I was privy to a conversation between two females, one of whom is a senior in high school. She was lamenting the fact that her English teacher had given her class an assignment to write a sonnet. This caught my attention as, while I have expressed myself a few times over the years by writing haikus, I have never written a sonnet. Like most people familiar with sonnets, my only exposure has been through those written by Shakespeare. And while the sonnet was invented about 300 years earlier during the Italian Renaissance, Shakespeare is the most famous practitioner of them.
A Shakespearean sonnet is comprised of 14 lines, three sets of four lines, and the last one of two lines. The last words of the first and third lines and second and fourth lines must rhyme as well as the last words of the final two lines. This is known as the abab cdcd efef gg structure. This will come in handy when you have the life-changing opportunity to read my first sonnet at the end of this post.
The other girl was intrigued by the opportunity posed by the assignment and offered to write one for her. And while tempted to take advantage of this offer, she thought that the downside relative to the upside was not worth it so she politely declined the offer. Her offer to write a sonnet definitely got me thinking and inspired me to challenge myself to write one myself for my own satisfaction. And since I’m always on the prowl for blog content I thought I could kill two birds with one stone. I can do something I’ve never done before while creating content for my blog post.
So what is my first sonnet about? I thought there would be no more appropriate subject than Bob Dylan. This is for many reasons. Some people think he is our modern-day Shakespeare so that makes him a fitting subject. In addition, I love music and I have cited some of his lyrics over the years to convey important insights, especially “He not busy being born is busy dying.” And finally, he made yet another stunning headline (e.g. Nobel Prize winner) last week when it was reported that he sold his 600+ song catalog to Universal Music for a reported $300 million.
So what does this have to do with investing, real estate, or even sonnets?
Sonnets – Getting Sirius
I have a personal obsession with a large body of work (content) that has been built up over many years and can produce perpetual streams of income because it retains relevance and value for decades to come. Great examples of these are those stations on SiriusXM dedicated solely to particular artists. These include Elvis Presley, The Beatles, Pearl Jam, Grateful Dead, Phish, Tom Petty, Jimmy Buffett, and Bruce Springsteen. These artists should have their channels broadcasting for many years to come, thereby producing income long after they have stopped producing new music or they have passed away, which some have.
And while we’re on the subject of SiriusXM and artists with evergreen content, it was announced last week that Howard Stern, who has two stations dedicated to him, just signed a new five-year contract for a reported $120 million per year. Sirius not only gets the new content he creates, which is not the case for Universal and Dylan but access to Stern’s library through at least 2027. I love the sub-headline below from the Motley Fool.
This new deal keeps Sirius’ biggest star around even after he may no longer be physically around the studio. And to show how content is king, this is from another article discussing the new contract.
In addition to being the home of the commentary and interview show, which is broadcast live on weekdays, Sirius XM will also hold a license for Stern’s video and audio archive for a period of seven years. The company hinted it will leverage such material in its ever-widening slate of offerings, although it did not cite any specific plans.
Here’s one more example showing the power of compelling content matched with a large platform.
The company did not disclose the financial details of the agreement to license the podcast, “The Joe Rogan Experience.” But The Wall Street Journal, citing an anonymous source, reported it could be worth more than $100 million based on the podcast’s performance metrics and other factors.
CWS Capital Partners – Platform
After 33 years at CWS, the importance of a platform and monetizable capabilities (e.g. content, investments, products, services, etc.) cannot be overstated. I remember when I started working with my publisher on my book and they kept emphasizing my platform and leveraging off of that to generate interest and sales. If you don’t have a platform then your odds of achieving your goals drop precipitously. And while my goals for my book were never sales-related, it had everything to do with thought leadership and credibility enhancement. This required getting it in the hands of our nearly 1,000 investors and those who were referred to us so they could learn more about CWS, our thought process, ups and downs, and how we have navigated through multiple cycles to produce compelling risk-adjusted returns for our investors, especially on an after-tax basis, over a long period of time. I wanted our investors to have more confidence in CWS after reading the book and to have prospective investors have a greater understanding of the firm with whom they may be investing.
As an investor, I know that decisions and results look very easy and explainable with the benefit of hindsight. But we don’t have that luxury when placing our bets. We have to make real-time decisions with imperfect information while also contending with our personal biases, blindspots, and insecurities. I want to know why investors make the decisions they do when they are deploying their capital, prior to the thesis has played out. This shines a light on their thought process and only after a period of time will the results be known. This is why I have been obsessed with documenting our major decisions for our various investments as well as our macro thinking at CWS. I want investors to know what we are thinking before the results have materialized. And by having a multi-decade library of content consisting of our quarterly letters, annual reports, special property updates, and my blog (for almost six years), we have enough content to produce a multi-volume series of books for investors to judge our decision-making processes and organizational effectiveness.
Here is something that brings me a lot of pride. After I receive the printed versions of our Quarterly Updates, I bring one home with me, put it in a plastic protector, and file it away in a notebook. This is a very satisfying endeavor and a ritual that I look forward to every quarter. I have had to start a second notebook after the first one could no longer fit one more article. I hope my kids, or maybe their children, will read some of these to learn more about me and to learn some valuable life lessons. Who knows, maybe I’ll be able to sell these for $300 million someday!
When people ask me if I have any advice for them as they contemplate starting a real estate company or have a relatively new one, I tell them that my experience has taught me how lucky I was to start with a company that had an established platform, albeit a much smaller one 33 years ago. It provided us with stability, credibility, and a track record that we could expand upon and grow. We have gone from approximately $250 million in manufactured housing community assets and a smaller investor base to one that is now comprised of over 1,000 individual investors and an asset base of apartments with a value in excess of $5 billion. That shows the power of a platform that has served its customers well over the years. Platform, platform, platform. Either focus on building one or leveraging off of the one you may already have.
We have been fortunate to be invested in an essential business (apartments) in growing markets with a large suburban presence, catering to customers who have continued to pay their rent in large numbers, financed primarily through very low-cost variable rate debt with long-term, patient equity investors who have had the staying power to manage through downturns and setbacks. And yet, this didn’t happen overnight. For those who have read my blog and for our investors receiving our communications over a long period of time, this strategy has been evolving and been put in place over the last 20 years such that it is helping us withstand the economic carnage from Covid.
Green Street has property price indices for various real estate asset classes for every major market. The index is based on a value of 100 set during the previous 2007 peak in prices. The national average is 148 as of the last report, meaning that, on average, apartment prices are 48% above their previous peak. The following table highlights the markets in yellow in which CWS is invested and their index values. Every market we are invested in has a value greater than the national average. The only one fairly close to the national average is Houston. So overall, our strategy of focusing on markets with well-educated populations that can attract and retain knowledge-based workers and are very pro-growth and pro-business, which has been in place since 2000, has served us well. And this has been well documented in our communications over the last 20 years so we have not only put our money where our mouth is but it is something we have been espousing in real-time.
We have stayed consistent over a long period of time and expanded our platform such that we have been able to add value to our investors by offering them investments that provide diversification, dividend streams, tax advantages, and appreciation potential. By communicating consistently over long periods of time we have been able to help our investors better understand who they are investing with and our thought process. The end result has been a large body of work that has tangibly manifested itself in voluminous writings that current and prospective investors can use to gauge how well our hypotheses play out and, most importantly, a large portfolio of apartment investments that has been able to generate current yields that are very competitive in this low-interest-rate environment, particularly when the tax benefits are factored in. All of this has helped us to grow our platform such that we can attract and retain top talent and make the necessary investments to keep us competitive in terms of managing our properties, finding compelling opportunities, accessing very cost-effective financing, and servicing our investors. It’s a virtuous circle that helps us to keep expanding our platform and associated capabilities.
Ok, enough about my obsession with platforms and content, and now on to what I’m sure you’ve been impatiently waiting for: my first sonnet.
Without further adieu, here it is. A tribute to Bob Dylan.
The times they are a changin
Touring revenue is nil in this Covid age
But catalogs are what’s ragin
Without streamable content, musicians are going to have to turn the page
Dylan monetized his entire catalog of songs
With no one between Universal and him
Unlike other artists who suffered terrible wrongs
He always kept control and never signed contracts on a whim
A platform’s value cannot be overstated
When it is elevated by content that is voluminous and speaks to people’s dreams
Investor demand will never be sated
The artist’s life work will now become perpetually profitable income streams
Congratulations Robert Zimmerman for having blazed yet another trail
Your financial boat has now forever set sail
I have always loved seeing the original handwritten lyrics, or genesis of them when the artists had no idea that their songs would be hits and might be played hundreds of years into the future. With this in mind, I thought I would end this by giving you a glimpse of how I worked on my first sonnet. The final product differs somewhat from this but it definitely represents the bulk of it. Please excuse my atrocious handwriting. It’s something I’ve never been proud of but I guess it makes it look even more artistic.