Sep 21, 2022
Richard Chilcott is a Principal with the Avison Young Capital Markets Group providing acquisition and disposition services of investment properties to financial institutions, REIT’s, private investors and pension funds. Richard began his career in 1991 with Hans House Group, a private investment and development company based in London, England. Since joining Avison Young’s Toronto Capital Markets Group in 2001 Richard has been involved with transactions totalling in excess of $5 billion. In over 25 years of commercial real estate practice Richard has completed a wide variety of real estate transactions ranging from smaller private client businesses to more complex portfolio transactions
In this episode we talked about:
Useful links:
https://www.linkedin.com/in/richard-chilcott-946b5a3/?originalSubdomain=ca
Transcription:
Jesse (0s): Welcome to the working capital real estate podcast. My name's Jessica galley. And on this show, we discuss all things real estate with investors and experts in a variety of industries that impact real estate. Whether you're looking at your first investment or raising your first fund, join me and let's build that portfolio one square foot at a time. Ladies and gentlemen, my name's Jessica galley, and you're listening to working capital the real estate podcast. My guest today is Richard Chicot. Richard is a principal with Avis and young capital markets group providing acquisition and disposition services of investment properties to financial institutions, res private investors and pension funds.
Richard began his career in 1991 with the Hans house group. We now know that there's over 25 years of commercial real estate experience. And Richard has completed a wide variety of real estate transactions ranging from smaller private client business to much more complex portfolio transactions, Richard, how's it going?
Richard (1m 2s): Great. Thanks Jess. It's good to be here. That's a great intro. And it, it, it does seem like I've been here a long time. If you say
Jesse (1m 8s): 19 91, 19 91. So you you've, you know that it's funny, a lot of the investors, you know, you won't work with certain sponsors of deals unless you've been through some version of oh eight or 90, you know, their early nineties or some sort of recession to, to kind of understand that the, that we, we live in a cyclical real estate environment.
Richard (1m 29s): Yeah, it totally is cyclical. What we're in right now, I think is, is different and a bit more challenging. And I don't have a longevity for that. So I've actually been trying to find some sort of the people who are senior to me and some of, some of the mentors I've had over the years, days, what happens during inflationary periods. That's an interesting,
Jesse (1m 49s): Yeah, you don't, you're saying you don't remember the panic of 1907.
Richard (1m 54s): No, no. Although someone the other day suggested I should know what was going on in the 1970s and eighties with inflation and strikes and I guess fuel shocks and things like that. So I can just don't remember that at all.
Jesse (2m 9s): I can just hear my dad double digit interest rates, but before we, we delve into some of the more topical stuff, maybe for, for listeners, you can give a little bit of a background of, of how you got started in real estate and kind of the path that you took to, to where you are today and have been for the last little while at Davison young.
Richard (2m 30s): Yeah. There's, there was sort of one major, major turn in my career when I, when I changed country and went from, from the principal side to agency brokerage. And that was 2001. But before that, it was pretty hard to get, I always wanted to be in real estate. Half of my family was in commercial real estate. The other side was engineering. And that was always the choice, I think. So I looked at other things, not wanting to make a choice, but in the end sort of real estate got me, but it was not easy finding a place to start in the early nineties.
So that was in London, London, England, and I got a job and I had a high following title of surveyor for car parks. That was my job. And I was responsible. I, I remember when was 16 or 18 car across, I think all in England, different parts of it. And they, none of them were automated and it was my job to look after everything, to everything, to do with those car as a young sort of 21 year old guy at the end of 91.
And I think the people that worked for me totally saw me coming. And, but eventually we sort of got to grips with it, but that was sort of a fun experience as you start off on a very limited understanding of anything, really, and then you sort of, you have responsibility and you grow it from there, but that was an interesting company. It was a development company that would turn its hand to almost anything, right? So they built a, it was a redevelopment company. So you look at being, being such a heavily, already built environment.
You could be incredibly creative. You could look at an office building and wonder if you could turn that into a hotel or you could. The one deal we did was a, a pumping station used to pump water in and out of a shipping base, right by tower bridge in London. And we managed to get an option on this building. And then we decide the best thing to do would be to let's make it a residential building. And so we sort of punch this glass funnel through the middle of there, which, which is where the apartments are gonna be.
That was in the mid nineties. And things just started taking off. So started off as car park and then sort of shifted out of that is more like an administrative role into other things. We built some pretty cool things. A lot of the times we would entitle sites come up with a concept and then sell 'em before construction. It was a small company. It was great fun. Hmm. And then in the end I moved to Canada. So that was 2001, everything, everything for me ended at one, I married a Canadian in London and that was the deal.
So we were shoot to three years in London and I'd do three years in Canada and we would end up where we ended up. So I don't think we ever look back, but Canada's an amazing, an amazing place. UK's an amazing place too. So I've just been back and it's, you, you, you remember all the wonderful things that I got up to there, and what's just an amazing vibrant environment, but Canada's got lots going for it when you're sort of starting a young family and other things like that. So,
Jesse (5m 46s): So that transition, that transition from the UK to Canada, the, did that, did that coincide with working over here for a, a UK based company? Or did you switch jobs with the
Richard (5m 60s): Move? No, it was a complete switch. I didn't actually have a job when I came. It was just, it was, it was a good sort of break in deals. And I knew I had to do my three years. And so it just a good time. And my wife had got a great job back in Toronto where she's from. And so it was just if it didn't work out, we'd go back. Right. So it was, we were pretty lucky. We were very lucky immigrants, right. We had a great job to go to and no language barriers and things like, so we were, we, we were pretty privileged in how we could go back boards if we wanted to.
Jesse (6m 32s): Yeah. Pretty good. When you're coming from, from the country that invented the language.
Richard (6m 38s): So it sort of invented itself if you think about it.
Jesse (6m 43s): The, so when you came over here, you kind of, as you got into the job market was Avison young. Did you start in 2001 at Avison young? Is, is that I
Richard (6m 53s): Did. I got a, I got a, I didn't know what I wanted to do, but obviously I had a real estate background. Yeah. And it was a pretty quiet time in Toronto at that time. I think the, the tech crash was in full swing and I don't think Toronto had actually recovered from its late eighties, early nineties crash. Whereas London already had, London's a bit of a hedge fund economy sort of boom and bust. And it rebounded super quick. I don't think Canada had, there was still the stump that, and, you know, SAU hadn't been built, but it was, it, there was still construction and development, but it was
Jesse (7m 30s): Sorry by, by the stump we're talking about bay Adelaide parking lot bay
Richard (7m 34s): Adelaide was. Yeah. I think I only saw the end of the stump. I think it was there from the early nineties. So
Jesse (7m 40s): For, for non sorry for non-Canadian listeners bay, Adelaide was probably the, the, the textbook example of something that was built and never finished until the economy recovered. But yeah, that's, it's, it's such a good meme or, you know, symbol of, of that time and
Richard (7m 57s): Error. I think it was the elevator shafts, the sensational office building yet to be built, which was still because of the recession. So it was, but the parking lot was built. Like all of the underground was done. It was a fascinating you're right. It was at the time you could just, you could, it was, you could see where the economy had stopped. Like you'd actually physically see, see it, which was interesting.
Jesse (8m 20s): Yeah.
Richard (8m 21s): But, but Canada was, there was a lot of, there was a lot of suburban development, but particularly in residential. So it was sort of Greenfield, you know, large housing estates and subdivisions, which I was, which is a complete to what I've been doing in, you know, the city was from, so I did, I went for a few interviews. I went for, I went and I got offered a couple of things. Someone actually famously said, you, you, I wanna offer you this job, but you'll stay for four months, which was sort of interesting.
So anyone's listening as I think a lot of people have had that where you, you sort of, you overqualified. Yeah. But you're not overqualified cuz you went for the job. So, you know, I would tell all the employers take these people. They, they could be pretty loyal and stay with you. And in the end it, it became, the realization came to me that I just don't think I could do development and I didn't really wanna do asset management or anything like that. And so I couldn't continue what I, what I'd been doing before.
And I had sold a whole bunch of investments for our, our company in London through some agents. And then they set me up with a large international brokerage and they actually offered me a job which was greater than, and I didn't take it. They sent me to see a whole bunch of expats. And is there a difference between agency brokerage, each side of the pond? Is there a difference in how people are and businesses are and things like that? I, it didn't cross my mind any, there were any differences, but they me to see all these expats and they said, look, you know what, when you, when you come over, you might want to, you might wanna start in a village, right?
And that village will make sure that you are meaningful and that you've got a contribution and you sort of find your feet and then you can go and join the big company. That was what they said. So at the time Aon was Aon was a very small company, but a number of these people, I think I went to see eight people. And I think four of them, many of whom is still the business said, no, you should go and see a guy called Robin Whiteson young. Who's Robin is an itself.
And so I came to Robin, this company full of Canadians and a couple of Brits in it. And it was just a great little company. And you could just, it wa because that time wasn't about the money, it was about just feeling, you know, making a new life somewhere new on my own. Right. So I certainly didn't wanna have my entire life wrapped up with my wife's life. Yeah. Might edit that out. I dunno. It's possible to leave it in, leave it in. But yeah. So the idea was to sort of create your own, your own life business and, and with the, and with the people in business that you wanna be with.
So, and then, so I stayed. So I actually went into, I worked for, for the investment department and I actually took a step back. So you learn a lot of humility when you, when you do things like that, you take a step back. And from being who I, I thought I was, you know, a pretty hot young developer with everything going for me. And then you come and work for a company and you've become, you become the assistant. So I was the investment department assistant. I went actually from having my own secretary in London to actually typing people's emails.
There were some people at Aon years ago who didn't want to convert to doing things like that themselves in 2001. And I actually typed their, they would, they would give me scraps of paper and I would type their emails for them and improve them in bigger. And I do the financial underwriting and analysis too. So, yeah, but that was, that was quite the experience. Just taking a step, you take a step back to go forwards.
Jesse (12m 12s): Yep. Absolutely. It's one of those things where, you know, even, well, we call them associates now, but the, you know, the assistant aspect, it's just the nature of real estate for anybody that's, especially on brokerage. They want to break in. I'm curious, the, I don't think we've ever talked about this in terms of the real estate or redevelopment, the, the UK version of real estate and, and the way people operate in this space. Did you know, were there some stark differences between Canadians and real estate, which I assume somewhat similar, maybe not as aggressive to our us counterparts, but did you notice a different way of working between the UK and Canada?
Richard (12m 51s): Yeah, I mean, in terms of market to market, Canada is a real interesting place because it has its its major connotations and is a major country in terms of population and GDP, but it's very spread out. So you don't actually see that same power as you would in, in a country of an equal size. Now I know the UK's bigger, but you don't see it because it's geographic sort of spread. If you know, Vancouver exists at one end of Ontario and Montreal, the other end of Ontario you'd have these sort of three powerhouses and put Calgary somewhere else.
It would be incredibly vibrant and very competitive place because of the geographic difference. You found that there, it wasn't an enormous marketplace. You found people operated in a marketplace and there was a certain amount of them. And so everyone had that sort of dis everything was dispersed. And I think the other thing which was great is that you could telephone and speak to anybody. And I think you still can in Toronto and it's, I don't think people in Toronto realize how amazing it is, how open people are in.
And maybe you found this with your show, Jessie, right? People are super happy to take a call and find out what you're doing and who you are. And it's not, not as if you needed to speak to a friend to get an intro, which is sort of how it was for the, if you wanted to speak to the big wigs of London, we had to just, you had to sort of almost go through to start with and made it, there were so many of them, but I actually think it's more sort of more about, so Canada was great from that perspective, everyone's open everyone's available, but there was, there was certainly less business.
It was a much smaller marketplace. And, and again, you know, half the population and I don't know, I dunno how much bigger it is. Is it 50 times the size? I dunno, it's that creates in itself just a thinner layer of clients and customers in business because it's spread. So, so thinly.
Jesse (14m 56s): Yeah. I've never actually thought about the, kind of the major Canadian cities, if you house them all in, you know, Ontario where, you know, our province, which you probably could fit, you know, Italy and, and another other decent sized countries in the actual, yeah. It it'd be a fairly crowded room.
Richard (15m 14s): Imagine what the sporting events would be
Jesse (15m 16s): Like. Oh yeah.
Richard (15m 18s): It would just be, it'd just be unbelievable.
Jesse (15m 20s): So Richard, your first notable, or kind of sizable transaction when you started working, I assume you started in the, in the investment side, on the cap markets team.
Richard (15m 31s): Yeah. I started started the cat markets and then we, we did with a number of interesting. So I think it was very much a midmarket firm when we started and very, very creative and we worked. So I, I ended up sort of teaming up with Robin white and John Gordon, Robin is still still practicing today and sits in the office next to me. And typically office is what we would do, but we did a really interesting portfolio, which was a, a breakup of a small portfolio for Woodington properties.
There were his historic Loblaws premises through a number. And I think it was 14 buildings across sort of the GTA and write it down as far as Windsor. And so that was quite a fun experience. There were a number of agents on the team and I sort of sat in the middle as the analyst, if you will, to sell these all different sort of shapes and sizes of assets, but some, some had become restaurants and some had become office buildings.
I wanna become a movie theater. And it was just an interest. That was a really interesting process, but that wasn't typically what we do. We typically sold, sold office buildings. I actually made a mistake on underwriting. One deal, which Robin laughs about to this day, because I didn't put a vacancy allowance in my numbers. And the guy said, wow, you're 10% higher and everybody else, but you won it. We won a pitch. And it told me that that was sort of POS. That was a positive mistake.
Jesse (17m 11s): That's a good lesson, both ways. It's almost that, that fine line of when you, when you win something, if you, you have it too high, you're like, okay, how am I gonna sell this now? But yeah, I think that's, yeah, this, this building, it doesn't have any vacancy. That's pretty standard.
Richard (17m 26s): Yeah. No. Well, as a, as a small company back then, you had to outperforming underwriting. You, you know, people were always wondering if you'd missed something we never did, but that was one occasion we did, but it had a positive outcome. We sold that building a great experience. We did a lot of, but it's it, it was it's, it's exactly the same business as it is today. There's many more players, many more buildings, oh, RAs makes this make me sound, just making me sound super old, but it is a much bigger city now, but we would for, you know, we would have to photocopy boxes or leases, literally deliver boxes.
Thank goodness we got rid of that pretty soon after it started. And we actually got into digital age and we used to deliver a CD. It's a, it's, it's bizarre to think about today, how much got done without that technology. And I, you know, my first, my first desk outta computer on it, and we had spreadsheets and we did analysis and desktop publishing. But before that people would do their analysis with a pen and paper and it was, I, I have no idea how they did it, but I think my assumption is that today we can run 3000 models to work out exactly what we think's gonna happen with an asset going forwards back then they did it three times, but they did it right.
So I just, it, you know, that's a discussion about efficiency. So
Jesse (18m 59s): What, so when you, when you got started on the cap market side, I think this is a common question. Whether it was back then or, or today we have listeners that invest in, in commercial real estate, in retail multi-family office. But in terms of where the place that you started in, I find that, you know, if you wanna do leasing the barrier to entry barrier to entry, once you get in with a company is fairly low, you can, you can basically have a, a rockstar first couple years, if you hit the right tenants or right clients, you know, the same thing I think goes for multi, multi res now in terms of office and more what I would call more corporate real estate.
It's, it's a matter of, you know, where do you even start? So when, when you got in the, in the game, you had Robin, so you had a, a senior person, is that still to this day, really what you need to break into the more
Richard (19m 54s): Side. I mean, you, even if you start, even if you start in the private business, even you start with private clients in the smaller end of the marketplace, you still, you have no track record and you are going market dispose and advise on someone's carefully purchased and nurtured real estate investment. And if you don't have a track record, it's super hard. So you don't, you don't borrow a track record, you have to bring someone who's got one. And then I think you, you know, you start off as a junior and then you come alongside them.
And then perhaps you can either break out on your own or go further ahead. But we did, we, we tell people to join our department. There, there is a very, very long incubation period. And if you, if you know, maybe I don't even wanna put a number on it, cuz I think it frightens people off, but it's, it's a long time. If you were gonna do something on your own before you, before you can get that sort of track record on your own. Yeah. So you need a team. So it's a very much a teaming environment always has been and there's, and there's also enormous amount to do in underwriting valuing marketing.
There's just a lot of it. And none of it, in my opinion is rocket science, but it does take a village to get everything done. So you sort of have to have that in you as a, as a human being, to be a share and a team player from day one. And I think you find that in cap markets, teams across Canada is that there are few people who are very individualistic.
Like everyone has a team around them or they're part of a team. Or, and I think you'll find those people are pretty much interchangeable as individuals in other people's teams or other people's companies perhaps. Right. So I think, and that's a great accolade to my peers in the, in the industry. They they're, they're good people who do, I mean, I think we can, it's rare. You can find something that someone else hasn't found in a way to evaluate or, or underwriter a transaction because there's a pretty close group of people out there.
Jesse (22m 11s): Yeah. Yeah. And I, you know, we look over at the capital market side and definitely there's similar similarities. I think for, you know, if anybody says two, three years in the industry, I, I don't think it's even close in terms of how much time you really, if you want to commit to this industry how much time you actually have to give it. But I always saw the cap market side, especially the institutional side as even a longer incubation period. Like you're saying as opposed to some of the other groups and it's, you know, you start selling to institutional and if you're just a new person in the industry, you can be the smartest person in the world, but there's no credibility there.
And unless you're bringing somebody to the table.
Richard (22m 47s): Yeah. And I think the, the other thing which I'm always conscious of is that our client, our clientele on, on the private, all the institutional side, they are there for your entire career. There's, there's, there's a finite amount of them. The city's the city's now much bigger. We all, you used to be able to know everyone now that's impossible, which is so of interesting dimension now. So that's a little bit more like how it started when it started career in London. There's, there's way more diversity of clients.
There's so many more of them. You don't know everyone and be all things to all people you can have, you can have favorites specialties. Yeah. But I think the, the people you will meet, if you're a start as an analyst, people you will meet as an analyst in your twenties will be the people you perhaps are working for on the institutional side in 30 years time. Right. And that's, that's sort, sort of cool, but it's also a bit daunting.
Yeah. Because you just can't make a mistake. And if you do, you gotta own up and be, you know, super. And that's sort of, not, not that it's easier in, in the other side of the business to say leasing, but there's just many more of the, the Cleon on the leasing side. Right. So cuz you have the tenant side too, so yeah. Yeah. It's an interesting, it's an, it's a very interesting marketplace and some very, very smart people work in that marketplace. When in Toronto, our clients are very, very talented people who spend a lot of time learning their craft and they know an awful lot about the marketplace.
So again, that's where sort of that little stretch where you have to learn some humility, it, it just sort of fits well, it, your clients know a lot more than you sometimes about the marketplace, which you are selling it to. Yeah. Which is quite interesting.
Jesse (24m 45s): Yeah, for sure. I think, yeah. Especially when you're, you're dealing with whether it's private or institutional, you're dealing with ownership. I find a lot on the private side too, because it's usually their baby or babies, you know, they're building or portfolio. So over the last, what is it now? Dare I say two years,
Richard (25m 3s): Don't say, don't say it. Don't say
Jesse (25m 5s): So we've gone through kind of a, you know, we'll be analyzing this in the same way that, you know, MBAs and, and real estate streams analyzed the nineties. Oh 1 0 8, the, the players that emerged on top of the market, you know, multi res industrials gone crazy over the last couple years. How has your side of your, your side of the business, how has that been impacted over the last year and a half? What are you doing differently or, yeah,
Richard (25m 34s): Super interesting. Look. Most things seem to be, like I said, broad statement, but most things seem to be cyclical. We didn't sell an awful lot of industrial as a company when I started cause we didn't have a lot of industrial work and we, it was just a very small company and subsequently that has burgeoned. And we have a very, very like top tier group in a number of offices around, around the world and certainly in Canada for industrial.
But when I started, it was a, it was a relatively quiet area of the business. A lot of the product had been built in the sixties, seventies and eighties and was already sort of tired and there was no income growth to speak of Europe. Five 50 rent was pretty good, whatever you did to the building, you get five 50 rent. So it was a very, it was, it was pretty black. And then to get those numbers up, you had to have something pretty sensational, but then the tenants may not have paid for it.
So, and then it all started moving. There were lots of changes and I think we're going from, you know, manufacturing to warehousing and distribution plus population growth, entities, cetera, and just gen the way that industries worked just in time and things across the world, we need more warehouse per person. And we had more people. So that was sort the main driver with industrial office.
At the same time when I started, it was a real flavor to move out of downtown. And I think maybe it was the end of that period, but people were building pretty cool office building for the suburbs and then moving whole apartments out to the suburbs where people who get a great house and they could community leader work and they could bark in the parking lot. And that was sort of, that was sort of new and fresh. And there was a major tax differential to downtown Toronto, just the, just the suburbs charge, way, way less of taxes.
And I think that that sort of ended as I, as I, as I arrived and came up with some great policies to, to build buildings and bring people back, not not least of which is transit, right transit. The one place everyone can get to the GTA is downtown by transit easily. It's the only place. So, I mean, they're the two sort of major things that have happened. And now we seem to roll further. Along from that there's discussions about the value of retail.
Retail is, is fabulous in segments of it, of its issues and are tired and old and may not come back. But the other components, it's something that everybody needs everyone to go shopping. You don't necessarily need to go to a store, but people like to go to stores, right? So we found that's a far more robust industry than people thought at the start of COVID office is really interesting and that we we've sold. I've sold a lot of office buildings in my career and they do tend to come in and out of favor, they're sort of high, a high or high capital high reward assets.
And I think what's happening right now is working out how much space people need, where they want it is the commuting gonna continue. If you've got work from, there's just a lot of questions about it, but I've no doubt that it is a fabulous asset class. And even though we've got the technology not to be in the office, the way humans work is it's great. If we get together as much as possible without ruining the other, the other part of people's lives or the efficiency of it, right? So office will come back, but it is definitely going through a softer period and the prices you can buy office that are significant discounter replacement cost.
And now, now in the GTA, you could, you know, you could throw a building away and say, great, we'll just, we'll build something next door on the Greenfield. You can't do that anymore. So there is value to all of this older product that into whatever you might wanna change it into. And then you get into a discussion about, well, what do you wanna change into and what creates jobs? And that's where perhaps you get the, the fight between the developers and municipalities. So, and that will go on forever.
That, that, that fight. So,
Jesse (30m 2s): So on the office piece we had, we, I think it was last week, I was speaking to the chief investment officer for, for crowd street. And we were talking about office space and kind of the bifurcation between downtown assets, well position or, you know, in theory, well position assets versus suburban office and with places like San Francisco, New York, Toronto, all these, a large majority of these north American cities still have not had the people come back into the office in terms of some of the cell phone data that we gather in the vitality index.
Do you see a, a positioning, a difference in positioning as, as it relates to the comparison between suburban and downtown office and maybe just as a follow up, you know, what, what are they gonna have to do downtown in these, in these office buildings or these investors that, that own these assets to entice companies to want to be in the office and want to be in space that I guess has more amenities.
Richard (31m 5s): Ah, now that's you could probably look, I definitely got an opinion and I, you know, my, my job is to value them and sell them and advise on them as opposed to fill them. But there's some, there's just some thinking that is me going on lately. If you, if you want people to come back to the office five days a week, it's gotta be easy and quick to get to for your staff. And it's gotta be a great place to be.
And that's sort of where we have problems, because if you've got a, a, let's go, let's got the suburban belt around Toronto, the 9 0 5 belt, it could take people an hour to get into the office and then there's a cost to it. And maybe there's more time than just the hour on the train. Maybe there's a bit longer. So you got one hour 20 each way, five days a week, that's look, this isn't, this isn't an official policy. It's just an open think Jesse. And the thinking is, if you're gonna make people do that five days a week, something's gotta give right.
You can provide them with amazing space, but that isn't really how they want their lives to live, particularly when they can pick up the computer and work from anywhere. Right. So you, so perhaps that is a positive suburban office. So perhaps a suburban office is where you have your, the people that you want all the time in the spoke, the hub and spoke discussions that you've, I had, you know, perhaps that's where the spoke is.
And then you have a sort of suburban location. And then the hub perhaps is work from home, telling everyone comes downtown every now and then. And that's where everybody in intermingles. So it's a complicated, it's a complicated theory, but because it's two things at the same time, and I think everyone's trying to avoid you two things at the same time, but they might have to do that. And I just have no doubt that like our younger staff learn so much, if they're in our offices and we have an open door policies, you know, and you just learn, you just learn and you don't have to like, press a button to call anyone and ask this Jupi question because there are no stupid questions, but it becomes a stupid question.
If you make a, if you make a deal out of
Jesse (33m 24s): It, right. Make, make a zoom call for, for the stupid
Richard (33m 26s): Question, that's right. A zoom call for a comma is stupid. But if you call through someone's doorway, if not stupid. So I think that sort of humanity is gonna have to start factoring in and I'm not quite sure that's that's happened yet. And I think the other thing is we've got this crazy well, it's crazy in a historical sense is the cost of refurbishing office space to the standards that one wants today is really a real problem. So maybe it's $200 a foot maybe, but you can't get those rents.
The rents that would support that unless you're in top accommodation downtown. So maybe that's a supply chain thing, identical, but it, it, if you do look at suburban office, look at the, you know, the average price per square foot suburban office is two to 300 a foot, but it's gonna cost you four to 500 of it to build it, let alone the land, which now competes with industrial lab, which maybe three, four, 5 million acre in those areas. It just something's, something's gotta give, and to me, it just looks as if those opportunities are very, very cheap, but I can't quite see, see the, the end of the tunnel on that yet.
Jesse (34m 41s): Yeah. Well, that's good to hear cuz those of us in the office world, we, we can't either right now it's you never really know you're in something until you're playing Monday morning quarterback When it, when it comes to the, so if you, our advising clients that are investors, asset managers, institutional clients that actually own this type of real estate that we've kind of come out of this, this world that was crazy for a while and the extra wrinkle just cuz we hadn't had enough, was the interest rate environment very different than it was a year.
Yeah. Even a year ago. How does that inform if it does, you know, to what extent does that inform your advising with clients? Is it them that's calling you, calling you to consult on that? Or is, is it something that's, that's a key piece of the, the decision making?
Richard (35m 33s): Yeah. Debt is a, is a, an invaluable part of the capital stack and it's become more and more and more so. And even to the extent was if you are a large institution of buyer and are forbidden or don't want to use debt, you will still underwrite as if you, as if you have a need for debt so that you actually make a market judgment. That seems to be what our clients do. So it's such an important part. I think it's a really integral part of modern life as well.
So if it's, it's sort of the interest rates sort, the one stick that the central banks have in terms of controlling sort of monetary supply. And if you just keep printing money in doing Q and having sort of QE to get us out of a hole, at some point you've gotta sort of constrain that supply. And the only tool we see or one the, the main tool I say we have for that is, is an increase in, in the I rates, which gets passed onto everything else.
That's gonna have an undoubted effect on the value of real estate because you still need a spread to risk adjust to non-risk returns. So if you've got real estate has some risk to it, different real estate, there's a lot more risk to it. You need to have those absolute, absolute spreads. And if you are return increasing with non-risk investments, then you're really gonna have to probably move your pricing out.
But what goes around comes it'll come back again. As you know, as your, your dad's comment, when, when you're a kid, I think I hear a lot of those scar stories. I would never have wanted 18 mortgage or even I've never even had an eight mortgage. It's all sounds a bit frightening, but you know, my grandfather was in development in the 1920s and he this, when I was real estate in nineties, he said that had interest rates in the 1920s.
And I said, well, that must, that must have been amazing. You know, that must have been just great. You could do so many deals. And he said, no, everything was expensive. So I guess it's all relative to me, the, the, the, the actual interest rate is relative, but the availability of that component of the all components of the capital stack, but it be equity or debt, the availability and the liquidity of those markets is far more important.
So if tomorrow, someone said you can't get any debt. It's not that it's changed from three, your or 5%. We don't lend that will cause huge problems.
Jesse (38m 25s): Yeah. And in terms of the, in the landscape that we're, that we're seeing with that I've heard just kind of anecdotally companies talking about more looking for properties that are, that are not free and clear and potentially having an assumption of, of current mortgage rates, because they are at, you know, what is now considered much lower than the current, say five or 10 year commercial loans. Are you seeing that is, or is that just, you know, is that just banter in our space?
Richard (38m 55s): It's what people used to do, Jess. I mean, we, people used to look when we've gone through these sort of periods before people, people used to look for those assets getting paid for it is another matter, right? It was you more than anything, a lot of these things don't necessarily change the value of the product, but it does. It may do indirectly, not as directly as well. I think, because what it does is improve on your buy a pool, improve. Lot of people who are looking. So a couple of people would look at it because it had that sort of low debt. Perhaps they get a larger spread on it. Does it improve the value?
I guess indirectly it does. Yeah, but I mean, Canada is such a, a, well, it's a very well structured environment that has pretty conservative debt in commercial lending to start with. So it's not a country where you see people setting up voucher funds and trying to take people outta trouble because they're really people aren't actually in trouble. They're just not as great as they were last month.
Jesse (39m 51s): Yeah. Fair enough. So we've got four final questions we ask every guest before we, we get to that just generally speaking, are there certain aspects of our industry and it can be asset class or just trends that you think are, you know, positive and, and you think are on the horizon, that, that you're bullish on
Richard (40m 14s): All of it. And I, and I don't mean that to be facetious. And I think that's the country we sit in. It's a very, very special place. We're very lucky to live where we do. And I think that goes to many parts of the world, but, but some, obviously it doesn't apply to. And what we've got is a, is a, a fair system and we've got, and we've got people who want to come to Canada. And in the long term, that's probably, you know, there are some, there are some finite things in the world there's real estate, but not that we have experienced it yet, but there's also population and population growth is tailing off.
Notwithstanding what the UN is. I think this week we hit 8 billion people around the world. The countries like Canada, it's very easy to grow the economy. If you have more people and if you attract great people, it's even easier. So there's probably gonna be some more competition people, but that's the long range view of Canada is fantastic because we haven't hit 40 billion people. And it's the second largest country in the world. And it's a wonderful, wonderful country. It is amazing place with amazing people. So that's why all aspects of real estate there'll be nuances about what the next flavor is and what the past and the future looks like in immediacy.
But speaking, it's very positive. So it sort of sounds flippant, but there's a, there's a reason.
Jesse (41m 37s): Oh, I like it. All right. So four questions, Richard, what would you say to somebody that's trying to break into our industry? Somebody that's just starting their career, whether it's in the stream that you took or, or just generally in investing or brokerage,
Richard (41m 54s): What would I say to them?
Jesse (41m 55s): Yeah. What
Richard (41m 56s): That's, open-ended in, where they would, where they should start, where they should go.
Jesse (42m 1s): Yeah. Yeah. It's somebody that's trying to break in. You know, what, what would you do kind of, you know, your, your 21,
Richard (42m 9s): I think people need to analyze what their personality is because there's so many components to it and you know, you and I can see that in, on our side of the business, on the brokerage side, let alone, let alone on the ownership side or the construction side of development. I mean, it's a fabulous business, but you do sort of need to know where you, where your mind fits. So if you are an instant overnight person, maybe you don't wanna go onto, maybe you don't wanna go to capital rockets, brokerage, because you have to build a, build a track record, learn the tree, and that goes for everything.
Right. So I think that's what I would say is that you do sort of need to know yourself a little bit. And if you dunno, go try but be open, ask as many questions as you can. And that's a, that's a wonderful thing about the industry. You can ask anyone anything, and they will give you a genuine answer. They will try and try and make the time to, to, to give you the time of day to, to give you, give you a functioning or thought out answer. And I don't know if you find that in every industry, but certainly real estate is great for that.
Jesse (43m 9s): Yeah. It's I mean, it's come up time and time again on this show, we've talked about how we're, we're lucky in an industry where a lot of the senior, the veterans really do want to give help to people that are curious and interested in, in our space. What's something that, that, you know, now in your career that you, you wish you learned when, when you're a younger lad.
Richard (43m 32s): Oh, well, when I first started work, I it's, one of the simplest of things is a lot of things got right when I started being an analyst at Avis and I start ma making lists. Whereas I did development work. It was sort of, I was less list conscious and I sort of tried to juggle things. You can just get so much done if you made lists. Yeah. It's, it's absolutely crazy. I wish someone had told me that when I was 17,
Jesse (44m 3s): I like it. I'm definitely in that boat, you know? And when you're younger, you're always like, ah, I'll remember that. I'll remember that now. You're just, you're like, you, you know who you're dealing with, you're dealing with the person that, that didn't remember it last time. And yeah, sometimes it just takes some time. Are there any resources that you would find useful for listeners for real estate, whether you know, a book on a book in our space, something you're reading a podcast you're listening to?
Richard (44m 32s): No, I think I, I think some of the industry groups are really good. Like NAOP is a fabulous industry group and you can find different, different parts of NAOP, which would be appealing. And they, they do a great job and they do a really good job, I think, events or thoughts about the junior members, more so than the senior members, which is great. So that's a good one to follow you. You, you do have to know your math. I, I can't remember the names. I, I can't remember the names of the books I had, but there was one, one book.
I don't even know if circulation, but it was by a guy called Jack Rose. It was square feet. It was a picture of a square foot on the front, obviously. So, but that was it. But you do, I think you do. I would just, I wouldn't, there's nothing I'd necessarily recommend other than you do have to work out. I do the math, right? The math is it's actually really, really straightforward math, but I come across so many people who do not understand the connection between a cap rate dropping and a price going up. And I'm just flabbergasted how people have not.
And they literally don't understand it. And I'm flabbergasted at that. And I would, in every one of them, I will take them to one side, get posted note and actually show how it works, because it is the simplest things. But so being inquisitive as you can, I think, because it, it, ain't hard.
Jesse (45m 56s): Yeah, for sure. No excuse not to know it. All right. Last question. Stole this from one of my favorite podcasts, Bloomberg masters in business, first car, or make and model.
Richard (46m 7s): Oh, seriously. Okay. That is an interesting question. I had a, I grew up on a phone oddly and in the, in east, in the deepest countryside. And I was given when I was 13, a 1964 land Rover, but it didn't work,
Jesse (46m 29s): But it didn't work.
Richard (46m 30s): It didn't work. And it was a summer project to get it working. And it took me most, most of the summer, but the end of it, I had this fantastic thing to drive around the field, which was great. So that was my first. That was my first love. Really?
Jesse (46m 43s): I thought I was gonna get an, an mg or an Opal or something.
Richard (46m 47s): No, I had some great cars in London. No, I had a, yeah. I had a Lotus and I had a TVR, which
Jesse (46m 52s): That's right. Lotus of.
Richard (46m 54s): Yeah. But do you, life changes, you pick up, you pick up, it's a rolling stone. Yeah.
Jesse (46m 60s): Not a lot of, not a lot of grocery. You can carry in the Lotus of spree.
Richard (47m 3s): That's right.
Jesse (47m 4s): Fair enough. Well, Richard, I appreciate you coming on the show for those that are interested in kind of the cat market side, is there anywhere they should kind of, aside from LinkedIn or a Google search, where, where can we send them to?
Richard (47m 19s): No, I think come find me or Jesse on LinkedIn or com you'll find us, I'm super happy to speak to anyone about the business, what we do, where it may be going. And I'm the first person to say, I can be wrong, but it's great to have a discussion because no, one's got a monopoly on wisdom. So I'd love to hear. Thanks very much. Jesse. Appreciate the time.
Jesse (47m 38s): My guest today has been Richard Chicot. Richard, thanks for being part of working capital.
Richard (47m 43s): Thanks, Jesse.
Jesse (47m 52s): Thank you so much for listening to working capital the real estate podcast. I'm your host, Jesse for galley. If you like the episode, head on to iTunes and leave us a five star review and share on social media, it really helps us out. If you have any questions, feel free to reach out to me on Instagram, Jesse for galley, F R a G a L E, have a good one. Take care.