take, you know, faster, sort of more significant strides forward. So I think that you might see that as, as kind of, uh, one of the positives.
But the truth is, is there's a lot of headwinds right now, probably more than we've ever had at once in terms of the need on the ESG side to reduce carbon, reduce energy, implement a whole new. [00:16:00] Structure in terms of how these things get tracked and reported. And I know Mandy can talk all day about that.
But then you've also got reduced footprints and then you've also got higher interest rates. And so there, there's a, there's gonna be a tremendous amount of pressure on parts of the market to spend money at a less than opportune time and that that's gonna be the struggle.
[00:16:25] Mandi Wedin: Yeah, I would say it's interest rates. Interest rates, interest rates, and then everything else is in a bucket that we'll deal deal with tomorrow. Right? Because something is on fire, literally, um, on fire. And that's maybe because, uh, your loan was floating and now you're, um, Debt costs are up and you don't have dscr, you don't have a debt service coverage ratio anymore.
You're out of compliance of your loan, right? Or, um, you need to sell and you can't sell, or, um, because your costs rose, your expenses are up. So your um, NOI is down and your values are [00:17:00] down, um, because interest rates are up, which means cap rates are up, right? So all of that pressure, are you gonna own it?
Um, are you gonna be able to sell it? Do you have any money available at the property to cash flow to cover the things that need to be done? Um, including the, um, execution of the ESGR initiatives in your technology initiatives. So as we get more clarity into where interest rates will stabilize and where inflation will stabilize, we will. With that clarity will become the ability to make decisions into the future. Right now it's uh, what are we doing in the next month? What are we doing in the next quarter? It's quarterly cash flow planning mindset cause we're in a falling
[00:17:46] Joe Gaspardone: And that, that is so, you know, you can't be overstated. Commercial real estate in general has no choice but to wait for some type of leveling off and normalization. Like there's the, it's too long term of [00:18:00] a play to, to just say start pegging things at particular points going up the ladder of interest rate increases.
So you really are forced to wait out to get a sense that, okay, we're gonna, we're gonna taper off here, we're gonna normalize here. There's 400 plus billion dollars of institutional capital that's sitting on the sidelines waiting to be invested probably in a lot of what we will now be in the value add market where, where these things go back through receivership and, you know, get foreclosed on and then, um, opportunistic money comes in and resets the value lower and then they can spend money.
So it's, it's a cycle. We're, we're in the lockup period of that cycle, but we're gonna hit some point of stability. But until then, um, yeah, it's the headwinds are, are, are, are strong.
[00:18:56] James Dice: let's, let's break that down a little bit [00:19:00] more. That that piece. So what I was gonna ask next was, If markets are frozen right now, how do we get unpro? And I feel like that was the answer to that question, but I don't know that I understood it. So can you guys break that down a little bit more? How do we unfreeze the situation?
And I say we, How is it gonna get Unpro? ? Cause I'm not gonna play a part.
[00:19:23] Mandi Wedin: so clarity, right? Where will interest rates be? So we have a, we have a bit ask spread what the seller thinks the building is worth or what it's on their books as is what they would like to sell it at, what the buyer is willing to pay for it, because they recognize there's complexity and uncertainty, so they're gonna, they wanna be rewarded for that risk, right?
So we've gotta spread and the two have not yet met very well. We've seen some transactions, and I'm talking about office for the most part. We're still seeing transaction volume in the industrial space. But, um, some, uh, uncertainty there with where that will go. [00:20:00] Long term we're seeing. Uh, transaction volume and multi-family as well.
Retail is still struggling. Um, it has struggled. It's come out of it, with a little more clarity until now interest rates have played in it. So if we just look at office, So when will the office market transact again? When the Fed says, Okay, we're done raising interest rates, and people are like, Okay, now I can underwrite a number.
When, um, we have, uh, a valuation reset. So the big funds, um, that are private rates are valued quarterly, right? So the third quarter valuations just came out. We saw the appreciation, the instead of appreciation in those funds, we signed appreciation for the first time in the Na Creek Odyssey, and then the big REITs, right?
Their, their stocks are still. Uh, undervalued to nav to net asset value. So when those things happen, we'll see that, uh, voluntary transaction happen. And Joe, you wanna talk about the involuntary
[00:20:59] Joe Gaspardone: That's [00:21:00] the,
you know, the downside we are gonna see, we're already seeing it, but just in Drs and drabs in different markets. But you know, this, this, a lot of people may have heard of the flight to quality. That's the new term of, Hey, I want to get to a class a, class A plus asset where all of the health benefits, the ESG benefits, energy benefits are, are either in the building already or are on their way to, to that because we've made commitments and we wanna be able to.
Rightfully, um, show via data that we're achieving those metrics. So a lot of things are causing that flight to quality. But what that means is those Class B and C buildings are really, really under pressure and you're gonna see a wave next year of buildings just being handed back to the lender going into receivership.
Um, and that's not a bad thing because the market has to do some [00:22:00] level of reset and the new basis, the new value has to be set in order for financing to occur on that asset in order for the return to be, um, generated. And most importantly, in order for those buildings to be up, what we can think of as upgraded, um, that that's a cri gonna be a critical piece of getting from where we are to where we wanna be.
And meeting things like ESG goals, It's gonna involve, involve some level of reset. Especially in those B and C buildings, that that's, that's a for sure thing. I also think that multi-family, um, you know, it's been bolstered by great occupancy and rising rents, but I, I do think you're gonna see some more choppiness there next year because you just can't escape those interest rates.
You, you, multi-family sometimes has a little bit longer term on the financing. So there, there are some mitigating factors, but, um, but you just, at some point [00:23:00] you just can't escape it. So I think there's still, you're still gonna see cap rates rising across the board in commercial real estate. They almost have to, because they're compete.
It's cap rate's, just a way of measuring return or, or benchmarking return. And if you, if interest rates are rising and my other investments, whatever they are, just, you could put it in, put it in a savings account. If that is rising, then. Real estate by definition, has the returns have to rise to obviously offer, incentive to invest there.
So that's, that's really what we're talking about there.
[00:23:36] Mandi Wedin: Yeah, from an institutional perspective, if you're competing with putting your money in a 10 year treasury or putting your money in a, Uh, multi-family building, you need a little bit more. Uh, there hasn't been a big spread, but you need a little bit more on that, um, choice to be in an illiquid real estate asset.
And, uh, people are actually pricing treasuries, [00:24:00] multi-family, right? And we want real estate to act like a bond, like a treasury. Um, that's how we've priced it and how we've engaged with it for the last 10 decade of so, but it's not doing that right now, and I don't know that it ever really did. We just wanted it to, So you have to stop treating it like a bond and start treating it like an operating, um, structure.
And where, uh, I think to answer your question, with transactions, there will come, um, cash and investment opportunities. So when the, um, a building sells and it needs to be upgraded, like Joe said, if. In its current office structure today, and it's gonna be a better office building tomorrow, there'll be technology, there'll be investments to bring it to that new standard, to decarbonize, to deliver a better experience, or it'll become a residential building or a hotel building or a lab building or something else.
But that transaction has to happen for that, um, investment to be made, and that'll impact how the smart [00:25:00] buildings industry engages with it.
[00:25:02] James Dice:
Totally. And for those of you that are listening to this and you're like, I thought this podcast was about smart building technology, we're going to, we're gonna get there. I have one like more question about like, how does the real estate business function and, and, and therefore, how do the markets affect it right now?
Can we bring this all down? We've been talking kind of about investment level, investor level. Can we bring this all down to the property level? What does this mean for. What is an asset manager caring about right now? What is a property manager caring about right now? What a, what's the like, we're in budget season.
What does budget season mean right now? Can you guys talk a little bit more about like, let's bring this down to the ground more. Like what are they thinking about right now?
[00:25:47] Joe Gaspardone: Sure. Well, they, they, they definitely, everybody sees the writing on the wall. Um, interestingly, you know, we deal with budgets in our side of the world, uh, at the building [00:26:00] level all the time. And I am mildly surprised that, um, there hasn't been more. Pushback, I guess I would say on some of the initiatives that buildings are taking that, that, that is a good sign.
Um, but, and there's always the caveat, um, next year is next year, and just because something is in the budget this year does not mean that they're going to actually execute on that next year. I'm sure plenty of solution providers out there are right now nodding their heads because they know that they're, you know, they're, whatever the widget is that was going to be in, in installed the following year got kicked to the following year.
So that's, that's, you know, a prerogative it if it happens. But I would say that, um, the refocus is back to the basics. It's how do I get through this tough period from a cash flow [00:27:00] perspective to Mandy's, how do I stay, what, what can I do to stay in compliance with our. Our, our lender in terms of, you know, not falling under the thresholds.
What, what can I do to save money to increase my roi, reduce expenses. So, so those are all the fundamentals of commercial real estate and I think you're gonna see a lot of refocus to that. And what can I do to make, to create efficiencies within the building that are gonna let me at least, even if it doesn't substantially change my ROI next year, at least I can talk to the fact that we're implementing these things that are, are going to help to some degree.
[00:27:41] James Dice: Because, like you guys were saying earlier, I need to go make that case that the, the new financials of this building are gonna be X, Y, Z at the next transaction.
[00:27:53] Mandi Wedin: Yeah, I mean organizations today are um, focused on how do we maintain [00:28:00] the noi. Or grow the noi, right? Ideally, and particularly if you're looking at falling, um, appreciation, depreciation values, then can you get growing cash flow, right? So can you, can you make investments or, uh, do something at the asset that's gonna get better leasing results and save money, right?
Reduce expenses so that you can get a better noi, get better cash flow. And so that's where the thinking will be. Is there something I can do now that'll get me that tomorrow? Ideally they've already done it, right? We've gone and done all the easy, um, low hanging fruit. But if there's something that they know, um, they could do January one, when they can access some cash.
If that's their trigger, they're gonna do it. Or if they want to lease the building to someone, a tenant and the tenant says, I need this. Or if they have a renewal, uh, negotiation that's happening and the tenant says, I want this in the building. If I even wanna consider staying, they're
[00:28:58] Joe Gaspardone: That's a, that's [00:29:00] a great point that, that we're seeing for sure. I can think of one right now, 10 floors in New York and the tenant is saying, I have to have all the data for my BAS system as part of this lease negotiation. Can you do that? And of course there's a frantic, you know, running all the way through the organization.
How do, can we, can we say yes? How do we. And the, the answer fortunately was yes, but it's got a capital a CapEx cost. And at that point they're like, I don't, no, You know, it's not a blank check, but it's like, I'll do whatever it takes. I've gotta, I've gotta keep those guys there. So I think, I think you're gonna see Manny's right at spot on.
It's a, it's a green, it's green lease terms, but really under that it's big tenants saying, I have to meet my data requirements in order to feed up and, and do my [00:30:00] ESG reporting. And that those, that blocking and tackling down low, a lot of that's gonna be least driven. It's a really good.
[00:30:07] James Dice: Mm-hmm. . Okay. So you guys finish this sentence then kind of summarizing this and putting it back to you or making you summarize yourself here. I'm gonna spend CapEx budget if, Right. And I think we just covered that one. I'm gonna spend OPEX budget or increase my OPEX budget if,
[00:30:27] Mandi Wedin: If the tenant reimburses me is always the first thought, right? And if it drives revenue,
[00:30:34] Joe Gaspardone: If I can, if it, if it drives noi, if I can save money or increase revenue, if I can retain a tenant or, or land a new tenant, it's gonna be very much around revenues, you know, savings or new net new revenue generation.
[00:30:52] Mandi Wedin: If I am forced to by a regulatory body?
[00:30:55] Joe Gaspardone: A lot of places now where that's, that's gonna kick in. So [00:31:00] that, that's very real.
[00:31:01] James Dice: So what I'm hearing from you is there are certain fundamentals that we've probably been preaching on this podcast for a long time now that haven't changed, which is if you can, you know, make this building worth more, if you can, you know, fit into some of these priorities that they already have as a business with your technology, then has anything changed at this point then?
[00:31:26] Joe Gaspardone: um, it's changed in this way. One is, um, and everybody really shouldn't, should say, talk less about value creation because we're in a, we're in a value destruction side of the market. So saying, I'm gonna increase your values, like saying, I'm gonna give you one step forward when you're taking five steps back.
And that probably is less, uh, of a, a strong message than, uh, I'm gonna help you retain or land that new tenant. Or I can do these. But the other is, and from the technology standpoint, there are a lot of, um, I don't [00:32:00] wanna call 'em siloed solutions, but there are a lot of single solutions, single, single path solutions that are out there that are going to need to very quickly integrate partner or, or come together with core solutions.
And you can think of it like this. You, you can't, you cannot, you will not be able to sell a solution in the next three years at scale that has you going to a separate portal, website, login, uh, to do something or just see data that, that, that's not gonna fly the way it might have two years ago or even a year ago.
Now, those solutions are gonna be under pressure and the smart ones are gonna get integrated into the core. So a great example is esg, if your. Let's say you're a, um, uh, an occupancy sensing company. You are not gonna get much [00:33:00] success in this market. Having people go to look at occupancy data on its own.
But if you're integrated into the BMS or the lighting control, and you're giving people more within the existing portal, website, login, that, that window, then you are, you're, you, you're gonna have success in this market because, as Mandy mentioned, a lot of the regulatory aspects are pushing people and self-imposed commitments are pushing people to that spot.
So that would be the, the, the real, to me, fundamental shift is gonna be you cannot be out here doing a certain thing on your own anymore. You're gonna have to find a way to get integrated into the, where, essentially where the dollars are gonna be.
[00:33:50] Mandi Wedin: I agree. Integration's super important. You need second order benefits for your dollars cuz you have fewer dollars, right? If you had $10 last year, you have seven now, or maybe [00:34:00] three, right? But you don't have 10. Um, unless it's directly tied to a lease and you're gonna get someone else to fund that dollar, but you have less dollars.
So it needs to go further and it needs to be integrated. And, um, remember that the investment community, real estate, landlords, for the most part, we're all herd animals, right? We stick together, we like to move as a pack. There are some that will lead, and the ones that fall behind, they get eaten and they're terrified of being eaten by the lion right now.
And so, uh, they will go where they're comfortable and nobody gets fired for buying ibm, right? And that's what it used to say. So today that means that, uh, you need a proven concept, something that somebody else can go see, touch, and feel probably literally, uh, in another building and say, Okay, I'll take that.
That will work for my building. That's a solution I want. And it helps meet two things, right? I made a commitment to this tenant for ESG or tech. I made a commitment to [00:35:00] my. Uh, clients around this and it's gonna solve a regulatory or some other, uh, instance need, but you have to have both. Otherwise, they're just
gonna wait.
[00:35:10] Joe Gaspardone: That's right. And there, there are, there, you know, some of the other sort of carrot, the carrot side, you know, there are incentives in the inflation reduction act to kind of tax credit your way to a solution. Um, and while I don't know that they're necessarily as aggressive as you might need in this environment, they are there and that's gonna be net helpful for.
For achieving those goals and, and, and, and attracting and retaining tenants and improving cashless. So it's, it, it's maybe half of 40% of what you would really like in this market, but it is there and that, that's, that's not gonna hurt.
[00:35:52] Mandi Wedin: I think it's an important tool because that's money that's there when the bank money isn't there, potentially. So you're, if you [00:36:00] have a problem to solve and you know you can access it, you'll deal with the complexity of getting to what that looks
[00:36:05] Joe Gaspardone: And there, and it's financable, um, they, there, there's some built in financing over a long period of time. So it's, those two things working together are going to help, um, during, during this time, I, I, I do think that,
[00:36:20] James Dice: Okay, so let's pretend, Oh, Manny, let's not pretend. As you just said, there's this spectrum of organizations, right? And smart buildings are no different, right? There are leaders that have a smart building strategy and an action plan, and have started to implement down that action plan. They have a team built out, they have the right vendors in place, their procurement integrates it all into their core business, all that.
And then there are people on the other end that, like you said, are getting eaten by the lions. From a smart building perspective, they don't have any of that for everyone On that spectrum, what is it? What does this environment mean for smart buildings specifically? We've been touching on a lot of that [00:37:00] in this conversation already, but maybe let's just say in general, kind of where is smart buildings going right now?
[00:37:07] Mandi Wedin: Okay, so, um, there's two ways to look at that, right? There's the solutions providers and there's the solutions buyers. And so from the, the buyer side, uh, it's an adoption curve, right? So we're seeing more organizations come up. The adoption curve is being interrupted now by cash flow issues. It doesn't change the fact that more people will adopt This will speed some organizations up because they recognize that differentiating their product will help them sell it, their product being real estate or, um, an apartment, a retail bay, uh, office space.
So they're gonna say, Oh, technology's gonna help me get there. And from the solutions providers, I would say that, Joe, you can speak to this really well. I would just [00:38:00] say you need to know what your client is going through right now. Cause otherwise you're like asking them if they want coffee, when they would really like a glass of
[00:38:08] Joe Gaspardone: this, this gets back to that, um, know, know your, know your customer, speak their language because, um, if you haven't asked those questions or you aren't actively asking them in the sales, Process then you very well are doing that. And I, we, we, you know, a lot of people come through for our advice, uh, on the solution provider side.
And very often you see that two ships passing in the night. Where, where you, you haven't, you haven't asked the questions to know where the other ship is. So how are you ever gonna meet them? Um, so I think, I think they're, I think that that's the, that's a, a legacy of, you know, outside commercial real estate in a traditional VC model.
You've got that, I'm gonna do this, I'm gonna sell the hell out of it. I'm gonna mark it before I'm, we're even ready cuz I we're gonna be [00:39:00] there. You know, we're gonna play that, that game. And in commercial real estate, it really is slower moving. So you, and, and the market is, is very tight knit as Mandy said, it, it moves, the big herd moves together.
And so, um, you could very quickly. Get over your skis, not deliver something and just carve a big chunk of the market off of your actual, They're not, they're not going to use you just by reputation from that fail. So it's just not that kind of market. And so I think, um, you know, coming back to that, you, you really on the technology side are gonna have to figure out how to, how to, um, bring your solution into the holistic solution that, that's gonna put a lot of pressure on these, these companies that are still sitting on the outside to get them somehow partnered or integrated insight to survive.
[00:40:00] I, I do, I think that's it. There's plenty of VC money sitting out there that's, that has, has, that's dry powder as they call it. It's over $500 billion. So between the institutional money and the VC money, There's money there to see this through, but you, you're not gonna do it on your own, you know, sort of best new thing, best new solution here by itself.
It's, it's just, we're not gonna be in the market for that for a while.
[00:40:30] James Dice: So, is it fair to say like if you look, you know, even when times are good in commercial real estate, there's kind of a lot of like. For lack of a better term, like shitty unstrategic pilots. Right. And there's a lot of stopping and starting, and there's a lot of slow moving in terms of technology adoption.
So man, you mentioned early adopters, that laggard group in the, you know, traditional curve, it getting them on board has been tough. Always. Is it even tougher right now [00:41:00] than if that's what we're saying, it's even, even more difficult.
[00:41:03] Mandi Wedin: don't spend your time there. Uh, which is advice I have to give myself, right? Cause I spend a lot of time talking to people who are like, esg, what are, why do I need to talk about this? Um, this doesn't really impact me. And the answer is yes. And here's how. And it's not gonna change their mind.
You know, they might believe me, but it's not gonna change their business. Right? Some, some will get there. They need a pressure, right? Humans, avoid pain, seek joy, right? There has to be pain that moves them to it. So I'll take my own advice. The laggers who don't, don't see it, don't need it, don't want it, great.
Um, when they do, they'll come find you, right? Um, go find the ones who say, Okay, I need, I have a problem. I'm experiencing pain. I need to solve it. Right? And so that's Joe's point about meet the need of your client. They have a problem that needs to be solved, go solve that problem. You probably have to talk to them and ask a lot of good [00:42:00] questions and engage with them about what is your problem.
And it's different than a year ago potentially, right? So what today do you need?
[00:42:08] James Dice: and Joe, this is where you say go find the non-transactional
[00:42:12] Joe Gaspardone: Correct. I mean, for anybody who hasn't heard the words, it's, there's a whole segment of the market. It's not the majority, but it's a strong, large minority of the market, probably 30 to 40% of the market that is just sitting there, that every dollar you save them is a dollar to their bottom line, not to an investor's bottom line.
And they're more willing to try out new solutions because, um, they often are able to do that easier because there isn't that investment level risk that's sitting there as, as a, as part of the, the financial model. So that governments education, um, hospitality even to some degree. But, um, the big [00:43:00] one would be like the fang campuses, like the, they, they can.
Look at these things in a different way. And my advice is always start there anyway. Get your solution proven there, and then bring it to the rest of the market because you'll have the economies of scale and everything else working for you in a very cost conscious part of the market. So the, it's always the attraction to go in the tam pies to go after the biggest part of the market.
It's counterintuitive in commercial real estate. If you're doing something new, you really want to try to get it going in the non-transactional side because they're less sensitive to a fail. And then the other thing I would say there too is, is, is ESG is here, it's marching forward. It's a great example of link.
That's a priority. It's going to be a [00:44:00] priority link, your solution to the priorities. That's, that's gonna be one that's a great place to integrate into as part of that larger story. If you can, if you can link your, sell your solution to the priorities of the market, then you're, you're gonna have success even in a down market.
It, but it becomes far more important to do that.
[00:44:23] James Dice: Let's pause here for one more quick word from our sponsor and then we'll get back to the show. I wanna remind all of you about the Building Analytics Comparison Guide, which was a collaboration between us at Nexus Labs and the team at Clockworks Analytics.
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[00:45:00] And this guide tells the story of the second D and why it's so important. So get the guide at the link in the show. Just to hitting on that and your earlier to topic about point solutions, Joe, it makes me wanna ask you guys, how does a. Investor in real estate, how does the market, how do the, you know, real estate owners, how do they then view infrastructure, right? So like networks being one example, independent data layer being another example where it enables a bunch of different stuff, almost endless amounts of things that you could do with technology.
Right? Um, how are those sorts of solutions viewed right now, and is it different than normal?
[00:45:41] Mandi Wedin: It's overhead. It says some cost. It's a tax, which is the negative perspective of, okay, if I want to get to here, Um, I have to spend all this money to get to that moment, and it's gonna take me three years to start seeing anything that's frustrating, right? Because again, if you, if you're not a [00:46:00] long-term holder or um, a non-transactional holder, you have some amount of time that you're gonna own this building and then you're gonna let someone else own it right?
Now. It is fair to say that if the building doesn't have this basic infrastructure, what's the value of the other person buying it? Right now we're in that transition valuation risk. Um, that's, um, that's tomorrow's problem sometimes for the way people are addressing it. But yes, you have to spend money on infrastructure to get the right outcome.
Um, is it a very clear line from here to there and who's going to be doing it? Who are the humans? What is the product? What does it look like? There's all these, um, like the. Super fast rate of changing of your cell phone, right. And things like that. That's a, that's a scary prospect for a real estate investor who puts a building system in that has a 20 to 25 year useful life.
They literally don't wanna [00:47:00] talk about it for 20 years. Right. That's hard to do in today's world. Yes. Granted, but that is also the frame of re.
[00:47:08] James Dice: Yeah, the reason I was, uh, just to interject, Joe, before you give your side, it, it, it gets back to that tenant question that we were talking about earlier. Yes, I have to expose this BMS data, or I'm not gonna, you know, get this tenant to renew their lease. The answer right is you need a better network and you need , uh, device layer standards, and you need an independent data layer, right?
Those are the answers, but it's hard to then tie those to what is the language, the, the, you know, person making a decision is thinking about this in what is their decision framework, right? It, it's tying what we know is the right answer from a technology standpoint into how they're
actually making that decision.
[00:47:49] Joe Gaspardone: It's, this is the most frustrating part of, of this. And we, and I, I've, I don't know why, but I've lived it for 33 years now, um, in [00:48:00] this, in cre. And what it is, is we, we try to solve, for some reason, when we're looking at technology, we try to solve these problems from the top down. And what I, what I mean by that is like when I'm acquiring a building, what do I do?
I do tons of due diligence from the ground up. I'm looking at demographics, location, d, a whole bunch of due diligence that I'm doing to build a model to come up with my very best plan for what we're gonna do and what that's gonna be worth five years or 10 years. So we do that really well. But for some reason when we get to technology, we go the other way.
Oh, now we have esg, so what do we do? We're like, Well, what is that? And then we start trying to figure out how, what I need to do from this thing down. And that's poor planning. The best that, you know, if we could, if we could [00:49:00] reset the world, we would say in commercial real. it's top up. It's just what you've been doing.
The rest in every other aspect, which is start at the root level, the end the solutions in the building, get them onto a network that will not go down and has a standard so that your data from one system doesn't, doesn't, you know, upload and the other one does because so centralize and standardize then puts your independent data layer on top of that.
And guess what? ESG is the app, what we call the application layer. But that, that is how you get there. It's this and this. The answer is almost the same for any need at the top. I need the data coming out consistently to a place that other people can plug into solutions. And then my ESG reporting, my carbon reduction reporting, my.
Uh, energy savings. My [00:50:00] portfolio decisions can actually be you, you know, you can see you have visibility that you just don't have. So that's, that's, it's a, it's a, I guess I have to spend the next five years just doing nothing but giving talks, because that is the talk. It's, if you want to achieve these end cases, these use cases, these, these reporting needs, you have to start there.
You, you've gotta build it the right way. Just like you don't build a building starting on the fifth floor, You start with the foundation. It's the same, same analogy.
[00:50:33] Mandi Wedin: I definitely agree. If you could focus on outcomes, right? What's your outcome? You need, You need, and esg. The better returns and positive societal impact, right? Risk adjusted returns and positive societal impact. And then you report on that and you get benefits from the reporting. But in order to get that risk reward analysis and positive societal impacts, you have to understand what you have to begin with.
And Joe, you're so, right, [00:51:00] right? Developers who build buildings, they know you have to literally draw it and then you, um, price it and then you add humans to the mix and you swing hammers and you pour concrete and then you build it up from the ground up. And then you have something that you can go, uh, lease to someone to pay you rent, right?
So it's, the outcome is the collecting of the rent, right? The returns to the investors or whomever is the owner. And you gotta start at the very beginning. And so we have to tie that, um, result, that outcome. To the foundation, the infrastructure. And right now technology doesn't have that same tie for a lot of organizations.
Fairly, not everybody's a developer in real estate, right? Some people just buy existing building stack like bonds. Some people just redevelop or do some leasing risk, right? Cuz there's different level of risk. But you can see the link. It's clearly a link. We just have to, um, see it for technology and ESG implementation as [00:52:00] well.
[00:52:00] James Dice: And this is part, just to bring this back to what we were just talking about before we went down. Ranty little rabbit hole, which I love. Um, this is part of knowing your customer. We have to know, are they able to make that connection between what they should be doing from a technology standpoint and these outcomes that they're willing to invest in.
If they're not, we might need to walk away. I think a lot of vendors should probably, and this, we talk about this a lot in our course, is like, you need to be able to figure out pretty quickly if this is a good organization for you to try to sell this change in one of the organizations that, um, you know, for better or for worse.
Um, I just heard, you know, recently that um, you know, kind of a famous smart buildings organization, they've been talking about smart buildings for a long time, that a lot of conferences just let their entire smart buildings team go. Um, Canadian Re we don't taught to talk about who they are, but um, I wanted to get your guys' take on.
Do you think we're [00:53:00] gonna see more of that? You know, it's an organization that had an internal team, they had a strategy, they were implementing that strategy, uh, you know, over, over several years gaining traction within the organization and all of a sudden it's all gone. Like, it's just, it's done. So do you guys feel like we're gonna see more of that given that these market conditions,
[00:53:22] Joe Gaspardone: The optimist. Me wants to say no, but, um, I think this comes back to what we just said. If you don't have a plan, if you have not mapped out that plan, Mandy was, it was such a great point. It's like I, it's like, what if I want what? Went out and I said, Oh my God, I've got, uh, I've got Google as a tenant now I need to buy, I need to build a building.
That's, that's sort of what we're doing. We're, we're saying, I need to do this, so I'm gonna go do this. And it's like, well wait. You would not do it that way. You would plan and start with the design of a building [00:54:00] and then along the way, you know, work on tenanting that building. So, so it's, it's very similar here with, without the plan.
If you've got a smart buildings group that's be tweaked in between the building level and the C level and there's not a defined plan, that's, that's, that's a recipe for somebody coming along and saying, What are we really doing here? Is this doing anything? I don't see any, We've had this thing in here and it's just costing us money, and you just, you, that can't be how you go about this.
It's, it really has to be a full plan. With timelines very analogous to the esg. I mean, how do you get there? It's a full plan with timelines and, and, and that's just, I think I would call it the basic blocking and tackling of any corporate initiative. Right. But we've, we've been throwing darts into the middle of an organizational structure saying these, this is our smart building guy, or this is our smart building team.
And it's like [00:55:00] three people who have an incredibly difficult time getting anything done because they don't really have the organizational push to get it done. They're sort of, they're sort of sitting there in the middle without a plan. So I, I would just put that right back in the plan.
[00:55:19] James Dice: And they're squeezed between, it seems like to me, they're squeezed between the C-suite who doesn't quite buy into what they're doing fully, and the site level who is looking at them like, who are these people from corporate showing up here telling me what to do with my building? And you're kind of sitting in between there and no man's land
[00:55:37] Joe Gaspardone: And it's kind of, it's kind of ironic because if you think about it, you know, really executing that smart building plan is probably, if you focused on it, it's probably legitimately three to five year plan. And that ties to the long term nature of commercial real estate. But for some reason, technology doesn't get that long leash.
And it's like, what have you done for me in [00:56:00] the last nine months? I need this ROI changed. And that's, that's just the wrong view. You, you have to align. The, the goals of those programs with the long term nature of, of that's how long it takes. I mean, you just, and, and trust. I think trusting that in commercial real estate is very difficult.
They, they've never, um, never had a great experience with technology in general, and so they, it's just looked as a, as a CapEx or opex cost without the tangible benefit side, so that, that some, there's some history playing playing into
[00:56:37] James Dice: Well part of, uh, Manny, I wanna get your take too. I keep talking over you. Sorry. Um, the part of what I feel like just in this conversation I'm coming to terms with here is that there needs to be a, a different perception. It's kind of like a branding exercise that needs to happen for smart buildings as a whole, which is just like you have a core and shell of [00:57:00] a building, just like you have these different pieces of infrastructure, like a parking garage or your different amenities or whatever.
You're, you, you're investing in that infrastructure. For some reason, these different layers of technology are not viewed. Infrastructure in the same way. Right? It's, it's being viewed as this other thing all, all together.
[00:57:22] Mandi Wedin: That's true. It's also not classified accounting wise, right? If you just wanna be nerdy about it, um, it's not a capital investment potentially. But to go back to the, to the, I'm gonna call it a layoff, right? We're seeing layoffs in different organizations and remember that, um, if your assets under management, your valuations or buildings are coming down, cuz your cap rates are going up, and you as an investor manager make a percentage interest on your assets under management and your pie is shrinking, you have less dollars to pay your team. So, um, there may just need to be team [00:58:00] decisions, right? At the same time you're looking at where are we spending capital and what does the next 18 to 24 months look like at the ground, at the assets. Well, if you're shifting capital out of 23 and into 24, there isn't anything to do or there's there's more reason, um, to highlight specific teams or, um, move things around differently.
You can outsource that, you can delay that, um, unfortunately for people, right? You feel it. Um, so you have to cut costs at the assets, and you have to cut costs at corporate, and we're seeing that
[00:58:36] James Dice: Yeah, and what happened in this case is that the people that you know got let go, like you're saying. Um, They came to me and they will be getting jobs at startups who have, have dry powder, like Joe said, , that, that, I mean that's, that's basically the shift that is under, like happening at this moment. Right.
Startups will snap people like that up immediately. Um, and so maybe we're gonna [00:59:00] see more of that, uh, over the next year or so.
[00:59:04] Joe Gaspardone: And I, there is a first in, first out aspect to that too that Mandy was referring to in that, you know, sometimes if the plan's not there and the smart buildings teams are often some of the last people in, when times get tough, they're the first ones out. But again, it comes back to that plan. If it's not seen as core to what we're doing, then that's, that's the easier of the bad moves or the tough moves you have to make.
[00:59:32] James Dice: let's close off with two things. We're gonna talk about carve outs, but let's just end with some bright spots real quick. Where, where do you guys feel like are, are, or you know, what reasons for optimism do we have at this moment in time?
[00:59:44] Mandi Wedin: Okay, so I'll start. Um, President Biden was in China and met, with she the leader and they committed to climate impact, uh, positive forward momentum. You can add all kinds of words to it [01:00:00] cuz it'll be something different than what I expected to be. But decarbonization is happening. It matters. Us and China are the two largest contributors, right?
We are going to be the ones everybody looks to, to solve it and we have the opportunity to solve it. So that's gonna impact the building industry in a huge way. So I think that's a bright spot. It's a pain spot, but it's a bright spot, right? We have a lot of, um, work to do and we can. I also think the regulations are gonna keep coming hard and fast, right outta Europe, outta Asia, outta the us.
Um, local jurisdictions. Last I looked, there were 37 cities, states, counties that were passing specific decarbonization regulation. Uh, there'll be more coming.
[01:00:46] Joe Gaspardone: Yeah, I would say, um, the, the silver, the bright spots are technology at some level is still gonna be a priority. It has to be because you have regs [01:01:00] and, and the, the entire ESG movement to, to a large degree, hinges upon technology. It's really hard to get very far unless you've solved a lot of the problems that the technological hurdles in buildings.
And so it's going to be a priority that people might not like the timelines of that. It may, they may get extended, they may get stretched out, but it, it's going to be a priority. And the closer you align into those dollars, The Inflation reduction Act dollars, the vc, let's call it dry powder, and the money the capital sitting on the sidelines for, um, institutional investment.
Tho those are all things that will play out moving forward. And however you get into those dollars, that, that's where you want to be. Um, the other bright spot is, and this is, this is really the, the optimistic statement is [01:02:00] some of the greatest leaps forward we've had are when we are really, really in a tough spot.
It, it forces companies to think about things differently. To not march forward traditionally to do hard pivots when they wouldn't have otherwise. Uh, innovation happens out of these challenging times, sometimes big, big steps forward in innovation. And so I just think even though it's, you know, It's tough.
The truth is, is when you're forced to really get serious and, and you have to use your dollars wisely, and you have to think about how am I gonna best, present my solution to the customer? It forces you to think about the other innovations that you might need to have integrated into your solution to make.
And those are what lead to big, innovative steps forward. So if you're like an indoor [01:03:00] air quality solution and you aren't thinking about how, as fast as I can, making that integrate, The BAS system and how that's gonna interact and make the BAS system more efficient, then you probably aren't gonna make it.
But if you are doing that and you're gonna start really, really getting in and going hard in that direction, then you are gonna be part of those solutions that, that move forward. That, that, that's the, to me, the bright spot is, I think we're actually gonna see more from consolidation and techno techn sort of technological evolution over the next three years because of that.
[01:03:42] Mandi Wedin: And I'll reiterate that transactions will drive the bus on this, right? As the market unlocks and transactions happen, voluntary and involuntary, more of this investment, more capital will be available to invest and that will move things forward.
[01:03:57] Joe Gaspardone: Yep.
[01:03:58] Mandi Wedin: We're creating pent up demand, right? [01:04:00] Nothing's happening, or it's, um, sitting there growing with pressure when it, um, releases.
We'll just have all this pent up demand to address.
[01:04:09] James Dice: And that answer like how do we decarbonize, how do we make buildings smarter? The answer is when those transactions occur, we gotta make 'em count. Like we really have to make 'em count.
[01:04:20] Joe Gaspardone: When those transactions occur they will be able to occur faster and more aggressively in many cases than they did before because of that reset and the ability as, as Manny points out to create value through esg like that, that's, that, that will be part of the strategy, if not the center point of, of many strategies as those resets.
[01:04:43] James Dice: All right. I love this. Thanks so much for lending your knowledge. Uh, we will, we will take this back up when, you know, next quarter when there's something new to talk about. Hopefully it doesn't stay like this, but we'll see. Uh, Mandy, uh, let's [01:05:00] start with you on carve outs. What, what book podcasts, documentary TV show
[01:05:05] Mandi Wedin: is
[01:05:06] James Dice: uh, inspiring you right now?
[01:05:08] Mandi Wedin: I did just binge the Crown season five, so that's my just. Lay it out there for the facts. Right. Um, for a book. I was just, I was saying I have, I have this here, the address book that I, um, am reading getting through, and it's about, um, what street addresses reveal about identity, race, wealth and power, and how some parts of the world don't have addresses.
But how do you get services if you don't have an address, um, if you're unhoused in the US versus, uh, all the machinations that real estate developers go through to get a central park or a Central Park, West address in New York, and how New York will let you buy that even if you're not on Central Park West.
Um, it's fascinating. Read.
[01:05:52] James Dice: Interesting. All right, we'll link to that.
What about you Joe?
[01:05:55] Joe Gaspardone: Uh, I, you know, I'm not a huge TV [01:06:00] slash movie watcher, but I am a pretty voracious reader, and I'm gonna throw one out that I just, just finished. So there's this author Scott Tore. He, for those of you who may remember, he wrote, which was made into a movie a long time ago, called, um, Presumed Innocent, and they generally revolve around some legal premise.
Um, the thing I would say about Scott Tore is he's not a very good author. Um, he, he, this is an English major speaking, but he, he really wrote a bunch of garbage, uh, almost like he needed to crank something out every year for a paycheck. And, and so do not read anything else but this, but this, this particular book almost felt like he was making up for his, his mistakes of the past.
And it's like twice as long and it's a incredibly deep philosophical. Storyline plot. [01:07:00] Uh, and it's set in two different parts of the country, one and two different time periods. The late sixties in the Bay Area and Midwest. So it's got a very, and two different narrators. So you've got like a first person woman who's in the courtroom and a first person guy who's in the late sixties in Berkeley.
And it all comes together and it's a deep, really, really, really good book. I, I was, um, I was giving him one more chance and I Googled and just said, I'm gonna find the very best book he's ever written. That was definitely it. The laws of our Fathers.
[01:07:36] Mandi Wedin: The laws of our fathers. You buried the lead. Okay. The laws of our fathers
[01:07:42] Joe Gaspardone: Yes, I
[01:07:43] James Dice: you go. Uh, okay. Mine is a little bit of cheating. Uh, it's the World Cup is coming up. Um,
after this gets published, it will begin. Um, one of my friends, Tim, is on the US team, which I'm super excited about, Tim Reem. So I [01:08:00] will be wearing my Tim Reem jersey screaming at the TV for every US game, but also just, I've been watching the World Cup since I was four, probably right whenever the first time, um, I watched it on TV was, and it is just this time when I just like, I, I love it so much.
but I'll share, There's a documentary on Netflix called FIFA Uncovered, and I'm halfway through it and it is like the dark side of the World Cup. Big time. Sounds like you, you checked it out,
[01:08:30] Joe Gaspardone: I'm on it. I'm gonna check that out.
[01:08:32] James Dice: It, it's ver it's pretty slow. Um, they say things that are super heavy, but they say it in a very dry way. So you have to really like, think like, it's not my wife kind of just dozed off.
But, um, it, it, it, like, for those of you that enjoy soccer like me, enjoy the World Cup, enjoy it your whole life to then know like all the corruption that's happening behind the scenes, especially with this particular World Cup, uh, pretty fascinating [01:09:00] documentary
[01:09:00] Mandi Wedin: Yeah, the, the Women's World Cup and the Men's World Cup are not being played in the same place this
[01:09:05] Joe Gaspardone: I did not know that.
[01:09:07] Mandi Wedin: year
[01:09:08] Joe Gaspardone: Interesting.
[01:09:09] James Dice: for good reason.
[01:09:10] Joe Gaspardone: That's part I take it. That's part of the storyline.
[01:09:13] James Dice: leave people with that and, uh, thank you so much. Uh, and I look forward to doing this again with you both, uh, next
quarter.
All right, friends. Thanks for listening to this episode of the Nexus podcast. For more episodes like this and to get the weekly Nexus newsletter, which by the way, readers have said is the best way to stay at the date on the future of the smart building industry, please subscribe@nexuslabs.online. You can find the show notes for this conversation there as well.
Have a great day.
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Episode 127 is a conversation with Mandi Wedin of Feroce Real Estate Advisors and Joe Gaspardone of Montgomery Technologies.
I’m excited to begin a new recurring series with Mandi and Joe where they educate the smart buildings community about one of their big customers - the real estate investment/owner - and what is happening to that customer and how that impacts the smart building industry.
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Without further ado, please enjoy the Nexus podcast with Mandi Wedin and Joe Gaspardone.
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Note: transcript was created using an imperfect machine learning tool and lightly edited by a human (so you can get the gist). Please forgive errors!
[00:00:00] James Dice: Hello friends. Welcome to the Nexus Podcast. I'm your host, James Dice. Each week I fire questions at the leaders of the smart BU industry to try to figure out where we're headed and how we can get there faster without all the marketing fluff. I'm pushing my learning to limit, and I'm so glad to have you here following along.
Before we get started, here's a quick note from our sponsor.
Longtime listeners will remember Brain Box AI from way back on episode eight of the podcast. In that episode, we unpacked how Brain Box allows you to add. Specifically reinforcement learning to your existing HVAC control system, turning it into a predictive brain that learns precisely how to use less energy and optimize comfort in all building zones at all times.
With Brain Box, you can reduce your carbon footprint, lower energy bills, and increase equipment [00:01:00] life. Learn more by checking out the Westcliff Shopping Center success story at the link in the show. This episodes a conversation with Mandy Wheaton of Furrow Real Estate Advisors and Joe Gasper of Montgomery Technologies.
I'm excited to begin a new recurring series with Mandy and Joe, where they educate the smart Billings community about one of their big customers, the real estate owner, and what is happening to that customer and how that impacts the smart buildings industry. And since this is a new series, let us know what you think.
So without further ado, please enjoy the Nexus Podcast with Mandy Whedon and Joe Gas.
Joe and Mandy. Hello. Welcome to the Nexus podcast. Welcome back to the Nexus Podcast. How are you guys doing?
[00:01:42] Mandi Wedin: Great.
[00:01:43] Joe Gaspardone: Excellent.
[00:01:44] James Dice: I'm so excited to, to start this new series, I think we're gonna call it CRE Market Talk or Talks. We'll see. We'll see what this ends up getting published as. This is version one of a potential quarterly series on [00:02:00] current happenings in the real estate investment market and how that impacts the smart buildings industry.
And I'm super excited because you two have taught me most of what I know about how the real estate business functions. So thank you. And we will, we'll be teaching more people these things here with these talks. So let's start with backgrounds. Mandy, you go first, Can you introduce yourself and maybe give us, uh, a little bit of insight into what your company does?
[00:02:31] Mandi Wedin: Sure. Thanks James. Hey, Joe. My name is Mandy Whedon. I am founder and CEO of Pau Real Estate Advisors, where we advise forward thinking real estate companies on how to position their real estate, how to position their teams to be successful during times of disruption. And today that means we work at the intersection of commercial real estate finance, esgr.
I add an R to the ESG for resilience and tech, [00:03:00] and I spent 20 plus years on the investor management side running portfolios of real estate office, retail, residential, industrial, and the major market to the US on behalf of big pension fund advisors and investment management companies, some. Now I bring that experience to bear for my clients at.
[00:03:18] James Dice: Great. Thank you, Joe, how about
you?
[00:03:21] Joe Gaspardone: So Joe Gasper, I'm the COO of Montgomery Technologies, and Montgomery is really a core infrastructure company in commercial real estate, high rise buildings. So we, um, primarily design for assess, design, build and install secure networks. Converge networks we like to call it now in, uh, commercial high-rise buildings and migrate new and existing technology solutions onto that infrastructure.
So we've been doing that for a long time, 12 years for networking and 20. [00:04:00] In the fiber optic net networking arena. And my background is, uh, kind of like Mandy's. Um, I've got about 15, 16 years in commercial real estate operations and then the other half of that, another 16, 17 years in commercial real estate technology.
So, um, it's always refreshing to have Mandy on and talk to her because she's one of the other people that has the perspective. And I think that especially as we're, we're looking ahead for the next five years, that having that perspective is really important.
[00:04:34] James Dice: Absolutely. Absolutely. And we'll put, You guys have both been on the show previously. We'll put those episodes in the show notes for people that wanna go deeper into your backgrounds and everything you guys do. Um, Mandy, I think you and I talked about Esgr and Joe, you and I talked about making the business case for technology and we talked about networking.
So those three episodes will, will link to those. [00:05:00] Let's not rehash those though. Let's talk about the, the market. Mandy, why don't you start for by sort of setting the stage for I, I think we should also say this is November, 2022. When this is being recorded, can you kind of set the macro stage for what the commercial real estate industry is sort of going through right now?
[00:05:21] Mandi Wedin: Sure. So with, uh, coming out of the depths of the Covid Pandemic and into 2021 and 2022, um, real estate was recovering from some shocks and experiencing some, uh, tailwinds. And then when the interest rates rose, The, uh, headwinds came again, and then after a series of those interest rate increases real estate, the institutional investment real estate market is, I say, frozen.
And the, the brokers and the, um, capital markets team are like, No, no, we're still doing deals. [00:06:00] It's not totally frozen. And so I will qualify that to say that capital is really tight. Liquidity is really tight right now. It's, um, if you went through the GFC great financial crisis, it's as tight or tighter than when we were in the middle of that.
So, um, it's hard to get transactions done and it's hard to figure out what the value of your building is today. And remember that investment is, um, pension funds and big investors put money into a pie, a diversified pie, cash, stock, bonds, and real estate and the alternatives. And so what happens in those other pieces of the pie impacts real estate and interest rates.
And that, uh, freezing of the market is impacting real estate, uh, significantly right now.
[00:06:48] James Dice: And Joe, you and I talked, I was in your office two weeks ago in San Francisco. We had a, had a about an hour's discussion on what the hell is going on right now. Um, anything to add to [00:07:00] that? Uh, you know, sort of big
picture, macro perspective.
[00:07:03] Joe Gaspardone: yeah. You know, there's a, there's a great chart out there which actually needs updating now that interest rates have gone up again. But, um, we were in the middle of the fastest rise in real estate, in, in interest rates in, in modern history. So, you know, in commercial real, commercial real estate's a very slow moving, slow adjusting part segment of our, of our economy.
So having that rise that fast, faster than ever before, um, you know, in Mandy's right? It's not. Necessarily a full lockup, but it's pretty darn close. Uh, it, it's, it takes these things a long time in commercial real estate to trickle through because you've got long term leases, long term financing. So these, these things tend to have a delayed effect in commercial real estate as [00:08:00] opposed to some of the other parts of the economy that are much faster to adjust and adapt.
We're, we're just not able to do that, that fa that quickly. And I think that's, I think you're, you're seeing that, that, that things are really just, there's a lot of pause buttons being hit to wait and see where we level off. Um, I would throw this in. I went and looked at, um, an old, uh, spreadsheet that I had when I, we used to do acquisitions and forecasting, and I took. And I just plugged in what the interest rate was eight months ago, nine months ago, and what it is today, and just not, not taking into account hybrid work and smaller footprints and, and everything else that's happening, but just taking the interest rate increases into effect. You are, you're looking today at about a 30 to 32% difference in value.
It's a
big
[00:09:00] number.
[00:09:00] James Dice: And when you say difference in value, you mean cut in
[00:09:02] Joe Gaspardone: decrease in value,
so,
[00:09:03] James Dice: decrease in value. The buildings are worth
less than they were before.
[00:09:07] Joe Gaspardone: You, I hate the word market or, um, you know, value destruction, maybe value reduction. But yeah, it's, if you're, like, if you had a hundred million building at the beginning of this year, you're looking at something that's somewhere in the ballpark of 70 today, if you could sell it, which is going back to Mandy's point, that, that's a tough proposition cuz nobody quite knows where this is gonna land.
Nobody wants to walk into a 70 million deal that's 60 million in two, in, you know, two or to six months. So that's, that's, it's a tough, tough, tough place to be
right
now.
[00:09:39] James Dice: Let's review real quick. So Joe and I had you on originally, you talked about the two different types of real estate investments. There's transactional, as you called it, a non-transactional ones that you're gonna hold for a long time. Right? Transactional is like, I like to think about like a house flipper, right?
A kind of like, maybe that's not the right way to think about it, but buying low
[00:09:59] Joe Gaspardone: 10. Give it a [00:10:00] five to 10 year horizon. Yeah. Yeah.
[00:10:02] James Dice: Okay. Okay. So give me a sense, um, either of you, whoever feels like, uh, answering this um, what types of those investments are we talking about here and are there more invest types of investments that this affects?
[00:10:19] Mandi Wedin: Okay, so, um, good question. James, Because if you're a, if you're a, an institution that owns real estate for the operations of your business, a hospital and uh, educational institution, yes, you pay attention to values, uh, because you probably use debt or some sort of instrument to fund it. So that's the non-transactional. The transactional is the investment side. And a house flipper is an opportunistic fund, right? There's a short timeframe. You're gonna, um, take investors money, deploy it into real estate investments, and tell 'em, after five years we're gonna sell it and give you your money back.
And then they have some [00:11:00] extensions, of course, so they don't miss the market timing. And then there's open-end core funds, which are, we're gonna take your, um, investors, money, pension fund money, uh, institutional money invested in real estate. The fund is open. And so you come and go quarterly for the investors and assets can be sold and capital recycled.
But there is a mindset that you're not holding it forever. You're maximizing value, selling it to someone else and then redeploying the capital. And so that timing really has an impact on, um, where we sit today in the real estate world. Cuz if you needed to sell your building this year because you have a sunset or a horizon in your closed end fund, you're in a tough spot.
And if you've already used your extension and your next extension, right now, you're going back to your investors and saying, Okay, gimme another year or two. And they're saying, Okay, will it be ha be done in two years? And you're saying that's the plan? Yes, it'll be done in two years. Right? That's how you're gonna get your [00:12:00] extension.
But if you're an open ed fund like Joe, And your, uh, interest rates go up. So that means your cap rate, your terminal capitalization rate, which is a, um, a multiplier that's applied to the cash flow grows, then your value comes down. So just by the fact that interest rates rose and the math formula that we use, that a hundred million dollar, um, building is now worth less.
And so that means that your portfolio is worth less across the board, um, where that applies and that causes pressures in your business and your investments.
[00:12:34] Joe Gaspardone: And I just, I would add to that, um, I think, and this speaks to the slow moving nature, which is, you know, helpful when you're dealing with a pandemic and you can kind of, you can kind of, um, you've got years to kind of, um, Hopefully waited out. Um, but now we've got the pandemic followed by the interest rate increases.
And so this is where you're gonna see a bit of a, [00:13:00] well, you could look at it as an exponential shift in what's happening in, in this sense. Um, you've got roughly 50 million square feet that's coming on the market today, uh, in terms of leases turning over and, and people scrambling to kind of figure out what to do.
But in 2023, you've got 250 million that's coming. Back on the market or needs to be renegotiated and signed up again. And by 2026, if you look out three years, you're looking at almost a, uh, 500 million square feet. So 10 x what we had this year. So there's, that's, that's, uh, that, you know, that there's a lot of planning that has to go into that.
And if you're sitting on the institutional money side and you're looking at your diversity and your allocations, you know that that's gonna be, those are gonna be factors that, that [00:14:00] determine to some degree how much you wanna hedge your bets away from a, and I wouldn't say all of commercial real estate, but certain subsets of the market for.
[00:14:08] James Dice: Okay. So I think that gives people a good idea of kind of where we're at. Big picture. Where would you guys say this issue is in relation to the other issues that we've kind of. Tangentially mentioned here, Esgr, uh, I'd say add climate change to that. Um, rise
or rising interest rates. We've talked about hybrid work we've talked about a little bit.
What about layoffs? Like, it seems like that's happening, especially in the tech industry. So if tenants are in the tech industry, seems like a lot of layoffs are happening. Where would you guys put maybe rank these different issues right now? Uh, for the real estate owner?
[00:14:49] Joe Gaspardone: That's a, that's a good one. I, I, I do think that, um, a silver lining of layoffs could be, um, a little bit more of a rebalance [00:15:00] in terms of, um, Return to work. So the silver lining would be that, um, with the counterbalance of the employment market softening over time, there's a good chance that you're gonna see a little more, um, hey, we need people in the office.
We've got, you know, we're retrenching, we're refocusing, we're pivoting, and we need our team together to get the sort of internal collaboration, cross-pollinization, whatever you want to call it, um, together again to take, you know, faster, sort of more significant strides forward. So I think that you might see that as, as kind of, uh, one of the positives.
But the truth is, is there's a lot of headwinds right now, probably more than we've ever had at once in terms of the need on the ESG side to reduce carbon, reduce energy, implement a whole new. [00:16:00] Structure in terms of how these things get tracked and reported. And I know Mandy can talk all day about that.
But then you've also got reduced footprints and then you've also got higher interest rates. And so there, there's a, there's gonna be a tremendous amount of pressure on parts of the market to spend money at a less than opportune time and that that's gonna be the struggle.
[00:16:25] Mandi Wedin: Yeah, I would say it's interest rates. Interest rates, interest rates, and then everything else is in a bucket that we'll deal deal with tomorrow. Right? Because something is on fire, literally, um, on fire. And that's maybe because, uh, your loan was floating and now you're, um, Debt costs are up and you don't have dscr, you don't have a debt service coverage ratio anymore.
You're out of compliance of your loan, right? Or, um, you need to sell and you can't sell, or, um, because your costs rose, your expenses are up. So your um, NOI is down and your values are [00:17:00] down, um, because interest rates are up, which means cap rates are up, right? So all of that pressure, are you gonna own it?
Um, are you gonna be able to sell it? Do you have any money available at the property to cash flow to cover the things that need to be done? Um, including the, um, execution of the ESGR initiatives in your technology initiatives. So as we get more clarity into where interest rates will stabilize and where inflation will stabilize, we will. With that clarity will become the ability to make decisions into the future. Right now it's uh, what are we doing in the next month? What are we doing in the next quarter? It's quarterly cash flow planning mindset cause we're in a falling
[00:17:46] Joe Gaspardone: And that, that is so, you know, you can't be overstated. Commercial real estate in general has no choice but to wait for some type of leveling off and normalization. Like there's the, it's too long term of [00:18:00] a play to, to just say start pegging things at particular points going up the ladder of interest rate increases.
So you really are forced to wait out to get a sense that, okay, we're gonna, we're gonna taper off here, we're gonna normalize here. There's 400 plus billion dollars of institutional capital that's sitting on the sidelines waiting to be invested probably in a lot of what we will now be in the value add market where, where these things go back through receivership and, you know, get foreclosed on and then, um, opportunistic money comes in and resets the value lower and then they can spend money.
So it's, it's a cycle. We're, we're in the lockup period of that cycle, but we're gonna hit some point of stability. But until then, um, yeah, it's the headwinds are, are, are, are strong.
[00:18:56] James Dice: let's, let's break that down a little bit [00:19:00] more. That that piece. So what I was gonna ask next was, If markets are frozen right now, how do we get unpro? And I feel like that was the answer to that question, but I don't know that I understood it. So can you guys break that down a little bit more? How do we unfreeze the situation?
And I say we, How is it gonna get Unpro? ? Cause I'm not gonna play a part.
[00:19:23] Mandi Wedin: so clarity, right? Where will interest rates be? So we have a, we have a bit ask spread what the seller thinks the building is worth or what it's on their books as is what they would like to sell it at, what the buyer is willing to pay for it, because they recognize there's complexity and uncertainty, so they're gonna, they wanna be rewarded for that risk, right?
So we've gotta spread and the two have not yet met very well. We've seen some transactions, and I'm talking about office for the most part. We're still seeing transaction volume in the industrial space. But, um, some, uh, uncertainty there with where that will go. [00:20:00] Long term we're seeing. Uh, transaction volume and multi-family as well.
Retail is still struggling. Um, it has struggled. It's come out of it, with a little more clarity until now interest rates have played in it. So if we just look at office, So when will the office market transact again? When the Fed says, Okay, we're done raising interest rates, and people are like, Okay, now I can underwrite a number.
When, um, we have, uh, a valuation reset. So the big funds, um, that are private rates are valued quarterly, right? So the third quarter valuations just came out. We saw the appreciation, the instead of appreciation in those funds, we signed appreciation for the first time in the Na Creek Odyssey, and then the big REITs, right?
Their, their stocks are still. Uh, undervalued to nav to net asset value. So when those things happen, we'll see that, uh, voluntary transaction happen. And Joe, you wanna talk about the involuntary
[00:20:59] Joe Gaspardone: That's [00:21:00] the,
you know, the downside we are gonna see, we're already seeing it, but just in Drs and drabs in different markets. But you know, this, this, a lot of people may have heard of the flight to quality. That's the new term of, Hey, I want to get to a class a, class A plus asset where all of the health benefits, the ESG benefits, energy benefits are, are either in the building already or are on their way to, to that because we've made commitments and we wanna be able to.
Rightfully, um, show via data that we're achieving those metrics. So a lot of things are causing that flight to quality. But what that means is those Class B and C buildings are really, really under pressure and you're gonna see a wave next year of buildings just being handed back to the lender going into receivership.
Um, and that's not a bad thing because the market has to do some [00:22:00] level of reset and the new basis, the new value has to be set in order for financing to occur on that asset in order for the return to be, um, generated. And most importantly, in order for those buildings to be up, what we can think of as upgraded, um, that that's a cri gonna be a critical piece of getting from where we are to where we wanna be.
And meeting things like ESG goals, It's gonna involve, involve some level of reset. Especially in those B and C buildings, that that's, that's a for sure thing. I also think that multi-family, um, you know, it's been bolstered by great occupancy and rising rents, but I, I do think you're gonna see some more choppiness there next year because you just can't escape those interest rates.
You, you, multi-family sometimes has a little bit longer term on the financing. So there, there are some mitigating factors, but, um, but you just, at some point [00:23:00] you just can't escape it. So I think there's still, you're still gonna see cap rates rising across the board in commercial real estate. They almost have to, because they're compete.
It's cap rate's, just a way of measuring return or, or benchmarking return. And if you, if interest rates are rising and my other investments, whatever they are, just, you could put it in, put it in a savings account. If that is rising, then. Real estate by definition, has the returns have to rise to obviously offer, incentive to invest there.
So that's, that's really what we're talking about there.
[00:23:36] Mandi Wedin: Yeah, from an institutional perspective, if you're competing with putting your money in a 10 year treasury or putting your money in a, Uh, multi-family building, you need a little bit more. Uh, there hasn't been a big spread, but you need a little bit more on that, um, choice to be in an illiquid real estate asset.
And, uh, people are actually pricing treasuries, [00:24:00] multi-family, right? And we want real estate to act like a bond, like a treasury. Um, that's how we've priced it and how we've engaged with it for the last 10 decade of so, but it's not doing that right now, and I don't know that it ever really did. We just wanted it to, So you have to stop treating it like a bond and start treating it like an operating, um, structure.
And where, uh, I think to answer your question, with transactions, there will come, um, cash and investment opportunities. So when the, um, a building sells and it needs to be upgraded, like Joe said, if. In its current office structure today, and it's gonna be a better office building tomorrow, there'll be technology, there'll be investments to bring it to that new standard, to decarbonize, to deliver a better experience, or it'll become a residential building or a hotel building or a lab building or something else.
But that transaction has to happen for that, um, investment to be made, and that'll impact how the smart [00:25:00] buildings industry engages with it.
[00:25:02] James Dice:
Totally. And for those of you that are listening to this and you're like, I thought this podcast was about smart building technology, we're going to, we're gonna get there. I have one like more question about like, how does the real estate business function and, and, and therefore, how do the markets affect it right now?
Can we bring this all down? We've been talking kind of about investment level, investor level. Can we bring this all down to the property level? What does this mean for. What is an asset manager caring about right now? What is a property manager caring about right now? What a, what's the like, we're in budget season.
What does budget season mean right now? Can you guys talk a little bit more about like, let's bring this down to the ground more. Like what are they thinking about right now?
[00:25:47] Joe Gaspardone: Sure. Well, they, they, they definitely, everybody sees the writing on the wall. Um, interestingly, you know, we deal with budgets in our side of the world, uh, at the building [00:26:00] level all the time. And I am mildly surprised that, um, there hasn't been more. Pushback, I guess I would say on some of the initiatives that buildings are taking that, that, that is a good sign.
Um, but, and there's always the caveat, um, next year is next year, and just because something is in the budget this year does not mean that they're going to actually execute on that next year. I'm sure plenty of solution providers out there are right now nodding their heads because they know that they're, you know, they're, whatever the widget is that was going to be in, in installed the following year got kicked to the following year.
So that's, that's, you know, a prerogative it if it happens. But I would say that, um, the refocus is back to the basics. It's how do I get through this tough period from a cash flow [00:27:00] perspective to Mandy's, how do I stay, what, what can I do to stay in compliance with our. Our, our lender in terms of, you know, not falling under the thresholds.
What, what can I do to save money to increase my roi, reduce expenses. So, so those are all the fundamentals of commercial real estate and I think you're gonna see a lot of refocus to that. And what can I do to make, to create efficiencies within the building that are gonna let me at least, even if it doesn't substantially change my ROI next year, at least I can talk to the fact that we're implementing these things that are, are going to help to some degree.
[00:27:41] James Dice: Because, like you guys were saying earlier, I need to go make that case that the, the new financials of this building are gonna be X, Y, Z at the next transaction.
[00:27:53] Mandi Wedin: Yeah, I mean organizations today are um, focused on how do we maintain [00:28:00] the noi. Or grow the noi, right? Ideally, and particularly if you're looking at falling, um, appreciation, depreciation values, then can you get growing cash flow, right? So can you, can you make investments or, uh, do something at the asset that's gonna get better leasing results and save money, right?
Reduce expenses so that you can get a better noi, get better cash flow. And so that's where the thinking will be. Is there something I can do now that'll get me that tomorrow? Ideally they've already done it, right? We've gone and done all the easy, um, low hanging fruit. But if there's something that they know, um, they could do January one, when they can access some cash.
If that's their trigger, they're gonna do it. Or if they want to lease the building to someone, a tenant and the tenant says, I need this. Or if they have a renewal, uh, negotiation that's happening and the tenant says, I want this in the building. If I even wanna consider staying, they're
[00:28:58] Joe Gaspardone: That's a, that's [00:29:00] a great point that, that we're seeing for sure. I can think of one right now, 10 floors in New York and the tenant is saying, I have to have all the data for my BAS system as part of this lease negotiation. Can you do that? And of course there's a frantic, you know, running all the way through the organization.
How do, can we, can we say yes? How do we. And the, the answer fortunately was yes, but it's got a capital a CapEx cost. And at that point they're like, I don't, no, You know, it's not a blank check, but it's like, I'll do whatever it takes. I've gotta, I've gotta keep those guys there. So I think, I think you're gonna see Manny's right at spot on.
It's a, it's a green, it's green lease terms, but really under that it's big tenants saying, I have to meet my data requirements in order to feed up and, and do my [00:30:00] ESG reporting. And that those, that blocking and tackling down low, a lot of that's gonna be least driven. It's a really good.
[00:30:07] James Dice: Mm-hmm. . Okay. So you guys finish this sentence then kind of summarizing this and putting it back to you or making you summarize yourself here. I'm gonna spend CapEx budget if, Right. And I think we just covered that one. I'm gonna spend OPEX budget or increase my OPEX budget if,
[00:30:27] Mandi Wedin: If the tenant reimburses me is always the first thought, right? And if it drives revenue,
[00:30:34] Joe Gaspardone: If I can, if it, if it drives noi, if I can save money or increase revenue, if I can retain a tenant or, or land a new tenant, it's gonna be very much around revenues, you know, savings or new net new revenue generation.
[00:30:52] Mandi Wedin: If I am forced to by a regulatory body?
[00:30:55] Joe Gaspardone: A lot of places now where that's, that's gonna kick in. So [00:31:00] that, that's very real.
[00:31:01] James Dice: So what I'm hearing from you is there are certain fundamentals that we've probably been preaching on this podcast for a long time now that haven't changed, which is if you can, you know, make this building worth more, if you can, you know, fit into some of these priorities that they already have as a business with your technology, then has anything changed at this point then?
[00:31:26] Joe Gaspardone: um, it's changed in this way. One is, um, and everybody really shouldn't, should say, talk less about value creation because we're in a, we're in a value destruction side of the market. So saying, I'm gonna increase your values, like saying, I'm gonna give you one step forward when you're taking five steps back.
And that probably is less, uh, of a, a strong message than, uh, I'm gonna help you retain or land that new tenant. Or I can do these. But the other is, and from the technology standpoint, there are a lot of, um, I don't [00:32:00] wanna call 'em siloed solutions, but there are a lot of single solutions, single, single path solutions that are out there that are going to need to very quickly integrate partner or, or come together with core solutions.
And you can think of it like this. You, you can't, you cannot, you will not be able to sell a solution in the next three years at scale that has you going to a separate portal, website, login, uh, to do something or just see data that, that, that's not gonna fly the way it might have two years ago or even a year ago.
Now, those solutions are gonna be under pressure and the smart ones are gonna get integrated into the core. So a great example is esg, if your. Let's say you're a, um, uh, an occupancy sensing company. You are not gonna get much [00:33:00] success in this market. Having people go to look at occupancy data on its own.
But if you're integrated into the BMS or the lighting control, and you're giving people more within the existing portal, website, login, that, that window, then you are, you're, you, you're gonna have success in this market because, as Mandy mentioned, a lot of the regulatory aspects are pushing people and self-imposed commitments are pushing people to that spot.
So that would be the, the, the real, to me, fundamental shift is gonna be you cannot be out here doing a certain thing on your own anymore. You're gonna have to find a way to get integrated into the, where, essentially where the dollars are gonna be.
[00:33:50] Mandi Wedin: I agree. Integration's super important. You need second order benefits for your dollars cuz you have fewer dollars, right? If you had $10 last year, you have seven now, or maybe [00:34:00] three, right? But you don't have 10. Um, unless it's directly tied to a lease and you're gonna get someone else to fund that dollar, but you have less dollars.
So it needs to go further and it needs to be integrated. And, um, remember that the investment community, real estate, landlords, for the most part, we're all herd animals, right? We stick together, we like to move as a pack. There are some that will lead, and the ones that fall behind, they get eaten and they're terrified of being eaten by the lion right now.
And so, uh, they will go where they're comfortable and nobody gets fired for buying ibm, right? And that's what it used to say. So today that means that, uh, you need a proven concept, something that somebody else can go see, touch, and feel probably literally, uh, in another building and say, Okay, I'll take that.
That will work for my building. That's a solution I want. And it helps meet two things, right? I made a commitment to this tenant for ESG or tech. I made a commitment to [00:35:00] my. Uh, clients around this and it's gonna solve a regulatory or some other, uh, instance need, but you have to have both. Otherwise, they're just
gonna wait.
[00:35:10] Joe Gaspardone: That's right. And there, there are, there, you know, some of the other sort of carrot, the carrot side, you know, there are incentives in the inflation reduction act to kind of tax credit your way to a solution. Um, and while I don't know that they're necessarily as aggressive as you might need in this environment, they are there and that's gonna be net helpful for.
For achieving those goals and, and, and, and attracting and retaining tenants and improving cashless. So it's, it, it's maybe half of 40% of what you would really like in this market, but it is there and that, that's, that's not gonna hurt.
[00:35:52] Mandi Wedin: I think it's an important tool because that's money that's there when the bank money isn't there, potentially. So you're, if you [00:36:00] have a problem to solve and you know you can access it, you'll deal with the complexity of getting to what that looks
[00:36:05] Joe Gaspardone: And there, and it's financable, um, they, there, there's some built in financing over a long period of time. So it's, those two things working together are going to help, um, during, during this time, I, I, I do think that,
[00:36:20] James Dice: Okay, so let's pretend, Oh, Manny, let's not pretend. As you just said, there's this spectrum of organizations, right? And smart buildings are no different, right? There are leaders that have a smart building strategy and an action plan, and have started to implement down that action plan. They have a team built out, they have the right vendors in place, their procurement integrates it all into their core business, all that.
And then there are people on the other end that, like you said, are getting eaten by the lions. From a smart building perspective, they don't have any of that for everyone On that spectrum, what is it? What does this environment mean for smart buildings specifically? We've been touching on a lot of that [00:37:00] in this conversation already, but maybe let's just say in general, kind of where is smart buildings going right now?
[00:37:07] Mandi Wedin: Okay, so, um, there's two ways to look at that, right? There's the solutions providers and there's the solutions buyers. And so from the, the buyer side, uh, it's an adoption curve, right? So we're seeing more organizations come up. The adoption curve is being interrupted now by cash flow issues. It doesn't change the fact that more people will adopt This will speed some organizations up because they recognize that differentiating their product will help them sell it, their product being real estate or, um, an apartment, a retail bay, uh, office space.
So they're gonna say, Oh, technology's gonna help me get there. And from the solutions providers, I would say that, Joe, you can speak to this really well. I would just [00:38:00] say you need to know what your client is going through right now. Cause otherwise you're like asking them if they want coffee, when they would really like a glass of
[00:38:08] Joe Gaspardone: this, this gets back to that, um, know, know your, know your customer, speak their language because, um, if you haven't asked those questions or you aren't actively asking them in the sales, Process then you very well are doing that. And I, we, we, you know, a lot of people come through for our advice, uh, on the solution provider side.
And very often you see that two ships passing in the night. Where, where you, you haven't, you haven't asked the questions to know where the other ship is. So how are you ever gonna meet them? Um, so I think, I think they're, I think that that's the, that's a, a legacy of, you know, outside commercial real estate in a traditional VC model.
You've got that, I'm gonna do this, I'm gonna sell the hell out of it. I'm gonna mark it before I'm, we're even ready cuz I we're gonna be [00:39:00] there. You know, we're gonna play that, that game. And in commercial real estate, it really is slower moving. So you, and, and the market is, is very tight knit as Mandy said, it, it moves, the big herd moves together.
And so, um, you could very quickly. Get over your skis, not deliver something and just carve a big chunk of the market off of your actual, They're not, they're not going to use you just by reputation from that fail. So it's just not that kind of market. And so I think, um, you know, coming back to that, you, you really on the technology side are gonna have to figure out how to, how to, um, bring your solution into the holistic solution that, that's gonna put a lot of pressure on these, these companies that are still sitting on the outside to get them somehow partnered or integrated insight to survive.
[00:40:00] I, I do, I think that's it. There's plenty of VC money sitting out there that's, that has, has, that's dry powder as they call it. It's over $500 billion. So between the institutional money and the VC money, There's money there to see this through, but you, you're not gonna do it on your own, you know, sort of best new thing, best new solution here by itself.
It's, it's just, we're not gonna be in the market for that for a while.
[00:40:30] James Dice: So, is it fair to say like if you look, you know, even when times are good in commercial real estate, there's kind of a lot of like. For lack of a better term, like shitty unstrategic pilots. Right. And there's a lot of stopping and starting, and there's a lot of slow moving in terms of technology adoption.
So man, you mentioned early adopters, that laggard group in the, you know, traditional curve, it getting them on board has been tough. Always. Is it even tougher right now [00:41:00] than if that's what we're saying, it's even, even more difficult.
[00:41:03] Mandi Wedin: don't spend your time there. Uh, which is advice I have to give myself, right? Cause I spend a lot of time talking to people who are like, esg, what are, why do I need to talk about this? Um, this doesn't really impact me. And the answer is yes. And here's how. And it's not gonna change their mind.
You know, they might believe me, but it's not gonna change their business. Right? Some, some will get there. They need a pressure, right? Humans, avoid pain, seek joy, right? There has to be pain that moves them to it. So I'll take my own advice. The laggers who don't, don't see it, don't need it, don't want it, great.
Um, when they do, they'll come find you, right? Um, go find the ones who say, Okay, I need, I have a problem. I'm experiencing pain. I need to solve it. Right? And so that's Joe's point about meet the need of your client. They have a problem that needs to be solved, go solve that problem. You probably have to talk to them and ask a lot of good [00:42:00] questions and engage with them about what is your problem.
And it's different than a year ago potentially, right? So what today do you need?
[00:42:08] James Dice: and Joe, this is where you say go find the non-transactional
[00:42:12] Joe Gaspardone: Correct. I mean, for anybody who hasn't heard the words, it's, there's a whole segment of the market. It's not the majority, but it's a strong, large minority of the market, probably 30 to 40% of the market that is just sitting there, that every dollar you save them is a dollar to their bottom line, not to an investor's bottom line.
And they're more willing to try out new solutions because, um, they often are able to do that easier because there isn't that investment level risk that's sitting there as, as a, as part of the, the financial model. So that governments education, um, hospitality even to some degree. But, um, the big [00:43:00] one would be like the fang campuses, like the, they, they can.
Look at these things in a different way. And my advice is always start there anyway. Get your solution proven there, and then bring it to the rest of the market because you'll have the economies of scale and everything else working for you in a very cost conscious part of the market. So the, it's always the attraction to go in the tam pies to go after the biggest part of the market.
It's counterintuitive in commercial real estate. If you're doing something new, you really want to try to get it going in the non-transactional side because they're less sensitive to a fail. And then the other thing I would say there too is, is, is ESG is here, it's marching forward. It's a great example of link.
That's a priority. It's going to be a [00:44:00] priority link, your solution to the priorities. That's, that's gonna be one that's a great place to integrate into as part of that larger story. If you can, if you can link your, sell your solution to the priorities of the market, then you're, you're gonna have success even in a down market.
It, but it becomes far more important to do that.
[00:44:23] James Dice: Let's pause here for one more quick word from our sponsor and then we'll get back to the show. I wanna remind all of you about the Building Analytics Comparison Guide, which was a collaboration between us at Nexus Labs and the team at Clockworks Analytics.
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[00:45:00] And this guide tells the story of the second D and why it's so important. So get the guide at the link in the show. Just to hitting on that and your earlier to topic about point solutions, Joe, it makes me wanna ask you guys, how does a. Investor in real estate, how does the market, how do the, you know, real estate owners, how do they then view infrastructure, right? So like networks being one example, independent data layer being another example where it enables a bunch of different stuff, almost endless amounts of things that you could do with technology.
Right? Um, how are those sorts of solutions viewed right now, and is it different than normal?
[00:45:41] Mandi Wedin: It's overhead. It says some cost. It's a tax, which is the negative perspective of, okay, if I want to get to here, Um, I have to spend all this money to get to that moment, and it's gonna take me three years to start seeing anything that's frustrating, right? Because again, if you, if you're not a [00:46:00] long-term holder or um, a non-transactional holder, you have some amount of time that you're gonna own this building and then you're gonna let someone else own it right?
Now. It is fair to say that if the building doesn't have this basic infrastructure, what's the value of the other person buying it? Right now we're in that transition valuation risk. Um, that's, um, that's tomorrow's problem sometimes for the way people are addressing it. But yes, you have to spend money on infrastructure to get the right outcome.
Um, is it a very clear line from here to there and who's going to be doing it? Who are the humans? What is the product? What does it look like? There's all these, um, like the. Super fast rate of changing of your cell phone, right. And things like that. That's a, that's a scary prospect for a real estate investor who puts a building system in that has a 20 to 25 year useful life.
They literally don't wanna [00:47:00] talk about it for 20 years. Right. That's hard to do in today's world. Yes. Granted, but that is also the frame of re.
[00:47:08] James Dice: Yeah, the reason I was, uh, just to interject, Joe, before you give your side, it, it, it gets back to that tenant question that we were talking about earlier. Yes, I have to expose this BMS data, or I'm not gonna, you know, get this tenant to renew their lease. The answer right is you need a better network and you need , uh, device layer standards, and you need an independent data layer, right?
Those are the answers, but it's hard to then tie those to what is the language, the, the, you know, person making a decision is thinking about this in what is their decision framework, right? It, it's tying what we know is the right answer from a technology standpoint into how they're
actually making that decision.
[00:47:49] Joe Gaspardone: It's, this is the most frustrating part of, of this. And we, and I, I've, I don't know why, but I've lived it for 33 years now, um, in [00:48:00] this, in cre. And what it is, is we, we try to solve, for some reason, when we're looking at technology, we try to solve these problems from the top down. And what I, what I mean by that is like when I'm acquiring a building, what do I do?
I do tons of due diligence from the ground up. I'm looking at demographics, location, d, a whole bunch of due diligence that I'm doing to build a model to come up with my very best plan for what we're gonna do and what that's gonna be worth five years or 10 years. So we do that really well. But for some reason when we get to technology, we go the other way.
Oh, now we have esg, so what do we do? We're like, Well, what is that? And then we start trying to figure out how, what I need to do from this thing down. And that's poor planning. The best that, you know, if we could, if we could [00:49:00] reset the world, we would say in commercial real. it's top up. It's just what you've been doing.
The rest in every other aspect, which is start at the root level, the end the solutions in the building, get them onto a network that will not go down and has a standard so that your data from one system doesn't, doesn't, you know, upload and the other one does because so centralize and standardize then puts your independent data layer on top of that.
And guess what? ESG is the app, what we call the application layer. But that, that is how you get there. It's this and this. The answer is almost the same for any need at the top. I need the data coming out consistently to a place that other people can plug into solutions. And then my ESG reporting, my carbon reduction reporting, my.
Uh, energy savings. My [00:50:00] portfolio decisions can actually be you, you know, you can see you have visibility that you just don't have. So that's, that's, it's a, it's a, I guess I have to spend the next five years just doing nothing but giving talks, because that is the talk. It's, if you want to achieve these end cases, these use cases, these, these reporting needs, you have to start there.
You, you've gotta build it the right way. Just like you don't build a building starting on the fifth floor, You start with the foundation. It's the same, same analogy.
[00:50:33] Mandi Wedin: I definitely agree. If you could focus on outcomes, right? What's your outcome? You need, You need, and esg. The better returns and positive societal impact, right? Risk adjusted returns and positive societal impact. And then you report on that and you get benefits from the reporting. But in order to get that risk reward analysis and positive societal impacts, you have to understand what you have to begin with.
And Joe, you're so, right, [00:51:00] right? Developers who build buildings, they know you have to literally draw it and then you, um, price it and then you add humans to the mix and you swing hammers and you pour concrete and then you build it up from the ground up. And then you have something that you can go, uh, lease to someone to pay you rent, right?
So it's, the outcome is the collecting of the rent, right? The returns to the investors or whomever is the owner. And you gotta start at the very beginning. And so we have to tie that, um, result, that outcome. To the foundation, the infrastructure. And right now technology doesn't have that same tie for a lot of organizations.
Fairly, not everybody's a developer in real estate, right? Some people just buy existing building stack like bonds. Some people just redevelop or do some leasing risk, right? Cuz there's different level of risk. But you can see the link. It's clearly a link. We just have to, um, see it for technology and ESG implementation as [00:52:00] well.
[00:52:00] James Dice: And this is part, just to bring this back to what we were just talking about before we went down. Ranty little rabbit hole, which I love. Um, this is part of knowing your customer. We have to know, are they able to make that connection between what they should be doing from a technology standpoint and these outcomes that they're willing to invest in.
If they're not, we might need to walk away. I think a lot of vendors should probably, and this, we talk about this a lot in our course, is like, you need to be able to figure out pretty quickly if this is a good organization for you to try to sell this change in one of the organizations that, um, you know, for better or for worse.
Um, I just heard, you know, recently that um, you know, kind of a famous smart buildings organization, they've been talking about smart buildings for a long time, that a lot of conferences just let their entire smart buildings team go. Um, Canadian Re we don't taught to talk about who they are, but um, I wanted to get your guys' take on.
Do you think we're [00:53:00] gonna see more of that? You know, it's an organization that had an internal team, they had a strategy, they were implementing that strategy, uh, you know, over, over several years gaining traction within the organization and all of a sudden it's all gone. Like, it's just, it's done. So do you guys feel like we're gonna see more of that given that these market conditions,
[00:53:22] Joe Gaspardone: The optimist. Me wants to say no, but, um, I think this comes back to what we just said. If you don't have a plan, if you have not mapped out that plan, Mandy was, it was such a great point. It's like I, it's like, what if I want what? Went out and I said, Oh my God, I've got, uh, I've got Google as a tenant now I need to buy, I need to build a building.
That's, that's sort of what we're doing. We're, we're saying, I need to do this, so I'm gonna go do this. And it's like, well wait. You would not do it that way. You would plan and start with the design of a building [00:54:00] and then along the way, you know, work on tenanting that building. So, so it's, it's very similar here with, without the plan.
If you've got a smart buildings group that's be tweaked in between the building level and the C level and there's not a defined plan, that's, that's, that's a recipe for somebody coming along and saying, What are we really doing here? Is this doing anything? I don't see any, We've had this thing in here and it's just costing us money, and you just, you, that can't be how you go about this.
It's, it really has to be a full plan. With timelines very analogous to the esg. I mean, how do you get there? It's a full plan with timelines and, and, and that's just, I think I would call it the basic blocking and tackling of any corporate initiative. Right. But we've, we've been throwing darts into the middle of an organizational structure saying these, this is our smart building guy, or this is our smart building team.
And it's like [00:55:00] three people who have an incredibly difficult time getting anything done because they don't really have the organizational push to get it done. They're sort of, they're sort of sitting there in the middle without a plan. So I, I would just put that right back in the plan.
[00:55:19] James Dice: And they're squeezed between, it seems like to me, they're squeezed between the C-suite who doesn't quite buy into what they're doing fully, and the site level who is looking at them like, who are these people from corporate showing up here telling me what to do with my building? And you're kind of sitting in between there and no man's land
[00:55:37] Joe Gaspardone: And it's kind of, it's kind of ironic because if you think about it, you know, really executing that smart building plan is probably, if you focused on it, it's probably legitimately three to five year plan. And that ties to the long term nature of commercial real estate. But for some reason, technology doesn't get that long leash.
And it's like, what have you done for me in [00:56:00] the last nine months? I need this ROI changed. And that's, that's just the wrong view. You, you have to align. The, the goals of those programs with the long term nature of, of that's how long it takes. I mean, you just, and, and trust. I think trusting that in commercial real estate is very difficult.
They, they've never, um, never had a great experience with technology in general, and so they, it's just looked as a, as a CapEx or opex cost without the tangible benefit side, so that, that some, there's some history playing playing into
[00:56:37] James Dice: Well part of, uh, Manny, I wanna get your take too. I keep talking over you. Sorry. Um, the part of what I feel like just in this conversation I'm coming to terms with here is that there needs to be a, a different perception. It's kind of like a branding exercise that needs to happen for smart buildings as a whole, which is just like you have a core and shell of [00:57:00] a building, just like you have these different pieces of infrastructure, like a parking garage or your different amenities or whatever.
You're, you, you're investing in that infrastructure. For some reason, these different layers of technology are not viewed. Infrastructure in the same way. Right? It's, it's being viewed as this other thing all, all together.
[00:57:22] Mandi Wedin: That's true. It's also not classified accounting wise, right? If you just wanna be nerdy about it, um, it's not a capital investment potentially. But to go back to the, to the, I'm gonna call it a layoff, right? We're seeing layoffs in different organizations and remember that, um, if your assets under management, your valuations or buildings are coming down, cuz your cap rates are going up, and you as an investor manager make a percentage interest on your assets under management and your pie is shrinking, you have less dollars to pay your team. So, um, there may just need to be team [00:58:00] decisions, right? At the same time you're looking at where are we spending capital and what does the next 18 to 24 months look like at the ground, at the assets. Well, if you're shifting capital out of 23 and into 24, there isn't anything to do or there's there's more reason, um, to highlight specific teams or, um, move things around differently.
You can outsource that, you can delay that, um, unfortunately for people, right? You feel it. Um, so you have to cut costs at the assets, and you have to cut costs at corporate, and we're seeing that
[00:58:36] James Dice: Yeah, and what happened in this case is that the people that you know got let go, like you're saying. Um, They came to me and they will be getting jobs at startups who have, have dry powder, like Joe said, , that, that, I mean that's, that's basically the shift that is under, like happening at this moment. Right.
Startups will snap people like that up immediately. Um, and so maybe we're gonna [00:59:00] see more of that, uh, over the next year or so.
[00:59:04] Joe Gaspardone: And I, there is a first in, first out aspect to that too that Mandy was referring to in that, you know, sometimes if the plan's not there and the smart buildings teams are often some of the last people in, when times get tough, they're the first ones out. But again, it comes back to that plan. If it's not seen as core to what we're doing, then that's, that's the easier of the bad moves or the tough moves you have to make.
[00:59:32] James Dice: let's close off with two things. We're gonna talk about carve outs, but let's just end with some bright spots real quick. Where, where do you guys feel like are, are, or you know, what reasons for optimism do we have at this moment in time?
[00:59:44] Mandi Wedin: Okay, so I'll start. Um, President Biden was in China and met, with she the leader and they committed to climate impact, uh, positive forward momentum. You can add all kinds of words to it [01:00:00] cuz it'll be something different than what I expected to be. But decarbonization is happening. It matters. Us and China are the two largest contributors, right?
We are going to be the ones everybody looks to, to solve it and we have the opportunity to solve it. So that's gonna impact the building industry in a huge way. So I think that's a bright spot. It's a pain spot, but it's a bright spot, right? We have a lot of, um, work to do and we can. I also think the regulations are gonna keep coming hard and fast, right outta Europe, outta Asia, outta the us.
Um, local jurisdictions. Last I looked, there were 37 cities, states, counties that were passing specific decarbonization regulation. Uh, there'll be more coming.
[01:00:46] Joe Gaspardone: Yeah, I would say, um, the, the silver, the bright spots are technology at some level is still gonna be a priority. It has to be because you have regs [01:01:00] and, and the, the entire ESG movement to, to a large degree, hinges upon technology. It's really hard to get very far unless you've solved a lot of the problems that the technological hurdles in buildings.
And so it's going to be a priority that people might not like the timelines of that. It may, they may get extended, they may get stretched out, but it, it's going to be a priority. And the closer you align into those dollars, The Inflation reduction Act dollars, the vc, let's call it dry powder, and the money the capital sitting on the sidelines for, um, institutional investment.
Tho those are all things that will play out moving forward. And however you get into those dollars, that, that's where you want to be. Um, the other bright spot is, and this is, this is really the, the optimistic statement is [01:02:00] some of the greatest leaps forward we've had are when we are really, really in a tough spot.
It, it forces companies to think about things differently. To not march forward traditionally to do hard pivots when they wouldn't have otherwise. Uh, innovation happens out of these challenging times, sometimes big, big steps forward in innovation. And so I just think even though it's, you know, It's tough.
The truth is, is when you're forced to really get serious and, and you have to use your dollars wisely, and you have to think about how am I gonna best, present my solution to the customer? It forces you to think about the other innovations that you might need to have integrated into your solution to make.
And those are what lead to big, innovative steps forward. So if you're like an indoor [01:03:00] air quality solution and you aren't thinking about how, as fast as I can, making that integrate, The BAS system and how that's gonna interact and make the BAS system more efficient, then you probably aren't gonna make it.
But if you are doing that and you're gonna start really, really getting in and going hard in that direction, then you are gonna be part of those solutions that, that move forward. That, that, that's the, to me, the bright spot is, I think we're actually gonna see more from consolidation and techno techn sort of technological evolution over the next three years because of that.
[01:03:42] Mandi Wedin: And I'll reiterate that transactions will drive the bus on this, right? As the market unlocks and transactions happen, voluntary and involuntary, more of this investment, more capital will be available to invest and that will move things forward.
[01:03:57] Joe Gaspardone: Yep.
[01:03:58] Mandi Wedin: We're creating pent up demand, right? [01:04:00] Nothing's happening, or it's, um, sitting there growing with pressure when it, um, releases.
We'll just have all this pent up demand to address.
[01:04:09] James Dice: And that answer like how do we decarbonize, how do we make buildings smarter? The answer is when those transactions occur, we gotta make 'em count. Like we really have to make 'em count.
[01:04:20] Joe Gaspardone: When those transactions occur they will be able to occur faster and more aggressively in many cases than they did before because of that reset and the ability as, as Manny points out to create value through esg like that, that's, that, that will be part of the strategy, if not the center point of, of many strategies as those resets.
[01:04:43] James Dice: All right. I love this. Thanks so much for lending your knowledge. Uh, we will, we will take this back up when, you know, next quarter when there's something new to talk about. Hopefully it doesn't stay like this, but we'll see. Uh, Mandy, uh, let's [01:05:00] start with you on carve outs. What, what book podcasts, documentary TV show
[01:05:05] Mandi Wedin: is
[01:05:06] James Dice: uh, inspiring you right now?
[01:05:08] Mandi Wedin: I did just binge the Crown season five, so that's my just. Lay it out there for the facts. Right. Um, for a book. I was just, I was saying I have, I have this here, the address book that I, um, am reading getting through, and it's about, um, what street addresses reveal about identity, race, wealth and power, and how some parts of the world don't have addresses.
But how do you get services if you don't have an address, um, if you're unhoused in the US versus, uh, all the machinations that real estate developers go through to get a central park or a Central Park, West address in New York, and how New York will let you buy that even if you're not on Central Park West.
Um, it's fascinating. Read.
[01:05:52] James Dice: Interesting. All right, we'll link to that.
What about you Joe?
[01:05:55] Joe Gaspardone: Uh, I, you know, I'm not a huge TV [01:06:00] slash movie watcher, but I am a pretty voracious reader, and I'm gonna throw one out that I just, just finished. So there's this author Scott Tore. He, for those of you who may remember, he wrote, which was made into a movie a long time ago, called, um, Presumed Innocent, and they generally revolve around some legal premise.
Um, the thing I would say about Scott Tore is he's not a very good author. Um, he, he, this is an English major speaking, but he, he really wrote a bunch of garbage, uh, almost like he needed to crank something out every year for a paycheck. And, and so do not read anything else but this, but this, this particular book almost felt like he was making up for his, his mistakes of the past.
And it's like twice as long and it's a incredibly deep philosophical. Storyline plot. [01:07:00] Uh, and it's set in two different parts of the country, one and two different time periods. The late sixties in the Bay Area and Midwest. So it's got a very, and two different narrators. So you've got like a first person woman who's in the courtroom and a first person guy who's in the late sixties in Berkeley.
And it all comes together and it's a deep, really, really, really good book. I, I was, um, I was giving him one more chance and I Googled and just said, I'm gonna find the very best book he's ever written. That was definitely it. The laws of our Fathers.
[01:07:36] Mandi Wedin: The laws of our fathers. You buried the lead. Okay. The laws of our fathers
[01:07:42] Joe Gaspardone: Yes, I
[01:07:43] James Dice: you go. Uh, okay. Mine is a little bit of cheating. Uh, it's the World Cup is coming up. Um,
after this gets published, it will begin. Um, one of my friends, Tim, is on the US team, which I'm super excited about, Tim Reem. So I [01:08:00] will be wearing my Tim Reem jersey screaming at the TV for every US game, but also just, I've been watching the World Cup since I was four, probably right whenever the first time, um, I watched it on TV was, and it is just this time when I just like, I, I love it so much.
but I'll share, There's a documentary on Netflix called FIFA Uncovered, and I'm halfway through it and it is like the dark side of the World Cup. Big time. Sounds like you, you checked it out,
[01:08:30] Joe Gaspardone: I'm on it. I'm gonna check that out.
[01:08:32] James Dice: It, it's ver it's pretty slow. Um, they say things that are super heavy, but they say it in a very dry way. So you have to really like, think like, it's not my wife kind of just dozed off.
But, um, it, it, it, like, for those of you that enjoy soccer like me, enjoy the World Cup, enjoy it your whole life to then know like all the corruption that's happening behind the scenes, especially with this particular World Cup, uh, pretty fascinating [01:09:00] documentary
[01:09:00] Mandi Wedin: Yeah, the, the Women's World Cup and the Men's World Cup are not being played in the same place this
[01:09:05] Joe Gaspardone: I did not know that.
[01:09:07] Mandi Wedin: year
[01:09:08] Joe Gaspardone: Interesting.
[01:09:09] James Dice: for good reason.
[01:09:10] Joe Gaspardone: That's part I take it. That's part of the storyline.
[01:09:13] James Dice: leave people with that and, uh, thank you so much. Uh, and I look forward to doing this again with you both, uh, next
quarter.
All right, friends. Thanks for listening to this episode of the Nexus podcast. For more episodes like this and to get the weekly Nexus newsletter, which by the way, readers have said is the best way to stay at the date on the future of the smart building industry, please subscribe@nexuslabs.online. You can find the show notes for this conversation there as well.
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