Episode #253: Carl Chang, Kairos Investment Management “Once We Qualify We Can Mitigate Our Downside Scenario, Our Next Level Of Return Is Durable Cash Flow”

Episode #253: Carl Chang, Kairos Investment Management “Once We Qualify We Can Mitigate Our Downside Scenario, Our Next Level Of Return Is Durable Cash Flow”


Guest: Carl Chang is founder and CEO of Kairos Investment Management.

Date Recorded: 9/16/2020     |     Run-Time: 50:25

Sponsor: OurCrowd



Summary: In today’s episode, we’re talking real estate. It’s not every day I get a chance to talk with a pizza entrepreneur, successful real-estate investment management firm CEO, or Federal Reserve Bank of San Francisco Board Member. Carl is all three.

We get into Carl’s backstory and kicking off his career in the real estate business as a steward of family money. We discuss his firm’s investment criteria, looking at the fundamental core value of bricks and mortar, and evaluating opportunities by understanding whether or not they think they can make money in downside scenarios and earn durable cash flow. Carl reminds us that real estate is not all about yield, and walks us through what he was seeing in the early 2000s that made him a net seller during that period.

We talk about what the real estate landscape looks like going forward, from opportunities on the debt side of real estate to multifamily housing. As we wind down, we discuss Carl’s role as a board member of the Federal Reserve Bank of San Francisco and what it’s been like to launch an innovative spin on pizza with Pieology.

Comments or suggestions? Email us Feedback@TheMebFaberShow.com or call us to leave a voicemail at 323 834 9159

Interested in sponsoring an episode? Email Justin at jb@cambriainvestments.com

Links from the Episode:

  • 0:40 – Sponsor: OurCrowd
  • 1:33 – Intro
  • 2:50 – Welcome to our guest, Carl Chang
  • 5:36 – Carl’s interest in real estate
  • 7:37 – Initial approach at real estate investing
  • 11:38 – Framework for considering investment opportunities
  • 13:32 – The various cycles of the real estate industry over Carl’s career
  • 17:18 – Business structure and fundraising strategies
  • 19:56 – How 2020 has been for real estate and Kairos
  • 23:45 – Outlook for real estate investing
  • 28:34 – Opportunity Zones
  • 29:39 – Traditional investor
  • 30:40 – Carl’s role at the Federal Reserve Bank of San Francisco
  • 31:57 – Avoiding bandwagon thoughts at the Fed
  • 33:17 – Chance for negative rates
  • 34:13 – Carl’s view on the state of the overall economy
  • 35:39 – Launching Pieology
  • 39:13 – The business model behind Pieology
  • 41:41 – Pandemic impact Pieology
  • 43:47 – Most memorable investment
  • 45:02 – Best idea right now
  • 46:27 – Raising kids
  • 48:50 – How to get a deeper knowledge in the real estate world
  • 49:48 – Connect: kimc.com


Transcript of Episode 253:

Welcome Message: Welcome to “The Meb Faber Show,” where the focus is on helping you grow and preserve your wealth. Join us as we discuss the craft of investing and uncover new and profitable ideas, all to help you grow wealthier and wiser. Better investing starts here.

Disclaimer: Meb Faber is the co-founder and Chief Investment Officer at Cambria Investment Management. Due to industry regulations, he will not discuss any of Cambria’s funds on this podcast. All opinions expressed by podcast participants are solely their own opinions and do not reflect the opinion of Cambria Investment Management or its affiliates. For more information, visit cambriainvestments.com.

Sponsor Message: Today’s show is sponsored by OurCrowd. Do you ever wish you invested early in some of the best-performing IPOs of 2019 and 2020? OurCrowd investors were, and now you have the opportunity to join them in what’s next. With OurCrowd, accredited investors have access to invest directly, easily, and most importantly, early. OurCrowd investors have benefited from companies IPOing or being bought by other companies like Intel, Nike, Microsoft, and Oracle. Professional VC research identifies promising companies and funds across a range of sectors, stages, and global locations. OurCrowd is investing medical technology, breakthroughs in ag tech and food production, solutions in the multibillion-dollar robotics industry, and so much more. You can learn more and get in early at ourcrowd.com/meb. If you’re interested in investing, consider joining OurCrowd and setting up a free account, just go to ourcrowd.com/meb.

Meb: Hello, friends, a super fun, wide-ranging show for you today. Our guest is founder and CEO of Kairos Investment Management, a real estate investment company, but he’s also founder of pizza shop Pieology, and board member of San Fran Federal Reserve Bank. In today’s episode, we’re talking real estate. It’s not every day I get a chance to talk with a pizza entrepreneur, successful real estate investment management firm CEO, or a Federal Reserve Bank of San Fran board member. Our guest is all three. We get into his backstory involving a stint playing and coaching professional tennis before kicking off his career in the real estate business as a steward of his family’s money. We discuss his firm’s investment criteria, looking at the fundamental core values of brick and mortar, and evaluating opportunities by understanding whether or not they think they can make money and downside scenarios and earn durable cash flows. Our guest reminds us that real estate is not all about yield and walks us through what he was seeing in the early 2000s that made him a net seller during that period. We talk about what the real estate landscape looks like going forward, from opportunities on the debt side real estate to multifamily housing. And as we wind down, we discuss our guest’s role as a board member of the Federal Reserve Bank of San Fran, and also what it’s been like to launch an innovative spin on pizza with Pieology. Please enjoy this episode with Kairos’ Carl Chang. Carl, welcome to the show.

Carl: Thank you. Good to be here.

Meb: Where’s here for our listeners?

Carl: Here in Orange County, now Mission Viejo.

Meb: We’re neighbours, right up the road of Manhattan Beach. We used to do these in-person, but now it’s live from my bedroom with a child and a dog in the background. How are you weathering 2020 so far? Are you staying safe and sanitary?

Carl: Trying to. I mean, it’s definitely a new norm. But as parents, it’s been nice to have the kids around a little bit longer, though I think my elder kids are going nuts having to hang out with mom and dad for too long.

Meb: My brother, I think, jokingly and now not so jokingly said he’s gonna write a therapy book for dogs based on if things ever returned to normal how to cope with their owners not being around 24 hours a day. But who knows when normal ever happens again? We’ll see. This is gonna be fun. We’re gonna talk about a lot of things today. We’re gonna talk about real estate. We’re gonna talk about pizza. We’re gonna talk about tennis. But because you have a bit of a unique background, we’d love to hear a little bit of your origin story. So, are you a California native? I know you’re a Cal bear.

Carl: Yeah, I am a Cal bear but not a California native, actually, East Coast native, born in, of all places, Hoboken, New Jersey, as I understand it, the same hospital as Frank Sinatra.

Meb: Is that right? Well, I’m assuming not the same year, of course. Walk me forward. All right, so you’re a Cal bear. Tell me a little bit about your origin story.

Carl: So, Cal bear, my parents, both science majors. I’m the eldest of two brothers. I think, as most traditional Asian parents wanted me to go to college, become a doctor, that kind of thing. And so, went to Cal, was heading down the pre-med route. And then my younger brother, who’s the more famous of the two, took a little bit of a different route. And my father redirected me from going pre-med into business and headed down that road. And that’s kind of how it all got started. I was actually recruited there to play tennis. So I was fortunate enough to get an athletic scholarship to play at Cal and had my own sort of good fortunes, had a good run, though we weren’t able to bring home the NCAA title. But we’re ranked one and two, my four years, so that was a great experience.

Meb: Your brother Michael Chang is, I think, the youngest American or youngest player to win a Grand Slam, you have to correct me. What age did he start beating you, by the way?

Carl: I don’t think he ever really started beating me. No, just kidding. Yeah. Youngest French Open champion at age 17, I think, since Tony Traber before that. So, that was a little point in history. So that was great.

Meb: So you did a little tennis coaching, stuck with that part of the world. And give me a little timeline analysis as we go forward. I think this is ’90s, at this point. How did you get interested in real estate?

Carl: A lot led by my father. So, interestingly enough, I think at the time, Yvonne Lendl, Stefan Edberg, who we had a tremendous amount of respect for, the number one and two players in the world. But as the story would be told, many athletes, unfortunately, wealth are being managed by agents. And perhaps at that time and perhaps even to some case today, not as well as it should be. And so my father correctly sort of directed us and the family to take on that responsibility, as opposed to farm it out to Michael’s agents at the time and looked to us to steward whatever success he might have, though, I would say, on paper, as we talk about underwriting today, didn’t underwrite particularly well. Being all of 5’7″ and 135 pounds, the odds were not in his favour of having a very long, successful career. But he proved otherwise, and had a pretty good run here for 17 years. So, my father said, “Hey, we’re gonna take it upon ourselves to sort of steward whatever success he had.” And with his admiration for some other successful people in real estate, he said, “Real estate’s the right place to go.” And so that’s how we got started as a family.

Meb: That’s a pretty thoughtful insight by dad. We talk a lot on this podcast about not certainly just athletes, but all types of people who have some sort of income streams or wealth and the ability to start to put it to work. And that means a lot of different things, but investing… And it’s interesting because you guys were early to this. So a couple of decades ago, you started to see a lot more in this past decade of sort of celebrities or athletes using their brand or wealth to become investors, and in many cases, much more successful on that side than they ever were on the opposite side. So, talk to me about how you guys got started. What was the original approach? And we can walk forward how it’s kind of changed over the years.

Carl: Yeah, no, absolutely. You hit on an excellent point. When you talk about generation today and look at Shaquille, and what he’s done with his brand, and how he’s continued to grow well beyond retirement into the success that he has had, which is just a tremendous testimony in itself. You look at Magic Johnson post-career, what he’s done, actually, in real estate, and private equity, and using his brand, and partnering with really smart people in the industry and has tremendous success. I mean, it’s wonderful to see the transition. I think, for us, many moons ago now, it was a pretty simple premise. My father, a man of few words, coming in, being raised in sort of a strict household, basically gave me the responsibility and said, “Hey, don’t lose your brother’s money.” We live by that motto and that foundation at Kairos every day. And so the simple premise was really to try to create a recurring income stream that would replace whatever income he’d create as an athlete, knowing that you won’t be an athlete for the rest of your life, and there is an end to that career, albeit most of the time too short. And so we had a very practical perspective on not. Only history would prove otherwise, where he would have a long 17-year successful career. And he lived a modest lifestyle considering the financial success he had as an athlete, which gave us and the family the opportunity to steward and make wise investments over a pretty long period of time that would prove to be very successful for the family and for his family.

Meb: That’s awesome. All right. So, talk to me about real estate. You guys started what, buying apartment buildings? Did you start going commercial, single-family residential? What was the initial approach?

Carl: We started in the late ’80s. That was some time ago. But if you recall, somewhat of a distressed environment, interest rates were in the double digits, certainly very different than what we have today. And we started out in commercial. We started buying sort of value add retail shopping centres, and repositioning shopping centres, eventually continued to build out the family platform, started doing grocer-anchored development, as well as what we call single tenant build to suit opportunities, where we’re building out parcels for Walgreens and QSRs, eventually migrated to multifamily and continued to invest in that asset class, as well as industrial, and sort of gained quite a bit of experience in sort of what we call the four core food groups in real estate, retail, multifamily, industrial, and office. I started up my career underwriting at Wells Fargo and developing those skills as an underwriter and somewhat as a collateral expert. And then we started investing in debt and non-performing loans, as well as structured debt. And so we continued to build that depth of experience and build out the platform to be able to tackle a variety of different types of investments based on opportunity and cycle. And now that I’m the age that I have now, I’ve seen more than a few cycles and more than a few recessions. And it’s prepared us well, so to weather storms and to seek sort of interesting opportunities within real estate.

Meb: So, for someone who’s been at it for a little while, walk us through sort of how you approach real estate investment criteria, maybe your framework for how you think about opportunities, what really drives the main variables that you look at when putting money to work.

Carl: Back to that foundational premise of, “Don’t lose your brother’s money.” That’s the way we look at real estate. We look at the fundamental cores of the value of bricks and mortar. We look at the downside scenario. We look at, opportunistically, when we decide to consider an investment, we look to see, in a downside scenario, if we can lose our money. If we can qualify that we feel our basis or opportunity in investing affords us the opportunity of a sort of low downside scenario or capital risk, then we begin to look at the opportunity and begin allowing sort of our experience and creativity to begin to think, “How do we actually make money in this asset?” It’s really, once we qualify that we can mitigate our downside scenario, our next level of return is really durable cash flow. Can we create a cash flow stream that qualifies for at least 50% of our return metrics that is coming from residual cash flow? And then should there be an opportunity to continue to create value on the back end of the asset, the other 50% of the return will come from either capital appreciation or net operate, income appreciation, in many cases, in full-blown market recovery, additional cap rate compression that creates additional return or value for ourselves and our LPs?

Meb: Let’s ignore 2020 for a minute because I feel like it’s its own topic. But over the past few decades, you mentioned, you start in a world of double-digit interest rates. And now we’re in an odd world. At least in the U.S., we saw positive rates, but most of the world, many of the sovereigns are negative, including some places you can even get a negative mortgage, which sounds interesting. But walk me through sort of the various cycles. I mean, real estate seems like a bit of a cyclical business at times, where you have some booms and busts and everything in between, maybe walk us through any sort of market experiences over the past couple of decades. Anything you learned, anytime you got burned, just a general experience, because I think it’ll be a good runway into something we’ve never seen, which is 2020. So any general insights or thoughts on kind of doing this practically for the last 20-plus years?

Carl: A good experience for us and this is, for me, personally. I’ll bring us back to sort of early 2000s up to the 2008 sort of financial recession, now that we’ve got well over a dozen years of operating experience heading into two decades now. What was interesting to me was, and we saw a little bit, even the post-recovery, is the one thing about real estate, I think I can caution everybody, is it’s not all about yield. I think when your cost of capital is cheap and you’re able to produce an interesting yield, that’s no longer investing in real estate. And I think for most people when they’re just focused on yield and ignoring the fact that you are buying a piece of real estate, a brick, or a piece of wood that has a value to it, of cost to build, and that value is not being considered when you’re investing in real estate anymore, then now you’re really sort of financially engineering return. And I’ll use it in a retail experience. That is now financing a business or a credit. So, I’ll give you an example. When people are buying Walgreens, as an example, to build a Walgreens building at the time, call it $400 a foot. But when people are buying Walgreens for the credit and trying to either mitigate taxes through a 1031 exchange or achieve a yield, many of those assets were trading around a 5 cap or in some cases sub-5 cap in the heyday. And they were able to, on a levered basis, still generate a positive yield. Yet the price per square foot in which many of the investors were buying those things were upwards of 1,000-plus a square foot. Well, that’s what happened in the early 2000s, leading in 2008 recession. Underwriting standards became loose. It was no longer about underwriting the collateral, it’s more underwriting the credit. And those standards became undisciplined and hence led to a bit of the financial crisis that we were heading into, from my own perspective, having had a number of years, at that point, of experience, worst net sellers into that market, realizing that people were willing to pay a lot more than what the real estate was worth. And so believed at the time that there was going to be a potential reset in the market. And as history would present itself, we were correct in that assessment. And we were well-positioned, from a cash perspective, to take advantage of some of those opportunities that presented in 2008. And opportunistically, we were able to sell a number of assets leading into the recession at pretty astronomical prices.

Meb: How do you guys think about activity? Is it a sort of rolling fundraising basis? Do you guys do it with certain vintages, with different strategies? How does kind of the actual business of Kairos overview?

Carl: I mean, we’re pretty disciplined, unlike perhaps some of the other private equity firms. We’re very opportunistic. We have a number of different strategies that we think from a timing perspective is really cyclically based. In some cases and early on the formation of Kairos, and not many people know this, out of the RMBS and CMBS crisis of ’08, we had established two funds, one, a CMBS fund, which did exceptionally well, but we had also established an RMBS strategy, and actually raised a fund around that strategy. In that particular case, the timing wasn’t correct. In fact, the business model or opportunity changed because a lot of people, many of the reality TV shows that exists today on house flipping resulted from the 2008 recession, that’s what the opportunity became, where houses were being sold on the courthouse steps, and the discounts that we were able to achieve early on in the financial crisis were no longer available. And so we ended up returning all of the fund commitments in that particular strategy, which not many private equity firms would typically do, but we’re just motivated differently. With regards to strategy, we have a couple of different strategies that we’ve put into place. Two of them are evergreen structure. One is an affordable housing, workforce housing strategy that’s really focused to perform exceptionally well in light of the recession, and has proven, even during this recession that we’re faced with today, very resilient in this type of markets, and historically, as well, too. And we set up that strategy in anticipation for a potential market reset. And then we have a second strategy that we just launched a couple of months ago, that was a distress credit strategy, that’s opportunistically providing in debt where we knew that was going to be constrained and the cost of that capital to borrow those monies were going to be at more attractive pricing heading into this market at lower valuations and better protection for our investment. So we like that strategy strategically. And then what we’ve been most famous for is, historically, for the last 16 years in Kairos, which is our value fund strategy.

Meb: That was a good lead in. Take me through the end of the decade. 2019, 2020 rolls around, walk me through kind of how this year has been for real estate, how you’re seeing the landscape evolve, shift, tectonic plates move around, whatever it may be. How’s this year been? Walk me through it.

Carl: It’s been interesting. I mean, we were talking to, in our investment dinners for last year, a year-and-a-half or so, that we’d have to become cautious. We certainly didn’t anticipate what would sort of push the economy into potential recession with COVID-19 and the quarantines, but we just felt like the expansion was getting somewhat extended and caution was appropriate. And so, end of 2019 leading in 2020, we had launched our affordable housing strategy because, domestically in the U.S., we knew there was affordable housing shortage. There are certain regions across the country that truly just became unaffordable for the average American. And so, the amount of shortage of available affordable housing was a focus of ours. We knew, historically, it was a niche that not many people were focused on just because typically the opportunity was pretty small on a relative basis to where most large institutions would focus, just because the amount of capital that could be deployed in that space was, on a relative basis, not large. But we had focused on that strategy because we knew there was a shortage, and a high demand, and a much needed amenity for people in America. And so we focused that…acquiring that in the last couple of years leading into 2020. As a result, it’s been interesting. With all the quarantines, with all the challenges, I mean, specifically, hospitality, obviously, at the forefront has been, I don’t wanna say decimated yet, but has been at the forefront of most of the struggle here as far as a real estate asset class is concerned. I’ve got a couple of friends, unfortunately, that are pretty heavily invested in the hospitality sector. And it’s been a brutal 12 months. And certainly, I hope that they see a little bit of light recovery here at the end of the day.

But that’s been challenging. Obviously, retail has been challenging with the limited service and the malls and as such has just been struggling with the traffic. So those have been challenging. And that’s been reinventing itself a bit for some time with e-commerce and Amazon continue to make huge strides in acquiring consumers and attracting them away from sort of the traditional retail execution. And then obviously, we don’t know it’s early days, but it’ll be interesting to see how office plays out. I’ve heard mixed bag with regards to feedback, with regards to efficiency and work efficiency from home and remote access. So, that’s been interesting, though, I know, at least for us, we miss the human interaction. I mean, I think we’re still human, and we still enjoy seeing and being around people, not only from just an interaction perspective, but just enjoying socializing again. And I think living at home, and I still remember that movie that Bruce Willis was in, where they all live through headsets through sort of a virtual reality, and it’s reminded me of that. I don’t know if we’re quite ready for that as the human race is concerned. So it’ll be interesting to see where it all evolves.

Meb: Well, when things started go sideways, we hit the road and did, like, a two-month trip to the west, where it seems a lot easier, a lot more space in Idaho and Montana than in SoCal. Okay, well, give us your crystal ball forecasting because I think a lot of people listening to this and, obviously, there’s many different stripes of real estate, but as I listen to you talk and we’re kind of the poster child example, is we have an office that essentially it’s in a traditional, like, five, six-storey tower. We get an email about once every two weeks that someone’s got coronavirus in the building. No one’s really been there since March. Everyone works kind of from home, and we’re a bit unique and distributed, but certainly reevaluating what an office even means to us and the concept of either moving to somewhere where we have our own space or something else. Walk me through what the future, you think, looks like as far as the rest of this year. You mentioned kind of 12, 24, 36 months potential opportunities. What are some of the opportunities now and/or that you sort of project maybe unearthed in the coming years?

Carl: If I can bifurcate it now versus what we anticipate in the future, I think I would still err on the side of caution. I think the more interesting opportunity that’s kind of just presented itself is really on the debt side for those that can invest or participate in the lending side of the opportunity, I think, because yields are so starved. I mean, obviously, money market rates are at anemic lows. And what scares me is people are chasing corporate junk bonds and trading those at a sub 3% yield, which is inappropriately priced, at least from my perspective. Within our space, I think the debt side of the opportunity is producing some pretty compelling yields from our perspective, which we like. I think there’s certainly some opportunities that are beginning to show itself from a distressed perspective on the equity side. You’re starting to see more non-performing loans show up in hospitality that are beginning to trade. Though, at least from my perspective, depending on how long the quarantines last and whether or not we see an effective sort of vaccine get put in place here shortly, I just don’t know how much capital you’ll continue to have to feed in hospitality to keep that segment alive is the difficult thing to underwrite. Is it 6 months? Is it 12 months? Is it 24 months? So, those would be sort of the red flags or things to be aware of. I think retail is going to accelerate with regards to what it begins to look like after a vaccine is created. But I think people, obviously, are making the shift with regards to delivery execution or online execution with the acceleration of tech stocks in the NASDAQ and people making investments into those operating platforms.

That was obvious. But I think retail is gonna have to figure itself out. But I think in the long-term, I still think people want to go out and still want to eat out and socialize. And I think that’s probably a healthy reset because I think rents and operating occupancy costs, and those margins were getting constricted. And I think there will be a healthy reset with regards to where those rents will begin to stabilize out at. And I think those that are able to survive this, I think those operating businesses will probably improve their margins, again, over time. So, I think that might be something to look at. And then I think, as a core base, multifamily housing is still a much needed amenity. I think you’ll begin to see a shift away for people sort of high dense downtown urban areas naturally. I think we’re seeing that shift occur now. I think you’ll start to see some states get aggressive with regards to tax incentive, to take advantage of some of those opportunities to drive employment to those regions. I think those are some things to be conscientious about as opportunities for regions and areas of focus. And as we continue to move more and more into distribution and e-commerce, I think, though, from a return profile, not terribly attractive today, but certainly safe will still be, I think, industrial going forward.

Meb: The geography is cross country, right?

Carl: Correct.

Meb: What if any involvement have you guys had with the new tax structure benefit opportunity zones? Is that something you guys have looked at? It’s not something you particularly pay much attention to? Any general thoughts there?

Carl: We do focus on it. We have not created a fund around opportunity zone, but pretty well-versed in the opportunity. It’s really a longer-term perspective. It was actually a very interesting incentive tax-wise to bring capital investment into blighted areas, which I think is always a good incentive and alignment. I don’t know if things will slow down as a result of COVID and the recession, though. Though, I still think interestingly, and I think a big proponent of whether that opportunity will continue to exist as aggressively or fervently as it did pre-crisis will be financing. If construction financing is still available for those types of opportunities, and companies or leases are still being made because of the reset of some of those development opportunities, which will require expansion of businesses and new leases being executed, I think that only time will tell. But again, I still think holistically, the opportunity zones and bringing new capital to areas that typically wouldn’t be focused on, I think, was a great vehicle in order to bring new capital to areas that can certainly be invested in those communities.

Meb: You guys talk on your website a little bit about how your sort of target, and you can correct me if I’m misstating, but 10s do exist, the property is at a slightly lower size versus where most of the institutions tend to play. Who ends up being y’all’s traditional investor? Is it investment advisors? Is it pension funds and endowments? Is it individuals that kind of co-invest with you guys in these funds and opportunities?

Carl: I would say 50% of our clients now are sort of the smaller pension funds, foundations, and endowments that are looking for sort of the more opportunistic type of managers and returns that are finding these smaller niches that are able to produce the higher returns that we’ve kind of gotten accustomed to. The other 50% are registered investment advisors or other family offices or high net worth individuals that have also appreciated sort of the opportunistic nature of our business and the platform that we provide for them.

Meb: We’re gonna take a step sideways and continue to talk a little bit about sort of macro ideas. And you have been involved with Reserve Bank of San Fran. How did that come about? Tell us a little bit about that experience.

Carl: It’s been wonderful. Didn’t know what to expect three years ago. But all I can say is the directors that I’ve served with, that have completed their term, and the new directors that have joined since I’ve been part of the board have been just a tremendously wonderful experience for me, personally. They are all sort of experts within various industries and industries that perhaps I wouldn’t necessarily have had exposure to on an everyday basis. So, from a wealth of knowledge perspective, it’s been fantastic. But I think from a information perspective and sharing our sort of macro and micro views on the economy, and our own sort of little worlds, and how it may influence or impact their decisions with regards to monetary policy, the Fed funds rate, and all of that, it’s been a lot of fun. Lots of smart people, a lot of people who care about what’s happening across the country and trying to help people, and have really enjoyed serving there and look forward to serving there another three years.

Meb: What has been the general kind of sentiment in experience? Is it something where you think people kind of echo your sort of views on the world and the way things look, or tend to be pretty divergent, or any general takeaways on how people have started to comment on a pretty volatile, pretty action-packed year thus far?

Carl: I only chuckle because I tend to be the voice that is not a one to jump on the bandwagon of thought. I still remember this. I mean, in late, I think it was 2019 when I think the Fed was still wanting to move rates and take rate because they were trying to get inflation to move. I was not a proponent of that, personally, nor was I a proponent of where the economy was because I felt like there were more headwinds than what was projected by certainly the hundred economists that work for the Fed from a historical perspective. So, I would say we had some pretty interesting and heated discussions. Always friendly, but certainly, not of the same thought and mind. And so, I think that was fun and interesting, and it’s always in good nature, but lots of different opinions, lots of different thoughts. And there definitely is not generally a consensus.

Meb: All right, feet to the fire, you gotta put a probability I have you back on and let’s say 2025. So, 5 years from now, do you think we see negative-yielding sovereigns in the U.S. at any point, say the 10-year, you think it’s a possibility? It’s a zero percent chance? It’s 100% chance? Where do you fall?

Carl: If I were to take what knowledge I have today, I think, 0% chance we see negative rates. I do think we will be still pretty close to zero. Though, I think a lot of will have to do with what happens here at the end of the year with the election, as well too. And I have no prediction one way or the other which way that’s gonna go. But I think that will definitely have an impact one way or the other with how the next four years certainly goes with regards to the local economy domestically here.

Meb: My prediction is it will be a mess as political events seem to always be. What else? So, before we hop over to my favourite topic coming up, any other general thoughts on the economy on you certainly have a crow’s nest viewpoint of not just California, but all across the country on all sorts of different type of real estate and as well as chatting with the Fed and other business owners? Any other general thoughts we haven’t covered on sort of the macro of the economy, on investing side that you think is insightful?

Carl: It’s hard to ignore the stock market. I mean, I struggle with looking at the equity markets and seeing them set new record highs because I personally just don’t believe it’s reflective of what’s happening today and what’s going to be happening at least tomorrow. Unfortunately, I think, we’ll probably see a bit of a pullback or somewhat of a reset once reality sort of sets in. And there’s probably a little bit more headwind in front of us. I mean, as much as we all would have loved to see a V-shaped recovery, unfortunately, I just don’t think that’s going to be at least the near term reality. I think it’ll be a little bit of bumpy waters ahead of us for the next few years until we figure out who’s gonna be in office and what kind of leadership we’ll have politically. But I think we’ve got quite a bit of ways to make up from what’s happened with regards to COVID and the quarantine in the last year, that’s put everyone backwards a little bit.

Meb: I echo a lot of those sentiments. Let’s hop over to something that I’m even more fascinated about because I’m not just a commentator, I’m a consumer. And what was the inspiration for becoming an entrepreneur, particularly in the food business? Were you just looking around and say, “You know what? This Domino’s is just garbage.”

Carl: As much as I like to say that Domino’s seems to be setting incredible records here as of late, so I’m more envious of them than not with regards to their operating business.

Meb: I say that because my household has a consistent battle, where my wife loves Domino’s, and I think it’s literally like a 2 out of 10. But listeners, a great statistic of one of the best performing stocks over the past, what is it, almost 20 years now. And there’s an IPO window where Google went public and has obviously had spectacular returns. But a little pizza company went public about the same time and has actually had better returns, I believe, hard to know now, end of 2020. But Domino’s has been one of the best performing stocks around. Okay. Well, maybe it’s not Domino’s, but tell me what prompted you to start a pizza biz?

Carl: I’m still always an entrepreneur at heart. And as my friends know, I love food. And so, for my daughters, and continue to invest in my family, and creating opportunities to learn and to teach them, I thought, “Hey, why not? Let’s open up a little restaurant and give it a whirl. See how it goes.”

Meb: So, Pieology, I think I’ve been to the one in… Is there a location in Culver City kind of in that right now?

Carl: There is.

Meb: All right. So I’ve been to that one. But for those who aren’t familiar, tell us just a little the story of opening up… I mean, this sounds like almost like, it’s like a business school 101 idea, this inspiration in an area that a lot of people can probably identify with, but talk to us about the opportunity, the expansion, memorable moments, all that good stuff.

Carl: So it was a fun little project that we decided to start, we opened up the first location next to Cal State. Fullerton was close enough to home and we figured all college students love pizza. And we thought, “Hey, we’re a bit foodie at heart, and to create a concept and our idea that would translate or bring that foodiness back to the consumer with the freedom to be able to create something themselves without any limitations, what a cool idea.” And so we launched Pieology, oh, shoot now, was it early 2011, developing in 2010 concept? And I would say, when we first…it was a little bit rough go. I still remember where one night, when we had first opened, all the kids and I, we had to go back to the restaurant, shut the restaurant down, wash the floors, mop the floors, clean the toilets, and everything else, and get all the prepping done for the next day because we didn’t have the team members in place and everything else yet. And so, those are all very memorable moments, staying up until 3:00 or 4:00 in the morning.

Meb: Well, that’s a good illustration to your kids or anybody. Everyone always looks at the glamour and pot of gold, the end of the road of being an entrepreneur. But we often say on this podcast, the number one compliment you can give an entrepreneur is simply surviving, which means you’re at least doing something right because there’s a million competitors. But there’s a lot of not so glamorous parts, and cleaning the toilets and taking out the trash applies to just about any business. So that’s a good lesson. Tell us a little bit about the thesis behind it because you guys were certainly early in this trend of personalization, of how you get to approach almost a new category, imagine the time. Was there anyone else kind of doing exactly what you guys were doing when you guys launched?

Carl: Not at the time. No. I mean, I think despite the rough go, the first six or eight months, all of a sudden, word got out and it kind of caught fire. And I think all of a sudden, there was a magnifying glass on what’s this execution or reinvention of how you can do pizza. When we started getting lines out the door and around the block, it was hard not to get noticed. And so, I think it brought a lot of sort of seasoned restaurant entrepreneurs and operators around the concept, and next thing we knew, we had every major player in our restaurant trying to figure this thing out, and seeing people with video cameras and cell phones, videotaping the operations, and everything else. So, it was a pretty interesting time.

Meb: And so are you guys…? It’s expansion mode? Is it something that, like… How does this work? Is it a franchise model? Are you guys going global? Are you staying SoCal? What’s the vision?

Carl: We’ve got a great leader that’s taken the helm for the last three years or so now. And we’ve gone to 100% franchise model, which is a couple of corporate store, really, more for operational execution, and learnings, and menu development. But we’re continuing to grow here domestically. We’ve signed, as a company, a number of large international agreements, recently launched in Asia, in Mexico, and Europe. And I think they’ve continued to sign other large development agreements as well. So, at this point now, it’s kind of gone quasi-golabl at this point.

Meb: What’s your go-to order? You gotta go in… And because you guys have all sorts of different stuff, gluten-free, everything in between, what’s Carl’s order when he shows up?

Carl: My go-to order and my test, usually, for the team members because it’s not on the menus, I would say, “I’d like an upside-down cheese pie.”

Meb: What does that even mean?

Carl: Exactly. What does that mean? So basically, it’s a white pizza with olive oil, with tomato sauce dolloped on top of the cheese.

Meb: Oh, interesting. That’s another big disagreement of how we have here is I’m not a fan of the white pizzas. My wife loves them. But now that you reintroduce tomato, that’s interesting. I might be on board for that. How has this year been for restaurants, in general, have struggled, but on, I would surmise, potentially, that pizza, being a comfort food and something you can certainly get delivered, has that been a massive challenge or has it been survivable, or even a positive? How’s this year been for the restaurant biz for you guys?

Carl: I mean, I think you can really segment it based on operations. I think the restaurant businesses that required in-room dining struggled. We struggled as well too. And the thing that kept us going and we’ve been pivoting now, and I know Reagan, the CEO, and the team have been pivoting now for the last 24 months is really to focus on what Domino’s has been successful in doing is really the delivery model. And so those that had great delivery execution model did exceptionally well during this time. And when you see the wing stops at the Domino’s with regards to pick up and/or delivery, execute the way they have tremendously. So, they’ve been setting a sort of year over year sales records. I think those that were more dine-in sort of concepts, either were able to make a pivot or simply just didn’t survive. And unfortunately, you start to see some of the small businesses now file BK because it’s just too much of a capital investment to make that kind of shift in that operating business model. And unfortunately, as a food lover, I know a couple of my favorite places, unfortunately, have closed as a result of it. It’s just impossible to continue to operate this way.

Meb: It’s hard. I was reading a piece from two of the most award-winning restaurants in LA and talking about just the margins and the challenge of that business. It’s so hard. I’m also a food lover, and you’re making me hungry. It’s almost noon time here. So, I may have to see if Postmates will bring a Pieology down to Manhattan Beach. Talk to me a little bit, we’re gonna do some shorter questions as we kind of roll down here. As you look around the landscape, what’s been your most memorable investment? It could be real estate. It could be anything across the board. It could be good. It could be terrible. It could be an apartment building that’s got black mould in Alabama, I don’t know. But anything come to mind?

Carl: Nothing really stands out, though, I would tell you this, we’ve had a lot of success. And I don’t dwell too much on our success. The things that ingrain most in me are the ones that weren’t as successful because I wanna make sure I’m learning from those mistakes. And thank goodness, our lack of success hasn’t translated into loss, but just a lower return. And we had to work really hard to achieve those lower returns. And I’m reminded of how hard we have to work when we potentially make some of those mistakes. And so those are the things that I tend to focus on. I wanna learn and get better every day. And I think we’ve got an incredible team and we’ve got a lot of experience. But if we’re not continuing to learn and improve ourselves, reminding ourselves that we are never arrogant of who we are, then I think that’s the greatest lesson that I can learn from my past experiences.

Meb: So as you look around the landscape, and this doesn’t have to be specific, it could be general, what is your best idea right now? And this doesn’t have to be real estate. But I imagine that would be the guess. Anything, in general, seem particularly attractive or that you got your eyes on?

Carl: No, other than affordable housing is of particular focus and attraction, for me, personally. Where it has appealed to me is our sort of two-pronged approach. Our one-pronged approach is sort of the green initiatives, and bringing operational efficiency, and being sort of environmentally conscious, that has all translated into total return. But I think the social impact side that we invest a lot of our time and energy in has been, at least from a personal standpoint, rewarding. And the fact that it’s actually turned out into an economic reward that we can actually track and translate has only been a positive, just because I know how impactful those programs are to our tenant base and the families that we serve within these communities. I have a tremendous affinity and admiration for the single mother, who always seem to have another gear of work ethic, of dedication, not only to family, but to providing for their family. I think those women just are incredible heroes in themselves. And we have a number of them in our communities, and even here in our office, and I just hold them in great regard.

Meb: A hundred percent agree with you. Now, the years have passed, you are now in the role as father instead of son, how are you approaching sort of the lessons your parents passed along, but also educating your kids and guiding them to a path and understanding? You already mentioned the cleaning the toilets, so they got a good start. Any general insights? I got a three-year-old here, and he’s a few years behind before we start probably talking entrepreneurship, but I think he’s starting to get it. Any general thoughts, and approaches, ideas you got for the way you approach your kids?

Carl: I’ve learned a lot, unfortunately, and mostly through my eldest who I’ve made a lot of mistakes with, Katie. But I would say this, you cannot find enough time in the day, as busy as we are, to find time to spend with your children. That’s what I learned with my eldest. I mean, I was very busy with the businesses and the operating businesses. And now, I’m thankful that I invest a lot of time in her as…she’s 21 now and has a similar passion for the business. But even my younger ones as well too, who have different passions and talents. Investing time and finding energy to share their passions has been something that I’ve learned early with my eldest, and I think that continues to pay dividends, especially times like what we’re faced now in the world.

Meb: I think that’ll be hopefully a blessing of this struggle of this last year as people starting to think about optimizing their life, a lot of the stigma of working from home, and all the other challenges of the modern world. I think a lot of those have crumbled, which is a good thing. We talk a lot at this podcast about the challenges of investor education. And it’s been long, long, a sore point for me, and the school system, in general, doesn’t teach personal finance. So, don’t even think about investing as an option. But I still think that’s one of the biggest business opportunities, listeners. If you develop the Rosetta Stone of investing, hit me up, I’ll be an investor. But to me, that is an opportunity as well as a challenge. Carl, this has been a lot of fun. Any resources for people out there who wanna get deeper into real estate? Any particularly influential books or I mean, it could even be websites, papers, conferences, when those used to exist? Anything that you think would be helpful for people on the path to becoming a real estate mogul? Any ideas?

Carl: There are a lot of different resources that are available. But what I found, and within the industry, at least, I’ve appreciated this and I’ve been trying to return the favor, finding a good network, a mentor, that you can pick up the phone, and call, and share ideas, or be able to sort of help qualify or punch holes into a thesis has been the most valuable resource from my perspective, especially growing up. Now that I’m older, I’ve been very open to sharing those thoughts and being able to be a sounding board for sort of our younger folks, but I’ve always appreciated that within the industry as I was growing up. I have a handful of tremendous mentors that I’ve looked up to that have just been fantastic for me.

Meb: Good advice across the board. If people wanna find out more about Kairos, what you guys are up to, where do they go?

Carl: I think it’s www.kimc.com.

Meb: Perfect. Carl, it’s been a blast. Thanks so much for joining us today.

Carl: No, I appreciate it. That was fun.

Meb: Podcast listeners, we’ll post show notes to today’s conversation at mebfaber.com/podcast. If you love the show, if you hate it, shoot us feedback@themebfabershow.com. We love to read the reviews, please review us on iTunes and subscribe the show, anywhere good podcasts are found. My current favourite is Breaker. Thanks for listening, friends, and good investing.