"World of DaaS"
Fundrise CEO Ben Miller: Democratizing Private Investing
Ben Miller is the co-founder and CEO of Fundrise, an online investment platform that gives retail investors access to private assets like real estate and venture capital. Fundrise has invested over $7B in real estate and has 385,000+ investors on its platform.
In this episode, Auren and Ben discuss:
- Real estate data adoption
- Public/private market convergence
- “Soft” SEC regulations on retail investment
- Data centers, warehouses & single family rental
Looking for more tech, data and venture capital intel? Head to WorldofDaaS.com for our podcast, newsletter and events, and follow us on X @WorldOfDaaS.
You can find Auren Hoffman on X at @auren and Ben on X at @BenMillerrise. World of DaaS is brought to you by SafeGraph & Flex Capital.
Editing and post-production work for this episode was provided by The Podcast Consultant (https://thepodcastconsultant.com)
Ben Miller is the co-founder and CEO of Fundrise, an online investment platform that gives retail investors access to private assets like real estate and venture capital. Fundrise has invested over $7B in real estate and has 385,000+ investors on its platform.
In this episode, Auren and Ben discuss:
- Real estate data adoption
- Public/private market convergence
- “Soft” SEC regulations on retail investment
- Data centers, warehouses & single family rental
Looking for more tech, data and venture capital intel? Head to WorldofDaaS.com for our podcast, newsletter and events, and follow us on X @WorldOfDaaS.
You can find Auren Hoffman on X at @auren and Ben on X at @BenMillerrise. World of DaaS is brought to you by SafeGraph & Flex Capital.
Editing and post-production work for this episode was provided by The Podcast Consultant (https://thepodcastconsultant.com)
Welcome to World of DaaS. A show for data enthusiasts. I'm your host, Auren Hoffman, CEO of Safegraph and GPFlex Capital. For more conversations, videos and transcripts, visit safegraphcom slash podcasts. Ben is the co-founder and CEO of Fundrise, an online real estate investment platform. They manage over $7 billion in real estate and have over 2 million investors on the platform, and they recently launched a new initiative to democratize investing in venture capital. Ben, welcome to World of DaaS. Hey, Auren, how are you? I'm very excited. Now Fundrise democratize investments in real estate and other assets that are usually closed off to the average retail investor and, in some ways, your business is part of the general vanguardization where more businesses are offering index and retail friendly investment products. What are your thoughts on that trend overall?
Benjamin Miller:The arc of history bends to democracy. Auren, I love it. Okay, if you think about it in a much longer, like go look at it over hundreds of years, yeah, it's been a steady progress towards democracy. You know, you go back to 1600s. Pretty much all companies were. You were the company, the person was the company. Oh wait, in the 1600s?
Auren Hoffman:weren't we all investing in tulips back then and stuff.
Benjamin Miller:That was a very small number of people. Actually, if your company owed money, you owed money personally. There was no separation between the company and the person, and the joint stock company created that separation and then from there, more and more people could invest in it and it's been a steady transition to democracy. So in the 1900s, if you were in 1900 and you wanted to invest in AT&T and Coca-Cola, it was just about the same process to invest in OpenAI or SpaceX. Now you had to have introduction, you have to have access.
Benjamin Miller:The funny thing about it is that technology and democratization have always gone hand in hand because, for example, most people didn't own stocks. The mutual fund was invented, vanguard gets invented, online trading gets invented. Every time those inventions happen, more people have access and the cost goes down the cost of intermediation, the fees and the spreads in trading. All of that has shrunk over time to the point where public markets we can't really beat the market. Vanguard beats any hedge fund, and so that same thing is happening in private markets. The exact same process, the exact same trend and they're basically converging. Public and private markets are converging.
Auren Hoffman:One of my favorite books. I don't know if you've ever read it. It's called A Piece of the Action. Have you ever read this book, mm-mm One? Of my favorite books. I don't know if you've ever read. It's called A Piece of the Action. Have you ever read this book? It's like the history of Merrill Lynch, charles Schwab, visa, fidelity and a couple of the other ones that really helped democratize in that era of new investors because of some kind of technology.
Benjamin Miller:So Schwab was transitioning from telephones to a different model. So technology is integral to this, and so that's what our platform is technology platform. But it also private markets have some very high quality investments, so it doesn't make sense that it should be borrowed off to normal people, in my view.
Auren Hoffman:There's been this idea of a REIT for a long time, which essentially allows the average investor to invest in real estate assets. How do you think of yourself, your core fund, in relationship to a REIT?
Benjamin Miller:Yeah Well, so a REIT is a tax designation technically, and so it lets the entity be tax-free at the corporate level and it's meant to democratize investing into real estate. Public REITs are pretty established and, I think, pretty good investments. That just leaves out the majority of real estate which is private, and so the problem with public assets is that a small percentage of the market, a small percentage of real estate, and sometimes the private markets are much better priced, and sometimes the public markets are better priced. And so really, what you want to be doing as an investor is you want to be a crossover investor, you want to go where the prices are lowest and that structural flexibility to move between public and private that's a big part of the alpha you can generate. You see that in tech there are crossover investors in tech, but we're the only crossover investor. Maybe I guess Blackstone does it, but it's very rare to see crossover investing in real estate.
Auren Hoffman:And besides fundraising real estate, what other companies do you look at as models that are democratizing these asset classes? Angellist or something?
Benjamin Miller:Our model, and I also think of my biggest competitor threat, is Blackstone. So Blackstone started something called a B-REIT. A B-REIT is a REIT that anybody can invest in who has. There's some minimum net worth and you have to go through intermediate channels like your broker-dealers, and there's some higher fees. But they, the B-REIT, is something like $75 billion and launched in 2017. So it's about the same size as Sequoia. So that's been a really interesting model for us, because there's a lot of similarities and then there's differences, because our model's direct, our model's lower fee and then our model's more technology. Others I mean the best models have been in the public market so far.
Benjamin Miller:Vanguard Schwab, exactly what you said the beginning of this opening of private markets started about the same time as we started early 2010s and it's a multi-decade long process. 30, 40 years from now, it probably won't be private markets. It'll all be one thing, because technology will have torn down all of the barriers. The barriers are mostly information barriers. If you have perfect information and transaction costs are near zero, then essentially, what's the difference between public and private markets? It doesn't exist.
Auren Hoffman:Now, Vanguard is a index. They're not actively managed. They buy everything in an index and you know what you're getting In your funds. In some ways, there is a manager in a way. You're buying certain assets and you're deciding what to buy and what not to buy, yet you charge, in a way like an index fund. How do you think about that? Because it takes a lot of work to actively manage something.
Benjamin Miller:Yeah, I wish we could be an index fund. The private markets are just so inefficient and there's still a lot of work to be done. Somebody actually has to do the work of buying the building and repairing the buildings and managing tenants. There's a lot more work than just a wrapper index.
Auren Hoffman:Yeah, and typically if you invest in a real estate person, they're going to take some carry because it's a lot of work on the deal. From the best of my knowledge, Fundrise does not take a carry.
Benjamin Miller:Yeah, so the 20% carry. I think there's two reasons why we didn't. One is I came out of the 2008 financial crisis feeling like the carry was a one-way option. Everybody got paid to take risk, but nobody paid anything back when they lost from the risk. You saw that really with financial assets most of all, and then in the regulatory vehicle we chose to create with the SEC or working through the SEC. The SEC doesn't allow funds to take a carry. If retail investors are invested, they feel like retail investors shouldn't pay a carry.
Auren Hoffman:Main reason why most of these funds don't allow retail investors is because they want to charge a carry.
Benjamin Miller:essentially, yes, actually it's funny. It's one of those regs that's not on the books, it's a reg. The SEC has some regulations that they do by not qualifying you unless you agree not to have a carry. This is one of those. So at some point I can imagine that that breaks down, because it's like either they have to make it a regulation or eventually people will start doing it. But I felt like it was a competitive advantage. Ultimately, Vanguard wins because of the lower cost structure, and so the model is more like an internet company like Amazon, Amazon or Costco. Right, they want to have the lowest cost structure and they win by being the lowest cost solution, and so we could have charged carries on some of our earlier funds and some of our funds. But by and large, I think it's short-term pain. But if we can build a model that uses software instead of people, if we can build a model that uses software instead of people, if we can deliver comparable gross returns as private investors and better net returns, then we have a much better product.
Auren Hoffman:Yep, and in some ways, you guys are one of the first companies to take advantage of these regulatory changes that made crowdfunding investments easier. Is there some sort of next regulatory frontier that you're looking at now? It's funny.
Benjamin Miller:We started before all of that and then we definitely took advantage of some of the regulatory changes.
Benjamin Miller:What I think happens is that private markets are going to start getting regulated like public markets. You've seen some regs proposals come out of the SEC where they want the private markets to start to produce audits and start to produce more reporting and as that happens again, that information asymmetry will really continue to shrink, and so it's more like if the private markets have to deal with the realities. This is the same, basically, challenge we have to have because we are already acting like a public investor All of our funds are registered. If the private markets end up having that same regulatory burden and no software, it's more about how we can create a competitive solution, because a lot of the narrative in private markets is that they have exclusive deal flow and exclusive access to data, and my experience is that's not true. Maybe Sequoia does, but the other 4,000 venture investors or 50,000 real estate investors have no asymmetry in their advantage over the other private managers, but they take a huge amount of fees and carry, but also for most of these.
Auren Hoffman:we know that most of these funds are negative in their IRR.
Benjamin Miller:Well venture is a little different than most of the private markets. Ventures like a small part of private markets. Private markets are like 20 trillion ventures, maybe 1 trillion. Most of it is real estate and private credit and those can do well. Those have much less dispersion in outcomes. They're tightly coupled. There's very little alpha difference between the average real estate fund and the top quintile. That's very little and same with private credit. Oh, I didn't realize that. Yeah, it's almost the opposite of venture.
Auren Hoffman:So it's really just based on the economy and stuff and vintage.
Benjamin Miller:Yeah, Much more of a beta play With real estate and private credit. Your job is to get rid of the bad apples. It's actually not do bad deals, but they're all. Good deals are the same and an adventure is the opposite.
Auren Hoffman:Well, I assume in private credit there's a cap on what you can make anyway, and with real estate that's true too.
Benjamin Miller:Maybe you can make a 20% RR On your best deals. It's like 20s. So, because of the nature of the risk profile it's, the exercise is to eliminate, just not do the bad stuff, not make mistakes, and so the adventure is completely different. The opposite.
Auren Hoffman:Yeah, interesting. There's this publicly traded company, destiny Tech 100. They hold all these private company assets, or at least options for private company assets like Stripe, and they trade at a very significant premium maybe even a Forex premium or something like that to the underlying assets. What the heck is going on there?
Benjamin Miller:Yeah, it's so funny because everything that's happened has happened before. So, if you remember ICC Internet Corporation, it was publicly traded, it was the third biggest tech company in 1999 on the stock exchange, after Yahoo and AOL, and it blew up. So that's one of the challenges with trying to democratize private markets you get all these bubbles and stuff. Well, that's the problem with all investing. If you try to actually have them trade on the stock market, they will never trade at NAV, they'll never trade at their fair value. They'll always trade at premium or discount, and if they're trading at a massive premium it makes no sense. And if they're trading at a massive discount, then you can't issue new stock and you can't buy more things. You can't do your business, and so you don't really see successful publicly traded private investment companies. It doesn't really work.
Benjamin Miller:This is exactly what I'm saying about public REITs. It doesn't trade at what I'd say is fair value, true value. In this case, their destiny is trading at 169 million or something, and the underlying value of the stock is maybe 40 million, and so that's extreme. But it just shows you that the stock market is like a voting machine. The fundamentals matter, maybe over five, 10 years, but not in the short run. I think that makes it a challenge known private companies.
Auren Hoffman:Obviously they can go to Fundrise to go do that, get into open AI and stuff, but they have this big appetite to go do that and for whatever reason, they're willing to pay up or they just believe it's momentum play and it's like the GameStopification maybe of some of these companies. I'm not totally sure why they're paying it up so much.
Benjamin Miller:Yeah, I am not a public market investor. It's trade so far from fundamentals for me. I have a really hard time understanding how things will price. That's why I'm glad I'm in the private markets. The only time you can buy the public markets is when it's 2020, for example, when it collapsed. You can see these periods when it's really out of sync with reality, but then the rest of the time, yeah, you just might as well be an index investor with reality, but then the rest of the time, yeah, you just might as well be an index investor.
Auren Hoffman:Real estate is famously in the industry with, let's say, 1980s, maybe 1990s, level of technology and data skills. Why is it? Why didn't they have to move faster on data and data science?
Benjamin Miller:A lot of technology people here and we've been working on trying to apply technology not just to opening up access but to the investing part itself, and we've had a lot of iterations trying to figure out how would you build software that makes you a better investor. The challenge is that most real estate investors invest infrequently. Maybe a typical fund might only do like three to five deals a year. The transaction size might be 50, 10 to a hundred million, and so you don't really need software because you can afford to have enough people doing it by hand. So that's partly. It's just there hasn't been enough reason for people to adopt the modern data stack. And then the other part is that the real estate industry and the technology it uses matured together in the 90s.
Benjamin Miller:The real estate industry has been stuck in the 90s now for the last 30 years, and the major players that dominate real estate were all the major players that came out of the SNL crisis, so that's Blackstone and Starwood and these major public REITs, because there were no public REITs before 1991, essentially, the public REIT industry is a trillion dollars today, and in 1989, I think it was 3 billion. It just didn't exist. And so the technology that serves those companies, which is CoStar, and those companies really came up together. You see this with the Microsoft ecosystem of the 90s, it gets stuck by the dominant incumbents and they only really lose their incumbency with some sort of major disruption, and there really hasn't been a major disruption in a long time.
Auren Hoffman:To me it seems a little bit weird because there are so many. It's not like those guys are 50% of the market or something in terms of ownership, so they might be the biggest, but there seems like there's so many players or so many little players or so many local players buying office buildings and other types of things. Wouldn't somebody really be innovating? I'm working on it.
Benjamin Miller:So Fundrise is working on building a product.
Auren Hoffman:Or is it just like the people go into it, or the people like to touch the dirt and stuff and, if they're successful, the ones who can deal with contractors and the plumber and stuff.
Benjamin Miller:No, no, not at all. It's Excel spreadsheets, it's CoStar, it's point and click data gathering. Nobody knows anything about software programming and real estate. I think we have more software engineers than any other real estate company in the country maybe the world, and not that many software engineers. I'd be willing to bet that us and Blackstone are for comparable technology capabilities, and that company has a trillion dollars, I mean, under management. They should have a lot more technology abilities and they don't.
Auren Hoffman:I know they're at a data science and he's only been there for a few years. They didn't even have anybody before that.
Benjamin Miller:Yeah, think about them as a venture investor. They almost don't exist as the largest private investor in the world and they don't really have a footprint in the venture industry. It's a metaphor for how far away the existing real estate industry is from technology.
Auren Hoffman:Now there are some tech companies in real estate. There's VTS, there's CoStar, there's some of these other. What do you think of these tech companies that serve the real estate world?
Benjamin Miller:The problem is, the real estate customer is a bad customer. The culture is defined by the industry. I mean, I don't know what the oil and gas industry is like, but I can imagine it's like that, maybe before fracking, fracking was this massive technology breakthrough, and so, yeah, there are companies who have done some interesting things. So the real estate industry has more innovation. People. People realize, but it happens. Every decade there's a new real estate asset class that gets birthed. So if you go back to the 1960s, they birthed the mall. In the 1980s, they built downtown office buildings, all these things. You look around and see them as normal. They got birthed every decade, and so the industry that was birthed in 2010s was single-family rental, so that's invitation homes, and they actually have a lot more technology. They're much more sophisticated, they actually have a database.
Auren Hoffman:Started in San Francisco too, so it makes sense.
Benjamin Miller:I think it's because they just have 100,000 homes you have to have software. But they actually have a database. They have probably on Snowflake. And so because the industry is old, the software is old and the new industry single family rental right the software is newer, but the office buildings or the apartment buildings, they more or less have been built and managed the same way for decades.
Auren Hoffman:Now, blackstone has famously invested heavily in, let's say, warehouses, maybe a decade ago. What are the categories that are starting to bloom right now? Data centers, okay. I guess that would be the obvious one. Yeah, okay.
Benjamin Miller:NVIDIA is a CapEx investment in data centers. Nvidia is worth $2 trillion, so it's telling you that there's going to be this massive CapEx investment.
Auren Hoffman:But you'll need more real estate, more data centers, or can you just replace the machines you have with some of these NVIDIA boxes?
Benjamin Miller:No, I think you're going to need a lot more, and it's a challenge because each one is really vast, they're really expensive to build maybe a couple hundred million dollars for just one and they draw a lot of power. Most people don't want them in their neighborhood, so they're really actually hard to get a location that has a lot enough power that you can build it there. What makes Blackstone such a good investor is they follow the major macro themes, and so the last few decades it was e-commerce, that was with Grove Industrial, now it's AI, and AI is going to drive data centers and I think it's going to end up driving residential work from home.
Auren Hoffman:As you mentioned, these data centers need power. Is there some sort of real estate play you can do for the power side?
Benjamin Miller:The problem is that there's not a lot of excess power. Any location, a major power demand in a neighborhood is going to drive up prices of power for all the residents who are the voters, and all power set by a political board power prices. It's a lot of the challenges of housing. It's famously hard to build in urban infill locations. Data centers are going to really struggle with this dynamic. One has edge you know edge compute but it doesn't exist yet, and so it's going to be a big bottleneck for the industry.
Auren Hoffman:Another way to follow the trend is just where people are moving to, and I know that you guys have been focusing a lot on the southern part of the United States. Is that just simple? That's where populations are growing, so we focused more there Is real estate that simple.
Benjamin Miller:Yes, real estate at its essence is a levered return, local GDP. You'd say, okay, where do I want to invest in the world? United States, where in the United States? Okay, the fastest growing states? Where in those states, fast growing cities? Which neighborhood, which street? And so this is a little bit like a data centers or industrial. You have a levered return on a macro trend. And so the top seven fastest growing states are all in the Sunbelt. They added 1.3 million people in the last 12 months. San Francisco added 10,000 people.
Auren Hoffman:I'm surprised they added people. I thought for a while it was declining, yeah.
Benjamin Miller:I know, actually, I think it's because of the migrants. That's a lot of people, 1.3 million people puts demands on real estate.
Auren Hoffman:There's been huge swings like sentiment around office real estate. Everyone was remote forever during the pandemic. It looks like you and I are both now in an office from the video here. What's your take on the future of office real estate?
Benjamin Miller:I couldn't be more bearish because there's two points. One, the parallel is e-commerce. So in 1999, e-commerce was 1% of the economy and retail was doing okay, you're not competing against work from home today, you're competing against what work from home will look like a decade from now. A decade from now, I don't know what VR and AI is going to do to work from home and probably driverless.
Auren Hoffman:So you think we're not at peak work from home. You think it's only going to increase over time.
Benjamin Miller:I think there's going to be major technology breakthroughs. If the Vision Pro had really taken off, you'll see glasses at some point eventually create 3D meetings. Office is just currently bankrupt. Currently, the average value of an office building is the equities wiped out. The average office building probably has a loan that's going to take a 50 to 75% haircut, and so that's where we are today. I think that it gets worse, both because of technology and because vicious cycles If you go look at the real estate for downtowns and downtowns died or really collapsed starting 1968 with the 68 riots and it didn't really recover until 1998. So that's when downtown started to come back. So 30 years of decline and then they started to come back in the late 90s and then they were rebirthed. So I think the decline of cities and office is going to be a decades-long story.
Auren Hoffman:Then that would mean that you would have fewer people, let's say, in the suburbs. They would be moving to the ex-burbs or something to get more land. Maybe the schools are better or something they could change their lifestyle. Are we going to see these very weird real estate trends where people are going to be moving accordingly?
Benjamin Miller:I think that's more possible than a rebirth return to office, even though it sounds crazy, because already if you're Gen Z, you're much more comfortable spending less time with people. There's this sociological shift happening. It reminds me of not to get too out there, but, like Emanuel Durkheim and the birth of sociology, sociology as a field got birthed when all these people left their farms and went to cities and that should have caused the collapse of cultural norms. And there was this period of transition where obviously now we look back and we're like well, nobody works on farms and I think that you could see 50 years from now, well, nobody works in an office building and that sociological transformation could have huge effects on society.
Auren Hoffman:You and I both live in the DC area and there still might be something about living in a super urban place, especially if you're young and hip and stuff. But then there's this ring around DC with all the suburbs. But maybe the best place to be is west of Dulles Airport. You're still, let's say, 30 minutes or 45 minutes. You can get to an airport really easily, a major airport. We can get anywhere in the world. Yet your land is very cheap. You've got good schools, You've got other types of things. Is that something you think might happen? More on the rise?
Benjamin Miller:Yes, we're not that far away from driverless, from VR, from AI these things come together to create. Is your office actually a moving car? What's the commute time at that point? Do you even care about commute? I don't know when flying cars will show up Is it 20 years? But the nature of a city?
Benjamin Miller:If you know how cities develop they mostly develop around transit, subways, metros, major beltways, highways you really have to understand how people move, to understand how real estate develops and how to invest in it. There's a great book called Edge Cities about that which back then Edge Cities would have been Tyson's Corner, which is at the intersection of multiple beltways, and the developer owner of Tyson's Corner made sure those beltways ended up there. It wasn't an accident. Where your transit stop ends up, it ends up creating a lot of value.
Benjamin Miller:So there's so much change underway because of technology, and the real estate industry, for whatever reason, has been completely behind the eight ball every single time. They don't appreciate. I mean, the biggest value destroyer in real estate has been technology. Clearly, with work from home, clearly with e-commerce destroyed trillions of value and yet somehow they continue to ignore. Right now, it's got to be one of the most transformative periods in technological history. There's the potential of it being just insane. And real estate people? It's not really in their equation. It's bizarre. And real estate people it's not really in their equation.
Auren Hoffman:It's bizarre. There's all this talk of these banks owning a lot of this real estate assets, especially a lot of this office stuff. As these loans come due and they get repriced, what is going to happen in that world?
Benjamin Miller:So the office industry is about $3 trillion of real estate, and so how much is that office worth? Now it's hard to say 500 billion.
Auren Hoffman:You think it goes from 3 trillion to 500 billion. I mean, a trillion, something like that.
Benjamin Miller:That's a destruction of value way more than the housing crisis was in 2008. Way more than subprime mortgage crisis, it was actual destruction of value. A lot of the subprime mortgage crisis was-.
Auren Hoffman:Was just people couldn't afford it.
Benjamin Miller:It was paper losses but you saw a recovery in value after, probably by 2013,. Most of the paper losses were gone. Famously, all the TARP bailout nobody lost any money. Fannie Freddie, it's actually been very surprising if you were there in 2008. But this time I think office just like malls the destruction of two-thirds of the malls in America gone. They're not coming back. That's going to happen with office. But office is more challenging than a mall. A mall is a singular asset. If you have a really big, fancy mall Short Hills Mall or if you're Tyson's Corner 2, famous malls Office is a commodity. There are 100 office buildings nearby that are really comparable and if, let's say, 10 of them go sell for 10 cents on the dollar, they're going to lower their rents by 90% and pull every other office down.
Auren Hoffman:Interesting. Right now we're seeing the interest rates above 5%. Inflation is, let's say, 3.5%. Unemployment's below 4%. A lot of people were predicting a recession. That hasn't materialized. What is happening in the economy overall?
Benjamin Miller:Yeah, I was predicting one and I still am predicting one.
Auren Hoffman:Yeah, I predicted 15 of the last nine recessions. I predicted 15 of the last nine recessions.
Benjamin Miller:Maybe I'm PTSD from 2008, where I just watched what happened with 2008. Here's my narrative of 2008. Financial institutions abuse basically trust and are reckless and take on too much risk and then eventually you have to pay that risk and they blow up. That's what happened in 2008. That's what happened in the 80s with the SNL crisis. That's the nature of the financial institutions. Their nature didn't change and we went from a Zerp environment. We were at zero interest rates effectively for more than a decade, and so everyone normalized Zerp and now we're at higher for longer.
Benjamin Miller:Remember these articles in 2021, when there was $15 trillion of negative interest rate bonds in the world. There's something not adding up to me, because there's enough losses from office from the long date of maturities. Look at the amount of debts in America. I don't believe that our economy can support the interest rates we have, even though they have so far. I believe I'm not totally old enough to be sure of this, but I'm pretty sure when I look back.
Benjamin Miller:There's always this period, like 2007, when it looked like there wasn't going to be a recession, and it just never plays out that way. They raised interest rates from 1% to 5% from 2003 to 2005. They raised interest rates from 1% to 5% from 2003 to 2005. It's a similar movement and it was in 2005, 2008,. Took three years of high interest rates for it to finally blow up and then it blew up massively. So there's just something really visceral about the natural cycles of highs and lows, and the high was so high, but it's very. I mean AI. I said this to my friends for a decade. There's always a race between debts and AI, which we could get there faster, because American debts it's a classic problem of empire and so AI might get there first. It's here, it's starting to hit productivity and so it's possible we get out of it. Just that it's like hope triumphing over experience. That's not my experience.
Auren Hoffman:There's also this talk about the housing shortage. A lot of people talk about the several million units that are short. Can you break that figure down? I assume in certain places there's a housing surplus, places of housing shortage, depending on the population growth. What's going on there? Population?
Benjamin Miller:growth. What's going on there? I was sitting with a reporter who was telling me they were going to write a book about this and I was like well, what are the base effects? Because the whole base effects is the thing people seem to miss. So from when I applied to college to today, there are 75 million more Americans. In that time period, how many housing units do we build?
Auren Hoffman:20?
Benjamin Miller:30.
Auren Hoffman:30. Okay, so what are those extra 40 million people doing to housing prices? Well, I assume you have many people per house.
Benjamin Miller:The point is it drove up housing prices. The fundamental thing that drove up housing prices was that the population increased by a huge amount and the number of housing units that got built were way less.
Auren Hoffman:Sorry. How much should there be per person If you have 100 people in population? How many housing units that got built were way less Sorry. How much should there be per person? If you have 100 people in population, how many housing units should there be?
Benjamin Miller:There's no should, because as you get wealthier, you actually consume more space.
Auren Hoffman:Some of them might be second homes.
Benjamin Miller:A number of people used to live in an apartment in Lower East Side. Compared to now, I mean, it's radically different.
Auren Hoffman:To me, 30 million housing units for 75 million people sounds like plenty. It sounds like enough because you have multiple people per unit.
Benjamin Miller:I don't think it is. I think that's the fundamental reason why prices have gone up so much. Okay, interesting One unit per person was not enough. That's why you get these stats around some large number of housing units that are missing from the market stats around some large number of housing units that are missing from the market.
Auren Hoffman:In the US there's roughly 310 million people and there's probably 180 million units or something like that, so there's some ratio that exists. I assume it's always been way less than the number of people.
Benjamin Miller:All things are multiply determined, and so there's so many drivers to this. But wealth drives more housing consumption. And then America also, if you go back, was not dense. Europe was dense, america was not dense, and even in my lifetime if you went to cities like Denver or Portland, it wasn't that dense. These cities have filled in, and it's much harder to build more housing in a dense location than a greenfield, and the greenfields generally are more than 45 minutes away, and so the consumer doesn't want to drive more than 45 minutes, unless they work from home.
Benjamin Miller:Well, this is a transformation, but we're talking about that's only the last 24 months or so, and so all of this is a downstream of the technology that is called the automobile. The automobile created space for housing from the 1930s to now, and then we hit a point where the density and the distance stopped working, and that's happened around the 2000s. And so you have these multiple dimensions. You have population growth, you have density, you have incomes and you've ended up with this problem. But the problem is if you've ended up with this problem, but the problem is if you end up with the scenario you and I were just talking about, which is a little bit out there that we see tons of housing construction in basically where there's greenfield and you have driverless cars and remote work that mediates the difference, then I think you'll see housing prices stabilize.
Auren Hoffman:The home ownership percentage in America has been relatively steady and there's this increasing number of institutional investors that are moving into residential real estate, especially in these built-to-rent type of scenarios, like you mentioned earlier. Do you think we'll see the home ownership percentage decline? Where do you think that's going?
Benjamin Miller:Mostly that's a rounding error, but the industry got built on all the foreclosures that happened last decade. That's single-family rental. That's a little bit of a zero-sum game or it's totally a zero-sum game. Either a person lives in the house or an institution owns it and rents it. I think that, politically, is going to become extremely challenging. So the industry then invented a new concept called build for rent, where they'll build housings for rent, and I think that's much more politically viable, but it runs into similar challenges all construction, which is that it is expensive. It's not that many locations.
Benjamin Miller:We went and built thousands of these build for rent communities, thousands of units, and we found a varied experience with location and city. It's challenging and I think of real estate as a consumer product, not just an investment product. People consume a house. They buy it because they want to live there. It's the most expensive consumer product they'll ever purchase. Same thing when you go to a restaurant, you go there because you're consuming and even though you don't really see that, as I'm consuming real estate but it has design and that's a huge factor in how you price something in real estate and so delivering a consumer product that is affordable and has light and the air and the backyard and all the things people want. The location they want is challenging, super challenging.
Auren Hoffman:What are some of these very ambitious development projects, like the California Forever Project? How do you think those things are going and do you think we'll see more of these?
Benjamin Miller:You see it, over history, these big money will go out and try to build a city or build something. And it reminds me of what happened in the venture industry where they thought if they threw money soft bank vision funds, if they had enough money they would create demand. Obviously didn't work.
Auren Hoffman:Yeah, well, I could work with Uber and Lyft. In a way, we all use them because of it, right or DoorDash.
Benjamin Miller:Would you think that if Vision Fund hadn't, or whatever the Saudi Investment Corporation hadn't written those checks, that we wouldn't be using Uber?
Auren Hoffman:I think so because I think they had to subsidize consumers and drivers for a very long time to actually get it to a point that we'd be willing to pay a higher price. I think that's true with DoorDash as well. I feel like those businesses almost had to lose billions of dollars to make them work.
Benjamin Miller:Interesting. I see those businesses. Maybe we would have been better off if their taxis hadn't been eliminated and they were both, because now the price of Uber is crazy Still cheaper than a taxi.
Auren Hoffman:No way, no way, oh, okay.
Benjamin Miller:Taxis, in my experience, are a third of the price of Uber these days.
Auren Hoffman:Oh my gosh, wow. And the last time you took a taxi.
Benjamin Miller:Yeah, you got to take a taxi.
Auren Hoffman:But I take a Lyft or Uber every single day.
Benjamin Miller:Oh yeah, I feel like the price are pretty reasonable. Okay. Well, you're at the top end of the market. I'm going to say that's fair.
Auren Hoffman:Not a black one. I don't take a black, I take an UberX. Yeah, me too.
Benjamin Miller:So I know about the California Forever Project. I could get into mistakes they made around water and the military base and how the person who was leading it wasn't a real estate person, they were a person from Goldman and they just made a lot of mistakes. I guess you make mistakes when you start doing something new. There's been a lot of people who've tried to build cities A lot of times a lot of architects. Usually it's not a good economic investment.
Auren Hoffman:Yeah, maybe a cool thing Near where we live. Reston, Virginia, was started as a planned city. I don't know if it was ever a good economic investment, but they built something pretty cool.
Benjamin Miller:Yeah, Mobile actually owned it. And then Canary Wharf was a city that was built and then it went bankrupt and then went bankrupt again. So a lot of times these great places eventually, maybe in the course of decades, but it's not an economic endeavor. It's driven by ego, which is usually not a great investment endeavor. It's driven by ego, which is usually not a great investment.
Auren Hoffman:Yeah, interesting. What do you think of the idea of these prefab houses or pieces of houses? To me it seems like, intuitively, it makes sense Manufacture all the stuff in one area and then move, rather than manufacture it all on site, which is how they build most of these things today. But it hasn't really taken off. Where is that going?
Benjamin Miller:No, it does. It makes sense in theory, but not in practice. I've tried to build them. I looked at a buying manufacturing plant. It's one of those things where the home builders like Lenar. They're actually a giant factory.
Auren Hoffman:They just move the factory to the location.
Benjamin Miller:Yeah, you don't see them as a factory, but they operate just like a factory, without walls, and they deliver homes at unbelievably low cost. I mean $135 a square foot, $150 a square foot, and it's actually really difficult. When we looked at, a manufacturing of a house would be it's like $200 a square foot, and then you have a lot of complexity on the site. You ultimately still need people on site to assemble it and then there's a lot of challenges and bring the water and the power and all this and just literally assemble it because Put the Legos together?
Auren Hoffman:Yeah, totally.
Benjamin Miller:Because the Lego blocks have to move down highways and the highways limit the size of the block.
Auren Hoffman:And you get there and you realize, oh, it doesn't fit perfectly. And then you have to do some divot thing or something.
Benjamin Miller:It's less that, it's more. Just that ultimately you're going to need people on the site doing the assembly and there's a lot of code is actually challenging. They should be able to just approve it in the factory. They actually, because all the code's local. You have to have them approve it on site. So there's just ends up being one of those things where it would have to be $50 a square foot or something for it to disrupt the industry. I don't see how that's possible.
Auren Hoffman:I didn't know that. So the average home you said is about 125 a square foot To build it Maybe now.
Benjamin Miller:I mean, I was inflation-based.
Auren Hoffman:Obviously the land is expensive and all these other things. 150 a square foot, so that seems like very reasonable.
Benjamin Miller:Actually, I'm thinking about that. That might include the land.
Auren Hoffman:So 2,000 square foot home costs 300 grand a bale type of thing.
Benjamin Miller:Yeah, less Because I have huge 30% margins. It's actually the input cost is not that much, it's not the main problem.
Auren Hoffman:Interesting. You and I are both in DC and I love talking to DC entrepreneurs. You're one of the more successful entrepreneurs in DC. How do you think about the DC tech scene?
Benjamin Miller:I was in it when Fundrise was a small company. There was a really vibrant DC tech scene in 2016 or something 17. Ever since COVID, I've just been disconnected. Last time I hung out with somebody, I think it was with you, so I don't know. I just have kids and I read and work. I feel like the challenge at DC is that it's a government town. That's good.
Auren Hoffman:There's a lot of cybersecurity companies, a lot of government tech companies and stuff like that, your company. In some ways, there's no reason why you're in DC. You could be anywhere.
Benjamin Miller:Yeah, I looked at moving out of DC Once you had work from home. It didn't make a difference where we were.
Auren Hoffman:You're from the area, so it made sense.
Benjamin Miller:Yeah, I'm from DC Originally. We started here because I had real estate. We were building real estate and I wanted to democratize investing in it. I went to SEC and I said I want to democratize. Investing in this SEC was like investing in it. And so, and I went to the SEC and I said I want democracy. Investing in this SEC was like that's so silly and crazy. It's 2011. And they just thought that was the cutest thing and so they were like sure, go for it. That's the funny thing about a lot of the government is that if you just walk in the door, it's just people and they actually usually intend well, you can usually get what you want. It's just going to take time, it's going to be slow, it's all get out, but it's all doable.
Auren Hoffman:Now a couple last questions that we ask all of our guests. What is a conspiracy theory that you believe?
Benjamin Miller:So I don't think people appreciate how fragile civilian control over the military is. People see it as a given, but it's really a cultural norm. There's actually nothing in the constitution that puts the military underneath civilian control.
Auren Hoffman:I thought the president was the commander in chief.
Benjamin Miller:Yeah, but one of the first kind of constitutional crises around this was when Truman fired MacArthur. Yeah, and MacArthur came back to the United States and essentially tried to overthrow the president. The largest ticker tape parade in history was for MacArthur. After he was fired by Truman for wanting to drop nuclear bombs on China, truman's ratings were the lowest in history. They're 23%, looked lower than Nixon during the Watergate. There was a possibility.
Auren Hoffman:Yeah, people said if he had marched to the White House people would have followed him. Maybe.
Benjamin Miller:Yeah, you look at Kennedy Nixon Johnson.
Auren Hoffman:By the way, in my opinion MacArthur is the most overrated general. He had a couple of smart things, but he had basically mostly just strings of over-calculations and losses and stuff.
Benjamin Miller:Yeah, and his ego was just poisonous. Totally agree, but my point is that there's been actually not rising to that level of constitutional crisis. Obama fired Crystal Crystal. Yeah, saw it in Georgia in Cheney fires Another general. There's this long history of this tension between the civilian and the military and I'm not saying obviously I'm a huge supporter of the military, a deep believer, but my point is that it's not impossible for me to believe that there's been times when people in the military have sat around the table looking at the president, looking at Nixon, looking at Johnson, looking at Obama, thinking this guy has to go. January 6th could have gone a different way, with different people in different seats, and so I just think that people take it for granted. If you look at other countries, that's normally the source of coup d'etat, source of real instability, is the military.
Auren Hoffman:Or, in some cases, it's the source of stability, depending on the way you think about it.
Benjamin Miller:When they take over the government.
Auren Hoffman:Or they keep some sort of continuity or they stop a dictator. In some cases you've seen some of those things. It's not clear to me Pakistan would be better or worse if it wasn't run by the military, better or worse if it wasn't happen here and I think it absolutely could, and it's only because of the people.
Benjamin Miller:The Joint Chiefs have a deep commitment to democracy, but anything can happen, and I just think that that's something that's totally underestimated by most people. Interesting.
Auren Hoffman:All right. Last question we ask all of our guests what conventional wisdom or advice do you think is generally bad advice? Follow your bliss.
Benjamin Miller:Follow your bliss yeah, the whole. Follow your passion yeah, my experience is that success and fulfillment is a path of suffering. I think what people mean by following your passion is that you're willing to suffer more because you enjoy it, not because it's supposed to be fun, and I think there's just this misunderstanding about-.
Auren Hoffman:You know, I'll run out and become interior decorators or something. Well, there's this idea.
Benjamin Miller:I feel like that. There's this idea that it's supposed to be easy. It's not fair if it's absolutely brutal and miserable. But I'm like no, the path to enlightenment is through suffering. Suffering is the key to success. You don't see people preaching suffering to students in school. They preach idealism. Yeah, and I don't think it's actually serving anybody.
Auren Hoffman:Interesting that is. I would say the most common answer to this question is yours. It seems like a lot of people agree with you that this is the worst conventional wisdom.
Benjamin Miller:Is it because you mostly have people who have a similar experience as mine? My health fell apart. I wasn't sleeping for years. I felt like I was near death.
Auren Hoffman:Oh my gosh, wow Okay.
Benjamin Miller:I feel like my experience was there's a loss of innocence. It just didn't seem like conventional wisdom was all right about the keys to progress. Maybe that's just a common discovery for people who go on to try to do something hard is that it's misery and suffering. And then, once you accept it as a man, I thought like my job is not to complain. I think it got a lot worse because I wouldn't accept and see what was happening.
Auren Hoffman:So then you just started complaining and it all got better.
Benjamin Miller:No, I had hit rock bottom before. Yeah, I think stoicism you get there eventually, but it's not taught anymore.
Auren Hoffman:Yeah, that's a good point, All right. Well, thank you, ben Miller for CEO of Fundrise, for joining us World of Daas. I follow you at Ben Millerize on Twitter or X, or whatever we call it now, and I definitely encourage our listeners to engage with you there. This has been a ton of fun.
Benjamin Miller:Yeah, thanks, oren.
Auren Hoffman:If you're a super data nerd, go to worldofdaascom that's D-A-A-S, worldofdascom and sign up for our weekly data as a service roundup newsletter. World of Das and Das is D-A-A-S. You can subscribe on Spotify or Apple Podcasts or anywhere you get your podcasts, and also check out YouTube for videos. You can find me at Twitter at at Oren that's A-U-R-E-N. Oren, and we'd love to hear from you. World of Das is brought to you by Safegraph. Safegraph is geospatial data for physical places. Check it out at safegraphcom. And by Flex Capital. Flex Capital invests in data companies like those we talk about at World of DAS. Check it out at flexcapitalcom.