One-On-One With John Goff
Last week, legendary billionaire real estate investor John Goff sat down for a one-on-one conversation about his past deals, the Fed, oil and gas and President-elect Donald Trump. He spoke with Forbes senior editor Chris Helman.
Tell us about your decision to sell Crescent in 2007.
Goff: I'd never been in a public company. I had audited public companies, helped take companies public, knew a lot about the restrictions and requirements, and seen a lot of companies run well and poorly. I had the perspective to manage a company well, but really was running by the seat of my pants. It was relatively easy in the '90s—it was fun, there were a lot of things to go do. Raising capital [was] as easy as we wanted, overnight we could raise four of five hundred million. It was a wonderful moment in capital markets when real estate companies could access capital easily. As soon as the restrictions came in the 2000 time frame, business got a lot different. It was one of the factors that led to the sale, but more of a timing issue.
Did you see the clouds on the horizon in 2007?
Goff: I'm not gonna say I was smart enough to [know] what was about to happen, but what I did see was that everything we had was getting an offer, getting the offer like I was a seller. I didn’t understand the pricing, found nothing to go buy. I was the largest shareholder in the room of a board meeting. It took a lot of convincing to agree to a sale, we had a very large, electric portfolio, it didn't fit with just anyone. Morgan Stanley loved the assets and the management. They were a natural buyer.
I'm prohibited from saying what I paid for it when I bought it back, but it was a fraction of what I sold it for. It was the right place and right time. I tried to buy 100%, but we couldn't agree to terms. They were getting the keys back to a complicated portfolio, from office to cold storage. I finally got to the right person in London at Barclays, a really bright guy. We sat across the table over a cocktail late one night and sketched out a deal—again, it was the right place at the right time.
You've been partners with Barclays for a decade now. How long do these relationships go for? Will you be with them forever?
Goff: Theoretically, yes, but we sold a lot of the easy things, now what we're left with is long-term assets that I want to own forever, like The Ritz-Carlton in Dallas, and Canyon Ranch, a company that could be bigger than Crescent ever was. Incredible assets. Assets I’d personally like to own long term are not going to fit in the bank. We’re like rock stars in the bank, we've made them a lot of money, I love what we’ve done together. The partnership was a very smart decision. We retired the $2.5B remaining loan on Crescent, plus interest, plus profit. It'll be hard for them to let go, but at some point, it won’t fit for them, so they’ll exit.
Does that have anything to do with funds you’ve created?
Goff: I've had two real estate businesses, Crescent, and a private equity fund. I just recently raised what I call an invitation fund. Rather than some lengthy road show, I decided to go around to people that I know that have expressed desire to invest with me and invited them into this fund. It was a completely different sales technique. It worked well—in two months we created about $4B in buying power. What I did was combine Goff Capital Partners and the Crescent team, about 100 people and growing. It's a very powerful real estate organization with a lot of abilities. It makes my job easier.
Do you have a different slate of opportunities for that capital?
Goff: That's right, it's wide open, we can do anything in the world. The focus is the US, but we can work with any product type.
What are you jazzed about in real estate?
Goff: It's tough to find good deals, but I'm very bullish on the US and very bullish on specific markets in the US. Texas is one of those markets. I love Houston. To give a quick snapshot of my history in Houston, I've bought in Woodlands, Post Oak plaza, Greenway. I've invested about a $1.4B in total purchases, which ultimately sold for about $3.5B. Houston has been a good market. Now it's tough to find deals, so we're going to growth markets: finding office assets, hotel investments. We had good fortune in the hotel sector. We've also had good fortune in A- and B+, capital-starved assets. The new fund is currently at about $700M in investments with another $220M in the works, close to a billion.
What are your thoughts on how Trump will change the landscape?
Goff: It's fascinating to wake up every day and watch the news and read the paper. It's like nothing we've experienced. I've done business with Trump, or attempted to. I won't say we have a deep relationship, but we have a relationship. I worked on a recap of Trump Tower in '94, so there's some connectivity. I found him to be a heads-up, good guy to deal with. He pulled a rabbit out of a hat at the eleventh hour and signed Nike Town to a lease that gave him the capital, $80M, to recap, so he didn’t need our money. But he was good to deal with. Look at the talent he’s surrounding himself with, it's stunning, it's going to be Cabinet we haven’t seen in our lifetime. Wilbur Ross, I know him, I've done business with him. I see Rex Tillerson at Cowboys games. Across the board, they're really bright people.
Are you surprised by the number of Cabinet picks from Texas?
Goff: We grow 'em smarter here.
Less regulation should be good for business. Will it be good for Texas? Good for America?
Goff: It'll be good for Texas. Regulations alone are a massive impediment. Massive. Look at this recovery, I'm a data hound, I love info...Look at the economy today, it's the worst recovery in the history of the US. We're $3 trillion behind in GDP if it were a normal recovery, that equates to 19 million jobs. That's the the total workforce of New York, New Jersey and Pennsylvania. We're way behind, almost equivalent to the German economy. The amount we’re behind will be made up by less regulation. Dodd-Frank is currently 220,000 pages, with 285 regulations, 80 of which haven't been written but are being enforced. This is nonsense, the restriction on business is incredible, it's been underestimated. It’s affected my little family office in Fort Worth with 20 employees. There'll be further migration of business into Texas, I'm very bullish on the state. With Trump at the helm, one thing I worry about is like when playing a game of spades, in the middle of game, when you're not really sure if we took all the jokers out the deck. Will something really bizarre be thrown at us? I don't think that'll happen. He has a lot of smart people around him. The guy's gonna work, not sit on his hands.
We've had economic expansion for seven years, are you worried about a recession?
Goff: We will have a recession—probably in the next five, six or seven years. It's not an immediate worry, it's part of the normal business cycle. The only bubble I see is capital. There's an inordinate amount of capital not being put to work because of the interest policy. I think the Fed will be chasing the tail of the economy, they're way behind the curve here. My biggest concern for them is that their balance sheet is $4.5B. They own 35% of every US Treasury note with a five-year maturity or greater—that's never, ever happened. The biggest the Fed balance sheet has been in our lifetime is about $400B, now its $4.5B. The question is, what do they do as the notes mature? What do they do with the cash? Right now it's out-of-system. It can flood the system with cash, and we'll [have] significant inflation. That’s my concern.
The Permian Basin. Tell us your thoughts, how long did it take you to see the opportunity?
Goff: Early on, we were early in a down cycle, so like any time when you’re early it's scary—you look wrong till you look right. Now, it looks good. But for 12 months there, we were sitting on a lot of unrealized loss. This is the single biggest bet I’ve ever made in my life—the bet on oil. It's the most interesting cycle I’ve ever seen. It's my biggest dollar-size bet. It has my full attention, it's what I'm focused on from a real estate perspective. I'm also buying assets. I've found public markets are cheaper than private. So I'm focused on buying oil and gas businesses publicly, especially those exposed in the Permian basin. The Permian basin is already worth more than the island of Manhattan. It's made of two basins, the Delaware and Midland, just the Delaware basin is greater than all of Manhattan. I don’t think anyone has put that in perspective. The Permian is estimated at 256 billion barrels of recoverable, we have the tech to get to it. With a new Energy Secretary, and a new administration, there'll be a boom for Texas.
Any investments in oil you can tell us about?
Goff: There [are] some easy investments. Early on we invested in Pioneer and Apache, they had big exposures to the Permian basin but good balance sheets. As part of my background, we try to find companies with broken balance sheets, like Resolute Energy and Legacy. We bought them very exposed to Permian, we could buy their debt [for] pennies on the dollar. With Resolute, we bought it for 30-35 cents on the dollar, it's now going for $1.02. We took shares from $5 to $35. Legacy we bought for 10 cents on dollar, it's now trading at 60-70 [cents].
Why not buy multifamily around Midland or Odessa?
Goff: I would bet on Houston before betting on Midland or Odessa. Those are small investments. They're not putting a lot of money to work. The total of all the real estate in Midland is just a couple assets in Houston. Houston will benefit in ways we cannot imagine thanks to the Permian.
Tell me what you think the biggest misconception in real estate or broader markets is.
Goff: The biggest real estate misconception is the dynamics of the US economy driven by population growth. We're one of the few countries in the world with predictable population growth—every 12 seconds there's a new person in the US either by birth or immigration. That's 2.5 million people per year. So between now and 2020 we’re gonna have to add the equivalent of five Houstons in the US. When you think about all the buildings, housing, schools and infrastructure required to house and support 11 million people, that's very significant. It means more density or new things built, so I'm very bullish on real estate in general.
What else does Texas have going for it?
Goff: Healthcare. Houston has the largest medical complex in the world, people from all over come here for research and treatment. That's very significant. And the port. One of the biggest frustrations I had was explaining our investments in Houston. People outside Houston don't understand. They always say, we wanna be in LA, Boston. We want to be in coastal cities. Houston is the other coastal city. Its port is one of the largest in the world and is only going to be bigger. There's lots of reasons to be bullish on Houston. If you go back to the '80s boom, there were 305,000 energy jobs in Texas. During the last boom in 2014, 305,000 energy jobs in Texas. The difference is we had 6 million jobs in the '80s, we doubled that to 12 million. Energy as total percentage has gone down, but we’re still winning.
Last question, any Christmas traditions for the Goff family?
We love watching Christmas Vacation.