This series gets into the heads of the decision-makers of CRE, the people shaping the industry by setting investment strategy, workplace design, diversity initiatives and more.
Nitin Chexal, the CEO of Austin-based Palladius Capital Management, thinks Chicago isn’t getting a fair shake.
His firm is a contrarian investor, lender and manager that launched a year ago. It has since acquired more than $915M in multifamily, student housing and industrial real estate in Texas and Chicago. Chexal said the Windy City is getting a bad rap in the press over property taxes and crime, but there are still opportunities for smart investors.
Palladius does most of its deals off-market in cities it thinks are being overlooked by institutional money, and it launched its first fund via a $15M Series A, an unusual method for a real estate investor to capitalize. It has partnered with RealtyMogul to accept accredited investors via crowdfunding into its inaugural fund.
Prior to starting Palladius, Chexal worked at Nimes Real Estate, med-tech firm Counsyl and on the real estate team at Marathon Asset Management.
The following has been lightly edited for style and clarity.
Courtesy of Nitin Chexal
Palladius Capital Management CEO Nitin Chexal with his family.
Bisnow: Baron Rothschild once said the “time to buy is when there’s blood in the streets.” Where is the blood today?
Chexal: We are starting to see it everywhere — it’s understandable because there was too much froth in the system. The debt markets are driving a recalibration in pricing across all property types. If you’ve been patient and have dry powder, there will be great acquisition opportunities in the back half of 2022 and all of 2023. If your portfolio is full of negative leverage (your borrowing costs exceed your cash flow) or you own lower-quality assets with near-term debt maturities, it’s going to be a bumpy ride down. Pricing guidance is getting cut 10%-30% on a lot of assets with bid pools thinning out as investment firms assess how to react.
None of this is new for experienced investors that have been through a few cycles. We know how to navigate the turbulence, exercise patience and come out of this pullback with some nice additions to our portfolios.
Bisnow: What is your most controversial CRE opinion and why are you right about it?
Chexal: Our firm has been making tactically contrarian investments outside the Sun Belt in markets like Chicago. For Chicago specifically, we believe the market is mispricing headline risk around property taxes and crime. Both are important considerations, we just believe the pendulum has swung too far in the wrong direction.
Bisnow: If you weren’t in real estate, what path would your career have taken?
Chexal: I almost went to med school. I wanted to be a surgeon growing up, but decided to take the easier road and marry one instead. She’s an incredible woman who works hard to save the eyesight of her patients every day.
Bisnow: What is one thing you would do differently from early in your career?
Chexal: Network, network, network (and network some more). The real estate industry felt enormous when I first entered the field 20 years ago, but I now realize the degrees of separation are small. Be nice to everyone, you will run into them again at some point.
Bisnow: As a leader, how do you decide who is worth mentoring and who is simply not a good fit?
Chexal: Everyone is worth mentoring if they want to learn. The people who aren’t a good fit simply self-select out — they don’t want to put in the work, don’t have patience or don’t make an effort to become friends with the team.
Courtesy of Nitin Chexal
Nitin Chexal hiking with his son.
Bisnow: What are your thoughts on the metaverse? Does it have any relevance for CRE?
Chexal: It’s a good question that requires a thoughtful response in a format longer than this article. In short summary, the metaverse, or the convergence of augmented reality, virtual reality and commerce, is going to have a significant impact on CRE — but not for at least seven to 10 years. Once you can render a human in VR perfectly, there are lots of things you can do in the metaverse with multiple remote participants — collaborative office meetings (beyond a simple Zoom session), shopping and trying on outfits (with remote friends), conventions, entertainment (concerts, movies, festivals, sporting events). The ability to “be” somewhere virtually has the potential to both augment and diminish commercial real estate depending on the use case.
Bisnow: What do you see as the lasting impacts of the pandemic on CRE?
Chexal: I see a few things:
1. Hybrid remote work: Work from home/work from away has become socially acceptable and the norm for many job functions. This trend has been particularly embraced by millennials and Gen Zers. Be present in the office and collaborate when you need to; work remotely when you want to recharge/refresh. Companies will spend more money on integrated technology to accommodate remote work.
2. Last-mile delivery speed: The increased utilization of e-commerce during the pandemic isn’t going to revert back to the norm, it IS the new norm. Supply chains are being reconfigured as a result and last mile delivery warehousing has become more important than ever before.
3. Repurposing old real estate: The pandemic accelerated the functional obsolescence of a lot of old (but well-located) real estate. The most glaring of this is Class-B and C office and retail in major urban centers. Values on these assets will likely have to reset before any sort of meaningful repurposing can take place.
Bisnow: As you know, there is a massive conversation underway regarding advancing more people of color and women into the C-suite. What are you doing to address those voices and that movement within your own organization?
Chexal: Our goal is to hire the best person for the job — all races and genders are welcome. We recognize and appreciate the need to advance diversity in the CRE industry and are committed to doing our part. Our firm is minority-led and we have women and men from a diverse array of backgrounds. At the end of the day, we are a performance-based industry and results matter. Be open to hiring anyone, make sure they are the most qualified for the job, teach them everything you know, and work with them so they produce the results you hope to achieve.
Bisnow: So, this is the weekend interview. What’s your typical weekend routine?
Chexal: Friday night is movie night with the family. Saturday, the insanity starts around 7 a.m. — we are constantly shuttling the kids from one activity to another until the late afternoon. In the evenings, we enjoy dinner outside in the backyard or with friends at a restaurant. Sundays, you can usually find us hiking or enjoying the farmers market. When I can find a quiet moment, I enjoy tending to our vegetable garden and fruit tree orchard (we have apples, pears, plums, nectarines, apricots, lemons and limes) — it’s my Zen space.