Industry
Legend Interview #1: Ray Torto
I’ve been
planning for some time of interviewing a number of ‘industry legends’ – those
who have shaped the global commercial / institutional real estate
industry. I thought that this insight would be both interesting and also prove
useful to those who are passionate about our business.
My first
conversation in this series is with Ray Torto, co-founder of Torto / Wheaton
research. After Torto / Wheaton was purchase by CBRE it evolved into
CBRE Econometric Advisors.
Ray is a
PhD. However, he asked me to refer to him simply as ‘Ray’:
From his
bio:
Ray
Torto advises senior executives and board members on real estate strategy,
management and markets. An award-winning consultant, author, and public
official, he holds an academic appointment at the Harvard Graduate School of
Design, and is formerly the Global Chief Economist for CBRE.
Ray
has authored four books and numerous academic and professional articles on
economics and commercial real estate. He is a frequent speaker at industry
events and is often quoted in the global real estate press.
Ray
is a co-recipient with Bill Wheaton of the 2007 James A. Graaskamp Award for
Real Estate Research Excellence presented by the Pension Real Estate
Association.
Steve: Ray,
how did you get started in the commercial real estate industry?
Ray: It was
a little bit of a lucky break. I was working in the public sector as
Commissioner of Assessing for the City of Boston at a time when developers from
Texas were coming to Boston to build office buildings. They came to
me because the taxes they had to pay were based on my decision.
I was (and
still am) an economist and I’d say, “Why did you decide you should build an
office building in Boston?” And they had no good answer. Nothing
that dealt with the question of demand for office space.
Steve: What
year was this?
Ray: You’re
going to date me, huh J
This was
1980. It was right after Texas (Houston, Dallas and Austin) had
burst and vacancy rates were in the 30’s. Boston was building, and they were
looking to Boston as the next place to build office space. I
realized they didn’t have any good answers and I also realized at the same time
that the real estate industry was becoming more and more institutionalized.
There were more people with business degrees in the decision making process in
real estate. I figured there were more analytical ways of evaluating
whether to build or not build, or invest, and so I ended up forming a
partnership with Bill Wheaton. Bill and I built a research company that
analyzed the market and forecast what was going to be the future demand and
supply. And I turned out to be quite lucky.
Steve: Were
your clients originally the developers themselves?
Ray: Our
first client was a developer, Cabot, Cabot and Forbes. They hired
someone to do a market study of St. Louis and paid $50,000 for it. They threw
it at me saying, “This is a piece of shit. Can you do better?” And I
responded, “Yeah.” So they gave us a contract for seven cities. That was when I
called Bill Wheaton because Bill had the model. I said, “Bill,
you’ve got the model and I have the contract, do you want to form a business?”
Bill and I met and he said, “Yes, let’s form a business but if we do any
academic papers (because we’re both academics) the papers are going to be
Wheaton and Torto. I said, “That’s fine, the business will be Torto and
Wheaton. And that’s the way we started. Bill always had more focus on the
academic side.”
Steve: As
the Torto / Wheaton business moved forward, who did your clients become?
Ray: We
got another lucky break. We got a one-quarter-inch write-up in The
Wall Street Journal about us building these econometric models and the next
thing we know we had a call from Jim Vinson. Jim was the president
of Merrill Lynch Hubbard. He said, “What are you guys doing up there
in Boston?” And, as a cocky academic, I said, “You buy lunch we’ll
come down and tell you.” He said, “Okay, come on down.”
So we went
down to New York and he listened to what we were doing and he was interested -
he gave us a contract. Then we got another contract from Prudential
in a similar situation. These were CEO’s who were interested in the industry
and they were thinking about what’s good for the industry and I think they
thought, ‘This is interesting, what these guys are doing, maybe they’ll be
successful, maybe they won’t, but I’ll throw them a little money and give them
a chance to get started.” That’s why I say we were very lucky. We met some very
good people along the way that were developers and investors who helped finance
our beginnings.
Steve: Part
of the great story of Torto / Wheaton is the people you had there and then as
things evolved when you merged or sold to CBRE some of those people have moved
on to other places. You had a great group of people.
Ray: They
were super. In fact, I think it was the way we managed them. We used to tell
them, “We don’t care what time you come in, and we don’t care what time you go
home, just get your work done.” We measured outputs not inputs. They all took
ownership of their work, and they all took pride in their work, and so they got
it done well - it was a very comfortable place for them to be together. They
were all intellectually stimulated by the kinds of colleagues they had and the
conversations we had all the time about what was happening in the world and
what was happening in real estate.
Steve: That
philosophy that you described, “We don’t care when you come in or when you
leave, just get it done’ has really gotten much more popular today especially
with the millennial generation because they don’t like being told what to do.
Ray: Well,
my people were smarter than I was. It was better to listen to them,
with their ideas and I would just have questions. I would start with a question
and they would come up with the answers. That was great. I
know that for Bill and me it was a great experience. I’d ask a
question and Bill would disagree with my answer. The next day he’d
come back with a better answer, he had thought about it, and we’d move
forward. We were always growing intellectually and that’s what made
a lot of the people happy to be there. There was a lot of personal
growth. It also helped that the firm was growing and the clientele
was very intelligent and the clients asked a lot of good
questions. And then there were a lot of interesting issues in real
estate – the beginnings of commercial real estate as an asset class.
Steve: The
reputation of Torto/Wheaton had always been stellar. It’s a great
story. I know you mentioned that you’ve been an academic for many years and you
still are. I know you mentor students as well and give them
advice. What’s some of the advice you give to students today, those
that are passionate today about getting into the commercial real estate
industry?
Ray: Well,
I answered your first question by saying it was a little bit of luck. The
classes have guest speakers that come in – 4 or 5 during the semester – and the
first question I ask the speakers is, “How did you get into real estate?” The
answer in all cases is ‘luck’, ‘random’, ‘by chance.’
The advice I
give a lot of my students is that if you’re interested in real estate it takes
a little bit of luck – there are no 5-year plans. When you see an
opportunity that works for you, you must execute. It isn’t just the
luck – you must execute on that luck.
I have a lot
of very, very serious students at Harvard and they all had 5-year plans and I
try to discourage them from plans like that. A lot of things
change. And the other thing is to try to give them an understanding
about the industry. They get to meet a lot of people and I keep
telling them that in real estate everything is negotiable. I
remember a good friend of mine at a development firm and at a lunch they made
an offer to him that was extremely great. He turned it down because he knew
everything was negotiable and he could do better.
Steve: I’ve
spoken with students over the years and I ask them, “What do you want to go
into?” and many have said ‘development.’ I’ve had one mentor in my
career, a fellow named Dick Steinberg from Mall Properties. I went to see Dick
and I told him what the students are saying. Dick said, ‘You tell
them that no one hires a developer. You want to be a developer, go
buy a run-down building in Brooklyn, get friends and family money and redevelop
it and then, you’re a developer.”
Ray: I had
some students who were trying to develop and come up with a plan for financing
development of low-income housing. They wrote up a whole plan that
eliminated the developer. They figured that was the guy that made the
most money and he probably didn’t have the best of intentions and they thought
of him as someone who is a slum landlord. They were young, liberal
students and they said, ‘you get rid of that guy and we save all this money and
we can have this housing.’ So I asked them, “Who is the
quarterback? You need someone who has the vision, brings in the
money, buys the land and signs the contracts.” Anyway, the point of
the paper was changed.
Steve: You
and I have lived through a time when the commercial real estate industry has
become global and it’s amazing how small a world it’s become. You
mentioned that you have some international students in your programs.
Ray: At
Harvard we have, at least in my class, two-thirds
of the
students are from overseas and 50% of that group is from China and they speak
better English than I do! I don’t speak Mandarin. They’re
smart young people
Steve: Are
some of those students planning on going back home to China after they’ve
gotten their degree?
Ray: They
don’t look at the degree as the end of their education. They look at
maybe a year or two of experience, working for an investment manager or some
agency in the United States and then a lot of them have an interest in going
back and contributing to the development of their own country. But
the education isn’t just the degree. The education is working in the
industry.
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| Ray on live TV panel I moderated at MIPIM one year |
**
Halloween
Memories from Forest Hills
I grew up in
an apartment building owned by Punia & Marx. It was on 64th Avenue
between Yellowstone Blvd. and 108th Street in Forest Hills, Queens, New
York. Those of you not from the NYC area, who are tennis fans, may recall
that Forest Hills, more specifically the West Side Tennis Club, was the
original home of what became the U.S. Open. But for me and my best buds it was
'the hood.'
Woke up this
morning, early as usual (like 5am) thinking about Halloween when I was growing
up (and also glad that Daylight Savings Time will not come into effect until after
the kids get to trick or treat, going from house to house in the suburbs,
before it gets dark.
Our trick or
treating was done in our buildings. There were six buildings in the
complex - three on our side of the Safeway (yes, supermarket) parking lot, and
three on the other side. The bunch of us that lived there were Goshe, Bernie,
Steve L., Bruce B. and myself. There's an old black and white photo that
my mother took of a few of us, and my younger brother Jay, standing outside the
building on Halloween. I believe the only one in a costume was Jay who was
dressed as a pirate (do you remember that photo Jay?).
So we went
from building to building, floor to floor (the buildings were only 6 stories)
and either knocked on people doors saying, "Trick or Treat" (why is
the word 'Trick' first?). Some friendly ones would open their doors and
put some candy in our bags. In those days, believe it or not, loose,
unwrapped candy was ok (we weren't afraid of anything back then).
Then there
are a few 'special' apartments. One woman made a certain amount of
caramel apples...mmmm! And, when she ran out, well, they were gone.
So, even though her apartment was on the third or fourth floor, we made a
beeline to her place because those apples were so friggin' good.
Then, as we
went around, if there was no one home, we put a very need 'X' on the door in
pastel chalk (Note: it was easy to wipe off although I don't think we thought
about that then) so that others wouldn't waste their time. As I recall,
and I'd need to get validation from Bernie or Goshe, there were a few
apartments where really nasty people lived. They'd open the door and with
a scowl on their face tell us to basically 'get lost.' If there was a
Halloween version of 'Bah Humbug' that would be their line.
Of course,
the most fun time was after we'd finished (we probably hit at least 3 buildings
which meant - let's see, 8 apartments per floor, 6 floors in a building, that's
48 apartments - then 3 buildings...so, it was a lot of stair climbing but it
was worth it. We compared what we each had - although it was pretty
similar, enjoyed some of the stuff and then went home.
I remember
my mother saying, "You can have a little bit of the candy each night until
it runs out." However, I also recall that we didn't really follow
that rule, exactly, and had stomach aches for the next few days from eating too
much of the sweets.
It was all
very innocent back then. We did so much on our own - without parental
supervision. It was a great time to grow up in New York. After my
parents moved to Livingston, NJ - in the suburbs - on the day that John Kennedy
was shot (Nov. 22, 1963 - a date that pretty much everyone knows - especially
right now) the trick or treating in the suburbs was completely different -
house to house vs. apartment to apartment.
I feel
really fortunate to have had my first 15 years in New York. It was diverse.
We played in the subways on rainy days (at each station our game was to run
from one car to the next, going in and out of alternating doors (boy, we must
have been really annoying to the 'real' commuters) and, if you didn't make it
in to a car before the train pulled out, well, you had to go home
alone.
I've gotten
together with a group of 8 from Forest Hills a couple of times over the past 10
years. I believe we're going to do it again in 2018. And the
stories...the memories...so special!
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| The Forest Hills Guys |
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| Halloween 1997 - My last gig with Nasty Ned and the Famous Chili Dogs |
