Tony Thompson, Chairman and CEO of Thompson National Properties, talks with the Opportunist’s Managing Editor Leslie Stone about his company, why he sees opportunity in a downturn and his thoughts on the U.S. economy.
Anthony W. “Tony” Thompson is among the most respected names in real estate investing today. With more than 35 years of experience in portfolio management, he has overseen the investment of nearly $3 billion of equity in 250 properties nationwide on behalf of 30,000 investors. Currently the Chairman and CEO of Thompson National Properties (TNP), he also founded two other companies in the last 15 years: Triple Net Properties, LLC and NNN Realty Advisors, Inc. In December 2007, NNN Realty Advisors, Inc. completed a reverse merger with Grubb & Ellis Company, creating a combined entity with more than 6,000 employees and 220 million square feet of commercial property under management.
Opportunist: Tony, what is your background?
Tony: I received my economics degree from a small, obscure college in Kansas. [Laughs] In the late-1960s, I worked as a life insurance salesman for about 10 years and learned a lot about finances, taxes and retirement planning and I met a lot of people from many different walks of life and diverse industries. That experience taught me negotiation skills and how to build long-term relationships, which is an important background in any entrepreneurial endeavor. I’ve been blessed to have a pretty successful real estate career, which is all about the understanding of economic cycles.
Opportunist: Why did you form Thompson National Properties?
Tony: I saw opportunity in the credit crunch and economic downturn—having seen four recessions in my lifetime—so I launched TNP to take advantage of a recessionary real estate market and pursue emerging investment opportunities. The reverse merger with Grubb & Ellis was completed and my work with NNN Realty was done, but I wasn’t ready for retirement yet. [Laughs]
Opportunist: Has the economy changed the way you do business?
Tony: It was easy to make money in commercial real estate until about 2006. Nowadays, it takes an understanding of how to operate real estate. Clients are looking for experienced, qualified operators to help them manage their funds appropriately and take advantage of those opportunities. Our obligation is to help our clients participate in the recovery of the economy from a real estate investment standpoint.
Tony: We manage portfolios totaling about $2.4 billion, in 29 states. We have built a team of people who have worked with me, either at Triple Net or Grubb or elsewhere, who are experienced in operating real estate. We use our expertise to identify and acquire geographically diversified investments, including commercial properties, real estate loans and operating companies.
We are currently engaged in three activities: managing property on behalf of property owners who have come to us to help them weather the storm on their existing properties, assisting in refinancing properties and re-tenanting properties. We pride ourselves on being a good shepherd and we use our management techniques and access to capital to help stabilize our clients’ properties and make them as valuable or more valuable than they were when they bought them.
Opportunist: To what do you attribute your company’s success?
Tony: Cash and finance are vital, but off-market transactions happen because of the relationships that we have built.
Opportunist: What are your thoughts on the U.S. economy?
Tony: The. U.S. economy is a complicated economy, as is the rest of the world. We subscribe to a number of economic forecasting services and we follow many statistics, paying particular attention to the micro-economy of California, which is still the seventh largest economy in the world.
Opportunist: Do you buy into the theory that, as California goes, so goes the nation?
Tony: It’s a strong indicator. There is a counterbalance between the East and West coasts now. The West coast is creating jobs, which is no surprise.
Opportunist: How is the current economic climate different from that of, say, the ‘80s and ‘90s?
Tony: As Mark Twain said, “History doesn’t repeat itself, but it rhymes.” Today, lenders want people to borrow money but people cannot get it. Back in the 1980s, we had out-of-control inflation and, as a result, the government and the banks had to raise interest rates to slow up borrowing. Unfortunately, they did such a good job it put us into recession. [Laughs]
Easy money and tax incentives—before the Tax Reform Act of 1986—caused tremendous overbuilding in almost every asset class, but especially retail and office. It took a decade of almost no building to fill up a lot of that excess space. In general today, there isn’t the issue of overbuilding with office or retail, which is the good news.
The government created the Savings And Loan Act of 1980, which basically created the S&L industry. Anybody who started an S&L got a federal charter and government insurance on CDs. Money goes where it’s treated the best, and so money went into real estate back in the early- to mid-80s when the feds started making it easy for S&Ls to loan money to real estate projects. No one cared if a project failed because CD money was insured up to $100,000. It was a perfect storm to create a fast economy, but it collapsed in 1988 or 1989 and took until 1996 or 1997 to recover.
Then we had another reform act in 1999, and the tech bubble was created. Again, lots of tax credits and other incentives to invest money came about and we had the technology and Internet boom when all these people became billionaires overnight by creating a catchy Internet site or brand. That bubble burst in 2001.
Opportunist: What were the warning signs that the housing bubble would burst?
Tony: The housing crisis has a direct correlation to the ease of loans. Lenders put together mortgages and sold them as commercially backed mortgage securities to bond holders around the world. Borrowers were paying high interest rates on this easy money—at a time when 70% of the mortgages required no tax returns or financial statements—and over three or four years things got out of control and there was a complete over-inflation price of homes. For example, today in Polk County, Fla., you can buy homes for $50,000 that cost five times that amount before the bubble burst in the residential market.
Opportunist: Do you see the economy cycling out of the current trend anytime soon?
Tony: If a cycle runs five to seven years, and the peak was 2007 for example, we are starting to see major recovery. That recovery will likely last for a few years and then hit another peak around 2015. Remember the government spending to re-bolster the economy between 2008 and 2010? The banks needed liquidity because they had lent too much money. So the government injected $800 billion of capital from the Federal Reserve, and then a year later a government program passed by Congress left about $3 trillion. Then you had the big expansion of government in Washington, D.C., to help administer all of this money that went into the system.
Today, we’re faced with a serious crisis because leverage got so out of hand. It was too easy to get debt before the housing bubble because it was being packaged and resold around the world, which had never happened before. So we have almost a standstill in lending, along with an overall decline in job growth and inflationary pressures from commodity prices. The causes are different, but the end result is about the same.
Opportunist: We understand you are on the speaking circuit, frequently talking about the economy.
Tony: Yes, I give probably close to 100 speeches a year, to investment groups and investment bankers. It’s part of my weekly activity, actually, and I enjoy it very much. I learn a lot and meet with smart people who have their own ideas on the economy.
Opportunist: What do you believe is in store for your company in 2012?
Tony: Our main focus is growing our private and public programs, including our REIT [real estate investment trust], which focuses on buying neighborhood-shopping centers in strong growth areas. Nothing lasts forever, but we believe there are a couple of years left to stay as successful as possible and acquire significant real estate. We have also been buying residential properties in the Orlando and Tampa areas alongside a partner to capitalize on the potential recovery.
Thompson National Properties - www.tnpre.com
Tony Thompson at the West Coast Wall Street Conference on March 14, 2012: http://vimeo.com/38789089
Leslie Stone is an award-winning writer/editor with more than two decades of experience covering business, finance and lifestyle issues for newspapers, magazines and online publications. Originally from Virginia, she currently resides in the Orlando area.