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Here on Episode 11 of Offshoot we welcome Jon Lotter.
Jon is founder and Managing Director of Appian Capital, a boutique investment manager that has invested in over 140 transactions deploying over $400MM of equity in $2.2B of real estate value.
Jon’s innate curiosity, tenacity, abilities, and intentional efforts have delivered Appian from a startup to 20-year-old veteran player that’s executing some of the stronger investment deals in the Country.
Jon shares some excellent insights for life and business in this one:
• Larger deals pay more… do them!
• Conservative underwriting is a differentiator and competitive advantage.
• How force majeure provisions are impacting GMAX contracts and cost containment.
• What it looks like to be opportunistic and seek the best deals throughout the investment cycle.
• How to narrow the target and shoot at less.
• Why co-mingled, discretionary, closed-end funds are fundamentally mismatched to real estate investment.
• Why being able to pass on a deals, forever, is a competitive advantage.
• First who, then what. IE: first the developer, then the project.
• Expect headwinds and be happy if/when they don’t happen.
• How fulfilment and success are a blessing role model for your children.
• Keeping it simple; it isn’t that complicated.
• Be intentional with what you do, stay on track.
Transcript
Kevin Choquette:
Hello, everyone. Thanks for tuning into another episode of Offshoot today. I’m happy to welcome my friend, Jon Lotter to the pod. Jon’s the managing partner of Appian Capital a Bay Area-based investment manager that typically invests joint venture equity into opportunistic real estate projects. That does not, however, preclude them from investing for duration rather than simply building, stabilizing, selling, as many fund managers do. Whether their projects are developments, repositions, or renovations, they almost always work with local operating partners, the GP yin to their LP investment yang, if you will.
Over Appian’s first 20 years, the firm’s invested over 400 million into properties with a value north of 2.2 billion through approximately 140 transactions covering 16 unique property types. They’ve yielded just north of a 21% IRR, an impressive 20 year track record. Jon’s a Berkeley grad … go Bears … and is always running and gunning. I suspect you’ll see very quickly here that his mind moves at the proverbial mile a minute, but I’m cautiously optimistic that the two of us can keep this pace slow enough to avoid giving any of you, our beloved listeners, whiplash as it gets going.
Jon, I’m very thankful you’ve taken the time to speak with me and share some of your insights. Welcome to Offshoot.
Jon Lotter:
Oh, well, thanks so much for that great introduction. And yeah, we do have a quick cadence to our conversations, don’t we?
Kevin Choquette:
Yes, we do. How’s work these days? What’s happening?
Jon Lotter:
It’s a lot of fun. Our posture is really just in reaction to what we’re pitched and what we’re seeing, irrespective of our asset management roles, and those projects that we find, we get excited about, and that’s what kind of fuels our enthusiasm.
Kevin Choquette:
Yeah. Good. It’s a busy time. As a starting point, could you just tell us a bit about Appian and yourself and kind of give an overview of the platform? Certainly, I have some familiarity with it, but the elevator pitch, if you like, just of your background, would be welcome.
Jon Lotter:
Sure. As far as background I, in a previous life, I was in investment management for large firms, BlackRock and Franklin Templeton funds. And I found I just lacked the enthusiasm for that business and was always on the side, pursuing real estate ventures. And so after nearly five years, I quit and joined a small family office, where they were making direct investments but also partnering in a joint venture and then also had a mezzanine lending platform. And so small enough office where, coming in new as a junior guy, I was wearing enough hats.
And lucky for me, the fellow running the place was very hard to get along with, and I went off on my own after less than two years and started Appian with the backing of some of those partners. And back then, we were focused on mezzanine debt, preferred equity, and JV equity. But did that for those programs for a decade and then winnowed it down to, for the past decade, if you cut it that way, kind of pre- and post-recession, have focused exclusively on JV equity only and don’t want to do or get involved with any structured financing.
Kevin Choquette:
Yeah. And what’s happening in the business right now? What are you guys seeing? What challenges are you facing?
Jon Lotter:
So I guess a lot of our daily is reacting to deals that are pitched to us, either directly from developers or through capital placement folks or just through other channels. And a lot of them have maybe, I would say, optimistic exit cap rates or optimistic cost structures, maybe not layering in enough contingency to account for the highly variable costs, which are kind of just part of the backdrop these days. And so I think we look at a couple deals a day and pass on most all of them. But we get excited about those that have a little more conservative assumptions to them. I don’t know if that answered the question.
Kevin Choquette:
Yeah, sure. So you’re saying to developers tend to wear rose colored glasses?
Jon Lotter:
Yeah. And that’s one thing that’s been true. But there are some when … And if they say, “We expect it to be eight,” and it ends up being 10, they’re under … and that consistently happens. And we can really see that they’re not banking on rent trending, and they’re not banking on these things happening perfectly, and it still works, then we’re intrigued, and then we move to the next chapter. Then we dig in a little further.
Kevin Choquette:
Yeah. And you mentioned cost containment. I mean, every conversation I’m having is focused on this and inflation and hard costs. I’ll call it appreciation. I don’t know. Inflation’s probably a better word. What are you guys doing to mitigate that? I’m even hearing a bit from even the stronger general contractors that putting up a GMAX, even for them, is getting to be difficult and maybe prohibitive. What are you guys seeing in that side of [crosstalk 00:06:36]?
Jon Lotter:
Well, in those projects … So we have a GMAX contract on every deal and the capitalization to back that from the GC, so at any given point, we’re in the midst of … Oh, let me back up. So we’re focusing mostly, nearly exclusively, on ground-up development of multifamily. And these are mid-market, which has always been our niche, below institutional check writing. And so for that, these days, it’s in the high teens to mid-forties is our equity check, of millions. So that’s kind of gives you the scale of the size.
Kevin Choquette:
Was that mid-teens to forties is your equity check, or that’s total project cost? That’s your equity check, okay.
Jon Lotter:
That’s our equity check. And so in various markets, it’s different unit counts. In Phoenix, that might be 300 units, and in a more expensive market, it’s lesser units. And those projects that are ongoing over the past year and a half or so, you have to go through a value engineering effort to see how we can mitigate some of these things.
And so you have a GMAX contract, but they have force majeure clauses. And these were … I understand the difficulty now signing a GMAX contract because it’s still variable, but that force majeure language will probably carve out pandemic or COVID related things because that’s a known variable now, whereas before, it wasn’t, and so they can hang their hat on a force majeure claim, saying it’s a global pandemic.
Kevin Choquette:
You’re saying if you have a 2020 vintage GMAX and you’re coming to the completion, they’re going to hang the latitude, if you will, to break the budget on the force majeure?
Jon Lotter:
Yeah. Say, “Hey, look at labor or your supply chain issues,” or whatever it is. But the materials were locked in, likely, so you don’t have the big lumber swings or steel or copper or whatever.
Kevin Choquette:
Right. They would’ve bought that out on the front end.
Jon Lotter:
Yes. Yeah, exactly.
Kevin Choquette:
And so what about a current vintage deal? I mean, I saw in your-
Jon Lotter:
So those that are being conceived right now, we layer on a lot of contingency, and we dig in. We just closed something a couple months ago, and we bought out everything ahead of time, ahead of schedule, in warehouse near the site to insulate from supply chain issues.
And so you have all these ways to mitigate. And it’s not perfect, but for those things that you don’t know, you carry extra contingency for. And then, with that extra contingency in the budget, so with that inflated budget, if it still works, then we get involved with it. But if it doesn’t have that and if it’s lean and doesn’t contemplate those variables, then it’s kind of like threading a needle, and it’s usually … we just back away from it.
Kevin Choquette:
An easy pass. Yeah. And look, I will tease out of you a bit more about your current investment activity because I think it’s worth sharing with the listeners, but just on the topic of development costs … And we sort of ran back of the envelope analysis the other day and came to the conclusion that … What I’m about to say is going to be influenced by the prevailing cap rate environment in terms of what the terminal cap rate is and what cap rate on cost you’re building to, but assuming you’re building to 5.5s and you’re exiting at fours, which would be very appropriate for Southern California and probably the West Coast more broadly, or at least California, we came to the conclusion that 3.5% increase in costs, just total costs, can drop 25 basis points of yield out of the stabilized cap on costs.
And so my question to you, given what we’re seeing, is it seems like a Goldilocks moment to develop macro because inflation hedges and the fact that rents typically move with inflation and you’re borrowing long term fixed rate debt, so any real estate in an inflationary environment is pretty attractive. There’s a ton of capital that wants to come into real estate because there’s no yield anywhere else. But are these costs escalations going to be significant enough that the development window closes?
Jon Lotter:
Well, I think that it depends on your perspective. For us, yes. But for those who are along the land and spent three years entitling it, no. They’ll just say, “We’re building to a 5.1 or a 5.0 or a 4.9. Trend it.”
Kevin Choquette:
Yeah. Trend it.
Jon Lotter:
And so that goal post keeps moving, and that makes us nervous because then they say they’re exiting at a 3.5 or something like that, and we are saying, “Yeah, I understand that it’s [inaudible 00:12:38] today, but the sun is shining today, and the sun doesn’t always shine, we’ve learned.” So we build in cap rate escalation of like 15 bits a year or so, so we need more of a conservative exit cap idea out there.
And so that’s why we don’t trade a lot in major markets because a lot of those pro formas need the trending, meaning they need that to build in that rent growth assumption, in order for their pro forma to work. And in some instances we run it at a zero and then say, “Guys, you’re kind of selling it for what you’re building it for.” But they, “Oh yeah. Well, you took out the market growth.” Okay. Yeah, but if this is just a market growth play, then we would buy the existing class A building next door to you and ride that market growth and not-
Kevin Choquette:
Thank you. That’s exactly what I was going to say. If that’s the case, let’s just go buy one and not have a partner and not have to take all of the development risk.
Jon Lotter:
Why go through … Yeah, exactly. But to some, they have a hammer, and everything’s a nail. And so they do that because that’s just what they do, and they’re pregnant with the deal.
Kevin Choquette:
Right. So let’s talk a little bit more about where you guys are investing. You just alluded to the fact that you’re less frequently in major markets, but asset types … You kind of alluded to 15 to 40 being your check writing, which is larger than I recall. Geographies, primary, secondary, tertiary markets, just development, entitlement risk, where are you guys investing? What’s the sweet spot?
Jon Lotter:
And so the check writing size has changed over the years, not because we aspire to do bigger deals … and it is fun to do a larger deal because the remuneration is larger … but more that those deals happen to be ones that we’re following our developer partner down, too. And it happens to be a larger transaction, but we have kind of a shorthand communication with them. This is our sixth deal or something.
And it also is driven by the inefficiency in the market below where maybe Carlisle or Prudential will write a check, where they have to … It used to be that below 15 million was the sweet spot, or 10 million, back in the late ’90s, early 2000s, and now, as they raise more money, their denominator gets larger, and their transactional efficiency bright line below that, it’s just too small, if that makes sense.
Kevin Choquette:
It does make perfect sense. Let me just say that back to you, so I’m making sure I got it. What you’re saying is, as the bigger funds get bigger, their smallest check is bigger, which gives you a bit more headroom to write bigger checks and still be sub-institutional?
Jon Lotter:
Yeah. Way better said than what I just did.
Kevin Choquette:
Yeah. That’s great. That’s great. To be honest, I haven’t heard anybody say that, and it makes a lot of sense.
Jon Lotter:
Yeah. And it’s not because we’re brilliant. It just kind of happens that way. And we are partnering with folks who otherwise have those big funds as partners, but they had this smaller deal that they have because they’re in the business of the business they’re in. And so we’ll partner with them in the similar docks and bargain that is kind of on the shelf for them with big pension funds.
Kevin Choquette:
That sounds like a win.
Jon Lotter:
Yeah. And so it’s very much … It’s easier than dealing with … And we absolutely appreciate and get excited about local, regional, more entrepreneurial developer partners, but if they haven’t been beaten up by Prudential, they’re looking at our terms going, “Oh, that’s different than the doctors and dentists I raise money from.”
Kevin Choquette:
Right. Totally.
Jon Lotter:
So I know that’s kind of a weird way to say it, but it is kind of what we notice in terms of the-
Kevin Choquette:
No, no, look, it’s the natural evolution of the, if we can say, the emerging manager, local real estate entrepreneur. First deal or two, friends and family, maybe he raises two, two and a half, three million, gets a win, does two or three, and then suddenly wants to do a 140-unit project. And he is not going to get the local syndicate that he has trust and affiliation with to write a $14 or $20 million check, which is where he comes to you, and he says, “Well, and by the way, I get to be the messenger for this. How about a 10 pref 50/50 split?”
Jon Lotter:
Yeah. And you provide credit enhancement and guarantees along with me in pro rata, along with me, and I’m the 5% partner or whatever.
Kevin Choquette:
Right. And forget that my net worth and liquidity is let’s say 400,000 with 4 million and we’re borrowing 40 million, but we’ll both sign on the guarantee.
Jon Lotter:
Yeah, exactly.
Kevin Choquette:
All right. So that’s super helpful in terms of check size, but what asset classes, primary, secondary markets, tertiary markets? [crosstalk 00:18:46]
Jon Lotter:
We used to look at major property types in terms of the pie chart and fill out different quadrants in pro rata and go, “Oh, my gosh. We haven’t done industrial that much, but to be diversified, let’s emphasize that.” And we let that all go after the recession and just followed what’s in front of us, what’s the most attractive given these times. And so, aside from a couple … hospitality … we built a hotel in Silicon Valley, right near the Apple campus … and some office, which they have really good storage attached to them, outside of those, it’s been ground-up multifamily. And I expect, for the near future, for the deals we have in the pipeline and what enthuses us in terms of risk reward is multifamily development.
In terms of location, I want to say we follow job growth, but gosh, we had just an awesome time pursuing more in market like Eugene, where there isn’t big job growth story, but it’s a scarcity story in terms of the existing inventory, and there’s not a lot of developable parcels within the urban growth boundary.
But those places where we have been and continue to do a lot of business or, like Phoenix, MSA, and Tempe, and just draw a big circle around Phoenix, and Boise … We are now on our one, two, three, fourth transaction in Boise. During the early days of the pandemic, we kind of leaned into that market on one deal and then consummated that, but with those efforts, not a lot of folks were pivoting there. And now it’s a little bit of a darling, and there’s been a lot of appreciation since. But we are bullish on Boise. It reminds us of what Phoenix looked like a decade ago.
And other markets, we’re kind of looking at a little bit. We tried to do some business in Salt Lake, but it hasn’t gelled yet.
Kevin Choquette:
I’m reluctant to ask a question that I know Google could answer, but in terms of orders of magnitude, your comment on Boise and Phoenix is interesting to me because those population centers are vastly different, just in terms of head count. What is it about Boise that-
Jon Lotter:
I know I mentioned them in one sentence, but they are very, very different markets.
Kevin Choquette:
Yeah. I mean, it’s hundreds of thousands in Boise, right, maybe 200 thousand. I don’t know the population of that MSA.
Jon Lotter:
Yeah. And you have to look at … We were underwriting Sunnyvale, where there’s millions of square feet. We were throwing around millions of leased and then purchased and being developed right near you, which we were excited about that happening blocks away from our site. And then switch over to Boise, where it’s 100,000 square feet right there, and you’re like, “Oh, wow, that’s right there.” And we were similarly excited, but it’s just a way smaller pond.
Kevin Choquette:
But what is it that makes you feel … I’m just curious. I want to sort of explore that … that it has some characteristics which are similar to Phoenix? It’s obviously not the population.
Jon Lotter:
Yeah. The population … It has a big immigration component, which the pandemic was a catalyst for, but it was there demonstrably before the pandemic in a consistent way, over years. And so it’s very … It’s just … Back a decade ago in Phoenix, where you had a very industrial base that was just one leg to the stool, and so it was a more volatile market, whereas really the industrial base was built around housing, generally, in construction with mortgage companies and all the ancillary businesses. Now Phoenix is a very diverse industrial base with tech, biotech, financial services, insurance, and whatnot. And Boise is having similar attributes, in terms of diverse job base, industrial base.
Kevin Choquette:
Employment based diversification. And it’s 760,000. I just looked it up. Thank you, Google. So it’s actually bigger than I had appreciated.
Jon Lotter:
Yeah. I mean, it’s … The size of it, I mean, there’s all those suburban areas, and so when you talk about MSA versus the downtown core, there’s a lot of development out in Meridian and Nampa, which we are looking at those, too. Our developments are right in downtown Boise proper, which there’s a dearth of housing. There’s more coming on, when a project is delivered, the velocity is in the 50s versus in the teens or 20s in other markets because it’s just an underserved market.
Kevin Choquette:
Yeah. So it’s the emerging manager, western US, sounds like it’s mostly secondary and tertiary markets. Clearly, you’re not afraid of some of the smaller markets, meaning the Eugenes or Boises. Development is front and center. What do you guys do as it pertains to entitlement?
Jon Lotter:
Yeah. In terms of … I’m more afraid of … I live in the Bay Area, and when I see a deal in the East Bay or San Francisco or South Bay, not much in the North Bay, those scare me because they’re just the metrics of the deal, and they bake in the growth where … and they don’t have just the new growth right there. We’re not making prognostications nationally and then doing circles around areas. We are looking at local, regional characteristics and making a rifle shot investment right there. And so that’s why Boise fits. And we run it at some conservative assumptions. It still passes the test when we stress test the pro forma.
In terms of entitlement, we have had, in years past, entitlement funds, which just took that piece of risk and then handed it off to a more build-a-core fund or other internally, kind of a stop/start. And we don’t do that any longer. So we don’t really get involved with … I’ll call that pursuit. Or we kind of react to a deal once it’s actually a viable deal. If there’s some administerial entitlement work, which is not anything … no discretionary review or anything like that, then that’s the point we get involved.
We do, however, get involved with deals that have a big entitlement effort to go through, but we’re more just there, haven’t invested yet, and maybe you’re trading paper in terms of our bargain, our agreement, so we can hit the ground running once they do gain that.
Kevin Choquette:
Yep. That makes sense. And then, as it pertains to the nature of the capital that Appian deploys, are you guys a fund manager in the traditional sense, where you’re on fund two, three, or four, and each fund is a $100 million, and you’re getting an asset management fee and a promote, or are you working in more atypical manners and sort of recruiting capital in the real time? I think I have some insights to that, but I certainly wouldn’t want to guess.
Jon Lotter:
So while we’re raising some funds right now, those funds act as kind of uber investors among our other investors. And the reason that we abandon and the go out on a road show and raise up a quarter million dollars and then spend it is that, philosophically, we feel that it doesn’t match … it doesn’t feel good, in terms of, “Hey, we’re sunsetting this fund, and so we have to dispose of these assets, and so we’re really … we’ll take a haircut on that.” And it breeds ill will with our partners. And [inaudible 00:28:52] that’s just for marketing, for raising funds.
So fundamentally, we don’t look at ourselves as capital raisers. We look at ourselves as folks who find deals that are we’re enthusiastic about and then invite others to invest in them. But in terms of our posture to the market, we need to have the funds to fund a deal, so we have agreements with a couple ultra high net worth folks who back our program and who can write the check in a minute to back a hundred percent of everything we do. So we make our commitments based on the strength of those, but when rubber hits road, those guys making that commitment only end up being a couple percent of any deal. And we have maybe 400-and-so investors, and each deal is a separate transaction.
And the decisions made on that transaction are driven by the real estate, the property, and what is right for the property. And that is a breath of fresh air for a lot of our partners when we say that because they’re like, “Oh, great, okay. So if we’re hitting … you’re not going to have some liquidity constraint and say, ‘Gosh, we got to lock in the loss here and sell.'” You’ll never hear that from us.
Kevin Choquette:
Well, not only that, but you’re not in year seven of a fund, where you’re looking to recognize your 20% promote as a fund manager, and in order to be able to do that, last asset that really isn’t ripe, and even though the cycle’s kind of moving against you, it’s more or less a forced liquidation because you got to get paid.
Jon Lotter:
Exactly. And then it also adds a perverse incentive for us to transact because we raise the money. We’re getting paid. And I’ve seen this with folks who do similar programs as. Their deal quality just goes down. And I’m scratching my head. “We passed on those. “Oh yeah. They just did a big fundraise, so I guess they have to spend it.”
Kevin Choquette:
Yeah, that’s exactly right.
Jon Lotter:
That … Oh, gosh. And maybe they’ll do well and maybe the market will keep rising, but [crosstalk 00:31:30] … Yeah, go ahead.
Kevin Choquette:
Oh, well, one of the endowment managers from one of the big universities on the east coast, I’ve heard him, in a room full of sort of the fund managers that we’re referring to right now, just literally say, “I hate co-mingled funds,” for the exact same reasons that you’re articulating. It’s bad for the real estate, you’re taking my discretion from me, and you’re mingling me with a bunch of junk of matched duration, and then you’re going to synthetically drive the thing off of a cliff in year eight. What are we doing, guys? What are we doing?
Jon Lotter:
Exactly. And that could be a whole separate podcast, I think, that money is raised that doesn’t match the actual investment thesis that you’re pursuing. And you’re catching me, in terms of professional arc … So I’m 53. We don’t need … We can pass for years. Right. Actually, I could just ski and mountain bike ride from here on out.
So I want to get into things that are positive and have a … and it’s better to under-promise and over-deliver, and then, “Oh, did the cap rates compress? Great. Wow. We got … that’s great.” And so it’s all a positive spiral, in terms of life balance and everything. That’s much better than saying, “Yeah, we had hoped that market … We’d unwritten 4%, and it didn’t happen, and it’s bad news,” or less good news or whatever. And I’d prefer the former to the latter, in terms of a balanced life.
Kevin Choquette:
Yeah, I totally agree, and I think you guys are really wise to approach the market that way. The thing that you have that’s unique is I think what you just labeled as kind of the uber investor. To be able to stand with confidence and say, “Hey, we’ll take the deal down. This is our terms,” and know that you’ve got the backing and then … The market would sort of require that, so it’s a-
Jon Lotter:
From the outside looking in, I think it looks a little bit like Frankenstein’s monster. I mean, it’s a little … But we were like, “What are our priorities? What do we want to do? We don’t want that. We want this. We want freedom to do what is the right thing to do for the property and for our partners, frankly.” And we came up with this.
Kevin Choquette:
And you’ve done it with $400 million, so it’s not like it’s a de novo concept at this point.
Jon Lotter:
Yeah, no, it’s … Yeah. We’re way down river on it. So …
Kevin Choquette:
What do you attribute the $400 million and your 21% average or aggregate IRR?
Jon Lotter:
I kind of cut it up into there’s the first decade and the second decade. And the first decade’s transaction flow and deal size and type are very different, especially when you come to a mezzanine fund. A lot of, maybe 60% of, that deal flow from year 2000 to … I’ll call it 2008, maybe, was mezzanine debt. And so that’s a whole different kettle of fish, and it doesn’t … And that had reasons for its success, which are different than what we have done since 2009 nine or so to present and what we expect to in the future.
And that is all very consistent, meaning for the past decade, we did what we intend to do for the next decade.
Kevin Choquette:
Right. And let’s talk about that first 10 years because I have heard you in other settings articulate some of the reasons that you moved away from that business model following the great recession, following the downturn. What were the lessons learned in that time period?
Jon Lotter:
Well, I think that a big staff and looking to do more volume and getting into more structured transactions. And we were … A lot of those preferred equity and mezzanine debt investments we made did wonderfully well, and sometimes, they did wonderfully well at the expense of our partner because we were in a preferred position, and if things go wrong, then we’re still great, but they worked for free.And because you are in a protected position, you can convince yourself to get involved with deals which maybe have a little more hair or are less stellar.
And then on the joint venture deals, it’s more who than what, and the information flow of being a partner … I think this fits how we are, how my partner and I are organically, how we approach it more as a partner and not as a lender or some preferred bargain. So it matches our personality better. We liked rolling overseas and helping and leaning in and not tasking our partner in terms of we try to answer our own questions and have our own resources.
And so the JV equity bargain structure really fits our character and nature better. And there’s a higher quality of sponsorship. And then when you focus on that, then … And doing repeat deals with those is just the best place to be, in terms of a fun business to do.
Kevin Choquette:
And look, as the industry as a whole, the business you were in and the same as the big fun business, we’re in an ecosystem where there’s a double promote, which is the developers getting a capital or a profits interest that is disproportional to their capital investment. And as a fund manager, obviously, your incentive for doing this is you can get a bit more of the economics than you would for just the dollar for dollar investment that you may make into any transaction. What’s your view of the double promote in general?
Jon Lotter:
Yeah. So we’re not inventing anything that Goldman Sachs or Carlisle or any of those others-
Kevin Choquette:
That’s right.
Jon Lotter:
So it’s an on the shelf bargain that’s out there with 99% of the money that’s invested in real estate. So all those funds have a double promote when they’re investing in deals. And you look at their perspectives, and they don’t mention that … but we know because we see the transactions where, “Oh yeah, no, that’s a JV bargain they’re doing. They didn’t buy that building. They bought that in partnership with the local guys.”
So we are doing what is most normal in the main, but when it comes down to the perspective of an individual investor who has maybe $10 million, who represents, maybe, one of our investors, he may be looking at us or investing in, maybe, someone he knows, a local developer, where he’s coming in as maybe their co-GP or coming in as part of their equity syndication.
Yeah, we are different there, but what he doesn’t have is we have a guarantee from our developer that they’re on the hook for all cost overruns. That has always been the case, and it’s well capitalized, nation’s largest developers. And then also, we are on our hamster wheel working and finding and being very discriminating in diverse areas. So his friend at the country club, they’re going to have one type of business they do. And so if he wants to go disproportionately invested in that one, then that’s that’s one thing, but we’re … we had some-
Kevin Choquette:
Yeah, yeah, look, that’s all great feedback, and I wasn’t meaning to contest that the double promote was unjust or anything like that. It is a market bargain that’s out there, and I think the general consensus is it’s worth it. As an investor, I would be happy to pay you guys to have somebody looking in Eugene and Boise and making sure I’m getting best of class sponsors, local developers, high quality general contractors who can put up a GMAX that means something, know that I’m in a market where the job formation or household formation metrics are favorable or the supply constraints are so meaningful that you can almost not look at that as much is kind of what you articulated with Eugene. I think it’s worth it.
But a parallel to that, the crowdfunding thing, the jobs act that Obama passed now, I don’t know, seven, nine years ago, CrowdStreet in particular … there are others … it’s starting to be pretty real. I wonder where your thoughts are. Is that a threat to Appian and it’s brethren? Is it going to reshape the industry?
Jon Lotter:
When we see those … I’ve noticed those … I saw an offering by Greystar on there, like, “Oh gosh, there’s … Huh, that’s interesting. Maybe we should pay attention to that.” And then I don’t know. I saw something shiny and abandoned the research into it. But in terms of the deals, it doesn’t have the characteristics that ours do, so it’s a little bit of apples and oranges. I don’t think it’s a threat just because we’re dealing with relationships and larger capitalizations that those aren’t large enough yet. But hey, they are getting larger and larger, and folks are raising funds out there. And I like the democratic nature of it.
In some, the CrowdStreets or RealCrowd or whatever, they try to offer up some type of, “Here’s what to look at. Here’s some underlying underwriting that you can look at,” but it’s not professionally vetted. It’s not … And so there are things that I’ve noticed there, like, “Oh. Gosh, they don’t mention this refi thing at all. I mean, they’re, mentioning that they are going to, but they don’t mention like their assumptions around it,” or whatever. I’m using it as an example of there’s some blank spots sometimes there that are like, “Oh, that’s interesting.” And they got funded. Okay. Yeah. And they’ll likely do well. I’m not betting against it at all. I’m just saying what we’re doing is different.
Kevin Choquette:
Yeah. And I think they will do well, and I don’t think it’s a threat. And the way you just articulated it, at 53 years old … And I suspect the challenge for Appian is having the correct proportion of nos to yeses and the nos vastly outnumbering the yeses. I don’t think CrowdStreet or any other crowdfunding platform will upset that kind of balance. But I do think it’s … In the coming years, I think the industry is going to shape-shift a bit, if you will.
Jon Lotter:
Yeah. I’m intrigued by that idea, and I want to pay more attention to it because if you look at the growth trajectory so far and extrapolate that, it looks very promising for them.
Kevin Choquette:
Yeah. Yeah. I think they did a billion last year and are projecting two … CrowdStreet in particular. I happen to know those guys pretty well. They did a billion of equity raise last year. The average check is $25,000.
Jon Lotter:
Wow.
Kevin Choquette:
Yeah. They have 16,000 accredited investors on the platform. It’s fascinating.
Well, let’s go macro, talk about the cycle as a primer. I just listened to CoStar. They did a market update for San Diego, so here’s a few sound bits. 3.5% cap rates for multifamily east of Interstate 5, 3% cap rates for assets west of the 5. They expect those to drop 10 to 20 basis points. We’re out in the market right now looking for a stretch senior loan at 85% LTC, which, historically, would be a very aggressive ask. That’s 18.5 million. We got 10 bids. Four of them are over 21 million, which is 92% loan to cost. Or I should say over 20 million, excuse me. They’re over 20 million.
And all of them, this is all private debt, non-recourse capital, an 8% rate. And the median fee is two points. So we’re in a point where, apparently, four private lenders are comfortable at 92% leverage for 8% and two points. I could go on, but what’s your guys’ view of the cycle? Where are we? Is this just lean in because inflation’s ripping and it’s all you can do, or is this time to pull back and be really cautious and convert to cash and wait for something to happen? It’s very hard for me to see it at the moment.
Jon Lotter:
Yeah. So we operate a build the core strategy. So with that is instead of buying that class A apartment building, we’d like to build it and own it. So build to a core asset and the class A apartment building in an A location in a growing market. And so that’s our strategy. So our notion is, even though we’re partnering with merchant developers, and they want to top tick their IRR and build, lease, sell … And you didn’t hear stabilized sell, only sell.
Kevin Choquette:
That’s right. That’s right.
Jon Lotter:
Which is nowadays. Gosh, before we get C of O, we’re getting offers on our properties. But we would buy them out, saying if we sold it for what we all agree a value is, then this is what you would get, and we’ll buy you out, and then we’re going to ride off into the sunset and hold this asset.
So that’s generally our business plan. And recently, because of the froth in the market that you just described, we were just seeing BOVs on our deals, and we just built it, and we’re doing initial lease up and we’re maybe halfway through or 50 or 60%, and we get a BOV that’s a valuation which is just sky high compared to our pro forma. And in that refi or just buying them out, we’re buying their portion out at a three and a half. And I don’t want to buy … We want to sell and do a demand wave, and if this isn’t a demand wave, I don’t know what is.
Kevin Choquette:
That’s right.
Jon Lotter:
So we have been selling. So we’ve been selling a couple assets, and we’ll probably sell and then redeploy that into those deals where we are building to a high fives or a six cap, depending on the market … or maybe mid-fives cap rate … with a 200 base point cap rate spread versus the market cap.
And that, I think, is probably the best thing for us to do right now, if we can find those deals to do. We’re ambitious. We want to do a lot of volume. But it’s difficult being with our conservative temperament and do a lot of volume. It’s like you can have two of three things when you’re making a movie: good, fast, and cheap. Pick two
Kevin Choquette:
That’s right.
Jon Lotter:
So we have to … So we’ve given up on volume, as opposed to quality.
Kevin Choquette:
Mm-hmm (affirmative). And if you pull out your crystal ball, which if COVID taught me anything, it’s that my crystal ball is completely dysfunctional, but what do you guys … I mean, where are we? A couple more sound bits. There’s $14 trillion of cash at the banks. There’s $7 trillion of cash with investors. Okay. If you apply even modest leverage to those kind of numbers and then take a tiny slice and allocate it towards real estate …
Jon Lotter:
Yeah. It’s crazy. And I mean, doing business through the recession, we just … and pre-recession … I think we’d go, “Oh, no, we’ve been doing … We’re doing this. It’s for so many transactions for so long.” I think I told my wife, “No, I’m pretty sure it’s going to be the same thing next year. Now is the best predictor of tomorrow.” And talk about broken crystal ball.
And so now we expect headwinds, and we expect bad things to happen and bake that into our numbers. And we kind of do this big … Most of our presentation on our deals to ourselves is talking about risk mitigants, as opposed to the positives, which we wouldn’t be there if we didn’t see positive, exciting things happening. But when we’re convincing ourselves to invest in it, it’s mostly talking about risks and then how to mitigate those discreet risks.
And I don’t know. Four different pundits will have four different opinions, and I’ll read an article saying one thing and another article saying the opposite. So we’re just kind of agnostic to that and say, “Okay, let’s just expect bad things to happen.”
Kevin Choquette:
Well, and look, you’ve alluded to a lot of the … And I get what you’re saying. Let the pundits be the pundits. In the meantime, I’m going to take it to the asset level and make sure each decision is prudently underwritten, and that’s the best I can do.
Jon Lotter:
Yeah. Yeah. And I mean, maybe we should have another fund, which says, “Okay, based upon our ideas of the future, this is more of a rocket fuel type of investor.” That’s more of a private equity idea.
Kevin Choquette:
Well, but you had hinted at, just throughout the conversation, perhaps 200 basis point spread between stabilized cap on costs and the terminal cap rate. It sounds like you’re underwriting un-trended rents. It sounds like you’re going to expect cap rate expansion from … If the market was 4.0, you might underwrite a 4.15 or a 4.3 as your terminal cap rate, all sort of downside variance. But outside of that, what are the metrics or attributes of deals that allow you to … You also alluded to start with who. It’s the client first and then, probably, the deal and/or market. What other, if you will, tricks of the trade or mindsets do you employ to sort through? I mean, it sounded like it’s probably one out of 200, right, of the deals-
Jon Lotter:
Yeah. And that initial metric of the cap rate spread … And it’s not terminal cap rate. It’s stabilized cap rate, so it’s nearer term. But these are larger projects, which that nearer term to build and lease is under 30 months. Call it month 28 or something like that. So then we’ll add, in that instance, maybe 30 to 45 bits to the cap rate and say, “That’s not that far to layer on that much.” And if we think it’s a four cap market, then it’s a four and a half, or if it’s a five, then it’s a five and a half, roughly, or maybe five [inaudible 00:54:16] … but anyway.
And it’s hard to have a general framework, in terms of we … because each deal is a story. And so as the nature of real estate, which is alluring about it, is that each deal is a little puzzle. And it makes it a career that is fun to do over the long haul because each deal is a different story, and they’re building a hospital next door, or this is the last parcel here in this area, or-
Kevin Choquette:
But are you also saying that first metric, that, say, 200 basis point spread, is one of the first … it makes the triage easier? Like yes or no? Or maybe … yeah.
Jon Lotter:
Yeah. But embedded in that are assumptions of what’s the cost? Is it a conservatively derived cost? And then are the rents … is it a reasonable idea for the rents building up that terminal? And then also, if you are in a more tertiary market or product type, where … That cap rate spread expands as you get to higher cap rates and compresses, so if it’s from a four to a three, that’s the same profit, or it may be more so, than from a five-
Kevin Choquette:
Five to a four.
Jon Lotter:
[crosstalk 00:55:57] seven or something like that. Or seven to a five. That 200 basis points is probably less profit than from a four cap to a three cap just because of the nature of how that function works.
So it’s not … It’s kind of Kentucky windage, as it were. It’s kind of like that’s generally, “Okay, here’s some decent metrics here. Oh, we’re excited about this location. We built the neighboring property,” or something like that.
Kevin Choquette:
Yeah. Look, the thing that [crosstalk 00:56:29] … Yes. But the thing that you just said on that, cap rate spreads compress as yields nominally drop. Yeah. Right. I don’t know that there’s a lot of … I mean, it’s a mathematical fact, but I feel like there’s just this convention that, okay, you should have 150 to 125 basis points of spread between your terminal cap rate and yield on cost. Well, okay, but let’s do the math. If I’m building to a six and a quarter and selling at a five, that’s this return. If I’m building to a four and a quarter and selling at a three, that return is like 2X of the same … Yeah. You’re …
Jon Lotter:
And, in years past, I had difficulty explaining that to someone who worked for me, and so I just put it on an Excel spreadsheet and say, “Look at this. From five to six is this. See how those numbers change below? They change dramatically.” They change logarithmically so it’s not straight line. It’s from a three to a two. It’s not double [crosstalk 00:57:40] quadruple.
Kevin Choquette:
That’s right. So look, I want to wrap up a bit on the business. I appreciate all that. I actually could keep going for a long time, but I don’t want to hold you here all day.
What was the impetus that had you jump at Appian? You alluded to it, but the entrepreneur always has a moment of truth, I think, where they just choose to send it. There’s not … Sometimes it’s very preconceived and premeditated, as we’ll say, and it’s a big plan, and the sky’s open, and away you go. It sounds like you may have faced some adversity with an individual and then just said, “Well, okay, here. I’m out on my own.” I’m curious where it starts. What was the-
Jon Lotter:
Yeah, I mean, I’ll say … Maybe there’s similar attributes, in that it’s scary without a net, at least for me. I grew up blue collar, so I had no fancy relationships or money. And so it was scary, but what brought me there, which I see friends who are entrepreneurs who they are just fearless, and they just go in. And it’s easier to do that if you do have some safety net or cushion. But still, it’s … or if they don’t have a family, which I didn’t at that time.
But mine was more … I would’ve just kept going and not pivoted. And so mine was … it’s not out of being desperate, but that just … That’s why I said I was lucky to have been in a spot where I just said, “This is untenable. I have to move out.” And then one of the partners, one of the financial backers of that company, said, “Oh, so I imagine you’re going to start your own company.” And I said, “Yes.”
Kevin Choquette:
Of course I am.
Jon Lotter:
And a little adrenaline rush. And I was like, “Yeah. Yeah. I’m just … This is the time to try this,” because I wanted to do that. I don’t think I’m built as a wonderful employee, and hats off to people who mix well in that way. So that was my little genesis, and it just came that way. And I have kids and try to describe to them that it’s really … if you can go and be your own boss, as it were, or do your own venture, then, oh my gosh, it’s so rewarding.
And part of what squished my enthusiasm in those big companies was they were large. I didn’t want to be my boss’s boss’s boss’s boss. And the owner of the companies was just a family at Franklin Templeton. And I don’t have any kind of soul-stirring anything going on here.
Kevin Choquette:
And no impact, or hard to discern impact, right?
Jon Lotter:
Yeah, exactly. And I think that, not just the selfish quality of life stuff, but just I want to go do things. And I’m not trying to boil the ocean or do big … just raise funds and be big. We’re not trying to be big. We like our niche, and that’s what … and while it’s there. Maybe the crowdfunding will make it go away after a while. I don’t know. But it’s just fun to do. These relationships, you can … The best relationships are those that are organic. And we don’t … There’s not forced. And when you find folks that you truly appreciate doing business with and you get to do business with them, that’s just great. And maybe it’s less business. I know that we could have been offered big things, where we could go national and everything. But I don’t want to be cliche and say quality of life, but it just makes work more fun, and the quality is better, and everything’s on the upward.
Kevin Choquette:
Yeah. It’s funny. It sounds a bit cliche, and I remember, when I was new to the business, having it told to me over and over, “Hey, it’s a relationship business.” Boy, at this point, I don’t think that can be overstated, as cliche as it may sound. It’s, to me … There are so many attributes of real estate that are fascinating, and you’re touching on a bunch of them, but the thing that is really, I think, spectacular is the people who are in the business and the fact that you get to conspire together to do cool stuff, right?
Jon Lotter:
Yeah, yeah. Yeah. It’s exciting and fun for me, and I hope my kids can find something that’s as rewarding. Just, “Hey, look at … We built this thing. Happy tenants, happy investors, happy buyers.” Let’s do this more.
Kevin Choquette:
Happy community.
Jon Lotter:
Happy community, yeah. And it’s done responsible. The city loves us. Gosh, let’s just do it again.
Kevin Choquette:
Yeah. What’s the accomplishment that you’ve had with Appian, or one of the accomplishments, rather than ask you for perhaps a pinnacle achievement, but what are you proud of having accomplished with Appian?
Jon Lotter:
I think that … Well, selfishly, it affords me a fulfillment which my kids can witness, and that is a big deal for me. My dad liked … He was a civil engineer, worked for the city, and he loved what he did. And I saw that, and absolutely not for me, but that fit him. And so there’s no particular building or project. I think it’s just a system, a way of living life, that is fun and finding fun in what you do, or enjoyment.
Kevin Choquette:
It strikes me as almost … The thing that’s popping into my mind is some kind of remarkable athletic endeavor, which, done by the person who’s a practitioner of it, doesn’t seem that farfetched, but perhaps, as a father, and as that athlete, if you will, on this strained analogy, you’re executing these moves and having the opportunity to explain to your children, “No, look. You can do it. You can do this.” And they get to see, “Whoa, dad just started his business, and we’re doing pretty well.”
Jon Lotter:
Yeah. And from the outside looking in, it can look complex or whatever, but gosh, we know. You know. I mean, gosh, it’s … You can just boil it down to some basic things, and it’s really not rocket science. And there’s a lot of germane knowledge, but once you get ahold of that, it’s fun to … And it’s born … You have your failures. And my failures are more along the lines of picking poor sponsors … I kind of alluded to it a little bit … in that first decade of business. Oh, gosh, a good sponsor can take a challenging business plan and navigate around the rocks and get to the beach. And then a poor sponsor or partner can take the easiest down the fairway thing and screw it up.
Kevin Choquette:
Mm-hmm (affirmative). And do you have any failures … Keep it as generic or specific as you like, which … Well, look, I heard somebody say recently, “Experience is what you get when you didn’t get what you expected.” Do you have any favorite failure that maybe taught you stuff you needed to know?
Jon Lotter:
We built a gas station in a few … a c-store and some fast food franchises in central California, and oh my gosh. While we were closing on it, they built the off ramp to our site. And it was just so … Our basis was massively low. I mean, we were getting offers along the way, and our partner decided to … Yeah, it’s like, “This is not … Taco Bell, it’s just a bunch of recipes. I’m just going to make it my own restaurant here and not pay them.” And we’re like, “Yeah, that’s a very poor decision.” So we had to take the reins from that. But it was just a nearly insane idea. And that was when we were putting the property more than trying to look around him as a sponsor.
Kevin Choquette:
Yeah. Understood. So look, with 20 years of flag flying, “We have money,” kind of flag up there, it’s clear you’ve got more than sufficient deal flow. And my expectation is that deal flow shows up in a whole array of ways, which is to say not just, “Hey, here’s another deal. Appian could fund it,” but guys who say, “You should come out of this ad hoc syndicate model and build a billion dollar fund,” or, “Hey, we should franchise you guys out and do this nationally,” or, or, or, or. My point is there’s undoubtedly a lot of opportunity coming to you. I wonder how you stay the course, how you respond to opportunity as you hit a point where it’s undoubtedly all around you.
Jon Lotter:
Yeah. It’s interesting you say that. I mean, over the years, there’s folks who like want to bolt on and make us a lot bigger than we are. And maybe the dollars are sexy, but back to what’s exciting is just doing the business that we’re doing. And so while now we are … there’s some investors who need to invest in a fund, and so we’re raising some funds for those folks. But still, they’ll act just kind of as uber investors in our platform.
It’s also … You used to look at the … Some people would say, “Oh, you have to hurt a lot of cats.” Well, we don’t really … I enjoy … I mean, that’s why this podcast is so long, because I will talk about me until the sun sets. I just love this business and everything. And so I enjoy all those interactions because … I don’t know. I find enjoyment in what we do and what we conceive to do.
So it’s an interesting time. There’s so much money out there. And I don’t know. I think that we could go different directions and, if something is intriguing, do something parallel along alongside our existing business, but I don’t know what that would be.
Kevin Choquette:
Right. Basically, you’re just staying in your lane.
Jon Lotter:
Yeah. Yeah. Yeah. Yeah.
Kevin Choquette:
I’m going to change topics a little bit here, but it kind of ties into that notion of opportunity and saying no. This may well be the pot calling the kettle black, and I’m certainly making an assumption here, but I’ve had a fair bit of interaction with you over the years, and I would suggest that we might both be “adult ADD.” And I find that the world presents a lot of … you actually used the word shiny stuff or something shiny just a bit ago.
Jon Lotter:
Distractions.
Kevin Choquette:
Yeah, distractions. Noise. Whether it’s this text message ding on my phone, which I can’t seem to have the discipline to just shut off, or the endless flow of emails, or the … I feel like there’s a number of bullets flying through my body at any time, and they’re just other ideas and other notions. And keeping that all at bay so I can be still and productive, for me, is a real challenge. And if I’m completely off base there, I guess I’ll say apologies, but I’m wondering how that shows up in your life and how you mitigate the cacophony of life. You have children, you have a business, you have partners, you have …
Jon Lotter:
For my mental health, I exercise. I would be a disaster if I didn’t put out a lot of calories exercising. So I’m on my bike a lot and other stuff. But I don’t know. It’s reframing that the pandemic brought us, too, where the travel simmered down a lot. And I have a hobby of woodworking, so I’ll be making stuff in my shop and then taking a call and moving on.
And I’m not … I don’t look at like, “Oh, and I’ll retire this … ” This is what pumps my blood, so I’ll just keep on doing this until I fall over, probably, but on my terms, at a different pace.
But I don’t know. I think that’s … I just try to be present, especially for my kids. They’re going to be gone in a minute. They’re teenagers now, and so they’re going to be out of the house, and so trying to suck the marrow out of this phase and appreciate that. And sometimes that means just letting it go to voicemail and then picking up the next day and blocking off that time and prioritizing, actively prioritizing. But I don’t know. You’re probably better at it than I am.
Kevin Choquette:
I don’t know. I don’t know. Look, you just alluded to exercise, which is one of the things that I also find … in particular, outdoor exercise. I’ll spend more time than I’d care to admit on Peloton during inclement weather and things like that, but you know I also have an affliction for the bicycle. But I try to start my day right, with the expectation that if I can kind of get my head in both the short term and long term timeframe and come into the day clear with what who I want to be and how I want to show up as a husband and a father and a brother, a business owner, a service provider, that I might have a good day. And then if I can string a whole bunch of good days together, then the probability of me going to the places I aspire to go is higher. I wonder what you might have by way of, if any, daily routines that you employ to kind of keep you on track.
Jon Lotter:
Well, I mean, you touched on something there, and I think it’s just … For me, that just means being intentional. And when you find that you are just going through motions … But to analyze, actually look at, what am I doing? And am I being intentional with my energy in my mind share? And does that actually correspond with my priorities? \.
And those priorities, which I just alluded to, could just … Okay, when it comes down to, “Okay, should I go Phoenix or go to my daughter’s volleyball game?” or stuff like that. I know that’s a low hanging fruit to allude to. But I think that everybody has their little routine. Mine is usually wake up, and I drink a coffee while I’m on a stationary bike, and that starts my day. And then I’m kind of getting my … it would otherwise be a ride to work on my bike. And so that’s my start, and I frame out on my priorities then. Or that happens at 4:00 AM in the morning, and I wake up thinking, “Oh yeah, I’d do that.
Kevin Choquette:
Yeah. Yeah. Look, you’ve … In fact, I didn’t know what you had shared in terms of the blue collar upbringing and the role model you had as a father. And so you have clearly made that journey, transformation, from, “I have a notion that I can do this,” to having fully accomplished it. For either, or maybe both, the developer who’s out there … you know these guys, you are partnered with these guys … that, in particular, the guys that are getting going, or for other entrepreneurs in other industries or other aspects of the real estate industry, do you have any thoughts or, dare I say, words of wisdom that you would share, based on the journey you’ve undertaken?
Jon Lotter:
I don’t think that there is a … Waiting for a perfect time is … It’s not going to happen. Planning, saying, “Okay, no, I’m just waiting for the market to dip, then I’m going to make a move,” or something like that, I think that time could expand out forever.
But to just jump into the rapids and get that experience of a small deal, starting small … Our first deals were very, very small. I was scrambling around for $1 million. And one guy lent me $30,000, because another investor backed out, at the rate of 2% per month. So I was like, “Oh!” And I replaced that money in 15 days. So that was small and quirky, and oh, my gosh, the deal now. Oh, my gosh.
But it’s all a path. And if you, I think, think about, or get too focused on, what I need to be in the future, as opposed to just moving forward on something that’s actionable right now, even if it’s small and the profits aren’t big or whatever, but it’s personal growth, momentum, and there’s all these other things that … Maybe my kids don’t like taking a certain class right now, but I think they’ll look back on it and go, “Oh yeah, that was … I didn’t realize it then, but now I’m glad I know something about art history,” or whatever it is.
So I think the perspective … You’re not going to have a fully formed perspective in the moment, but just follow your gut in terms of just action and momentum is very valuable right then, moreso than having a full framed business plan or idea of where you’re going to be.
Kevin Choquette:
I agree with you. And I think the funny thing for a lot of entrepreneurs, some number of years into the journey, if you ask them, “Knowing what you know now, would you have done what you did?” Because they’ve made it, the answer would be yes, but I think the vast majority of people just jump, and then they look, and then they go, “Holy cow. I had no idea what I was getting myself into.”
Jon Lotter:
Yeah. Yeah. That’s for sure.
Kevin Choquette:
Look, you’ve been very generous with your time. I don’t want to cannibalize anymore of your busy day. If you have any closing remarks or if you want to share contact info at your discretion, feel free.
Jon Lotter:
I don’t have a … Thank you so much, Kevin. You’ve been … Like I say, I’m enthusiastic more about people that I do business with, and you’ve been a good sounding board and buddy for a long time, and I vastly appreciate that. And this has been fun.
And appiancapital.com has our information.
Kevin Choquette:
Okay, perfect. Thank you, Jon. Listeners who’ve who’ve come this far, I have to remind you or invite you, please, to review the podcast if you like it. My production people keep telling me to say that. Jon, thank you. Listeners, thanks for joining us. And we’ll catch you on the next episode.
