Keep moving forward is probably the strongest attribute. I've got a lot of perseverance and a lot of persistence. Just closing the most recent acquisition that we closed about three weeks ago is evidence of that. I place a lot of value on just corporate culture and values. We talked about that before. Do the right thing. Integrity is perhaps the most important value you can have as an individual or as a professional or as a firm. And that philosophy, that value runs deeply through the culture of Paladin. I have really come to embrace over my career, the limitations that I have as an individual, and the power as a result of teams, teamwork. Better decisions get made, better execution, better strategy. And, I try to listen more, which is not always easy for an-action oriented kind of person who is wired the way that I am. But I find that there's some great ideas that I haven't thought of. And, if you approach a task or a decision with a team, you really let everybody share their views and listen. You'd be amazed at what you can learn. I think that what sets Paladin apart is the fact that it does follow these kinds of values. That doing the right thing for our investors always, all the time, is a strength of the firm. The fact that we've been an institutional fiduciary for three decades to some of the largest pension funds and institutional investors in the world.

It's forced us to be disciplined, highly disciplined and organized and systematic in our approach. We are transparent internally. We're transparent with our investors. I think another strength is that we focus. There's a few strategies that have proven to be really resilient for us over the years, both workforce housing oriented, one in Latin America and one here in the United States. And focusing on those successes and trying to not repeat mistakes and we've made plenty of mistakes over nearly three decades in the business and $6 billion in real estate and eight countries. And so just about everything that has gone wrong, we've experienced. Some of it self-inflicted wounds that we try not to repeat those mistakes. We've found that focusing on what we do best and applying the resources, building world-class teams around those strategies and giving them the freedom to to be able to succeed on their own, but with the resources and experience and all of what Paladin provides is a pretty effective formula for success. A lesson that we learned many years ago is that that culture matters within an organization. And so what we've tried to do here is build a team of superstars, but without the superstar-sized egos. While I mentioned that delegating and empowering team members to be able to succeed on their own is important, hands off management is dangerous. And it's dangerous because team members don't get to tap into 30 years of experience and lessons learned.

And it also can allow unchecked egos to have a pretty negative impact on culture. And once that happens, it's hard to fix it. We've gone through some growing pains over 30 years. We've gone through an evolutions of management teams. There's been continuity at the top with Jim and me but we've gone through different teams and over the last, I'd say 15 years, the second half of the firm's history, the culture of the firm has never been stronger. And as a result, the success of the firm has never been more powerful. We've raised more capital. Our track record has never been better. The feedback from our investors on just what they see, not only in terms of investment performance, but just the execution. Their interaction with the management team members is night and day compared to when we were building the organization 30 years ago. So that I think has been the most important lesson learned, is the type of person, the type of superstar we hire to be part of our team and empower is important. You have to demonstrate the values. If you're expecting, as a senior partner in the firm to have everybody's attention on you when you're talking in a staff meeting, then when somebody else is talking and you're staring at your computer and you're not giving them their full attention or you're checking your cell phone in a staff meeting, you're demonstrating that that's okay.

So and as cell phones and Blackberries and then iPhones crept their way into business. And they've created enormous productivity enhancements for us. But just navigating that, the distractions that that can provide in a group setting, just the interpretations that other management team members can have. If you're distracted and not giving somebody else their full attention, when the tables are turned and you're talking and you're not getting full attention - look yourself in the mirror and see why that's the case. We've had a hard and fast rule for the last 20 years while these mobile devices have been in our daily appendage is no cell phones, period in any meeting with an outside party. We used to have it at no staff meetings but that just wasn't practical. But silenced and not looking at it unless you absolutely have to. Unless there's some reason - you're looking up something because of the topic of discussion in a particular meeting. But if you can't, you know, everybody can put it aside for a half an hour, the emails and the phone calls. We did it before we can do it today. It is interesting how career paths are forged and so much of it is recognizing opportunity in unforeseen and unplanned events. And in my case, so much of it had to do with people that had put faith where in hindsight you look back and just astonished that this family would put the trust, entrust Brent and me to be custodians of their nest egg.

These real estate assets. I've been fortunate. I've had probably a half dozen great mentors in my life. My partner Jim Worms has been one. He's 20 years older than me and has taught me so much about this business. We're at the point where we teach each other and we can finish each other's sentences and it's one of those kind of relationships. But if it weren't for people who actually gave me rope, but not enough to hang myself, I wouldn't be where I am today. The firm wouldn't be where it is today. There's benefits that real estate investments offer that you cannot find in stocks, bonds or other things. And I think one of the most powerful benefits is that these are hard assets. They're really not going anywhere. Usually there's a relative scarcity with real estate. There's only a finite amount of land in infill markets and certain types of real estate, like residential real estate. They're essential assets. You have to live somewhere. So I like the fact that they're hard assets, many of them essential assets, scarce assets, and they produce cash flow. I have great admiration for friends that went into venture capital and are going to be able to figure out what the next Facebook is going to be or what the next. To me, there's much brighter, smarter people that are trying to find those needles in the haystack.

Real estate to me is much more simple. I mean, I like the fact that real estate investing is not rocket science. Most of the decisions, the key decisions when you're making real estate investment decisions involve common sense, which you can't always say with the next dot.com pipe dream. Having said that, it's one of the few asset classes where trading on insider information is not only legal, it's essential. And that inside information that we have about an asset or where a seller is, it's a very, there's a lot of friction in the real estate investment transaction market, much more so than stocks or bonds. So that's how, that's one of the ways that we exploit the market opportunity is to if we know something about an asset, something about a seller, they know something about us that creates an opportunity. There's obviously great tax benefits to real estate, there's depreciation deductions that many investors can take advantage of. There's tax deferred exchanges that many investors can take advantage of. From an inflation hedge standpoint, it's one of the most compelling investments that are out there. The thing we really like about what we're doing here in Southern California is we're playing in a market that is dominated by smaller "mom and pop", less sophisticated investors who really don't know what they own. They don't recognize that the asset that they have is underperforming its market potential, and they don't have the knowledge or the resources or the stomach to want to get it there.

And so if you're a sophisticated investor like Paladin, and you know how to increase cash flow, we've been doing this, I've been doing this for over 30 years. We've been doing it for nearly 30 years at Paladin. We've got a proven track record in doing that. If you know how to increase cash flow, if you're able to execute a value added strategy in a low cap rate market, chronically low cap rate market like Southern California, where we focus then you can generate disproportionate returns compared to other markets. In a 4 cap market, every dollar of increased cash flow that you can generate, generates $25 of value. So, there's great economic opportunity and ability to actually roll up your sleeves, get some dirt under your fingernails and work an asset to increase cash flow and a low cap rate market and conservative capitalization rewards your efforts quite dramatically. And I guess maybe the last thing I'd say, Adam, is there is a certain amount of pride that I have in what we do. When I'm down visiting our teams down in Brazil or Mexico or Colombia, and I'm driving by one of the housing developments that we've built (and we've built over 40,000 housing units down there), I take a great amount of pride in that because there's huge housing deficits down in the region and we're doing a small part.

We've only tapped into 40,000 of the probably 10 million units plus housing shortage in the markets where we're active. But it's something that you can feel really good about. And when I get the feedback from our tenants of the properties that we've upgraded, and here in Los Angeles. There's a lot of pride in that. And it's nice to be able to drive around and point at things and say, hey, I helped do that. Recent example, the three assets that we just acquired in Azusa. Those had gone to market, and once it goes to market and it turns into an auction, we're not buyers. Always throughout the history of Paladin, avoided competition and pursued strategies that have barriers to entry, particularly to institutional capital, so that we end up being at a competitive advantage with institutional backing and what has been traditionally a "mom and pop" kind of space. So we found out that we probably weren't the only firm that found out. We found out that the buyer was bailing on the transaction. And I got a call from the broker the day after Christmas saying the deal's broken apart, the buyer's not buying it. It was an exchange buyer and their 1031 fell through, so their acquisition fell through and we were told you have two weeks to look at it before it gets on LoopNet and I take it back to the market. And we had it under contract in less than two weeks. Because we had already thoroughly underwritten it.

We had been staying abreast of the market. So that little nugget of information that there was a buying opportunity if we put a competitive offer together. So, the broker still has a fiduciary duty to the seller. I happened to know the seller, which is a rarity in this marketplace. It happened to be an individual, a sophisticated player, but not in the multifamily space. This was sort of an accidental investment that they had made. Also it, kind of, stumbled into their lap, but their main focus was on commercial real estate, not on residential and they had ridden the market up and it just made sense for the partnerships that they had formed to exit. And they wanted, at that point, really certainty of close, because they had loans coming due, they had postponed refinancing. And so they really wanted a strong buyer. They wanted a fair price, but they valued certainty of close quite highly. And I think that's one of the things and what sets Paladin apart. We've invested in $6 billion of real estate with institutional backing over 30 years. We have the reputation for doing the right thing and treating people fairly and honestly and transparently. That reflects in how we interact with the brokerage community. And so we have a reputation for when we put something under contract, we don't re-trade the price unless some unforeseen condition has arisen, and then we'll sit down and come up with a practical solution to it with the seller.

And we close what we put under contract. And we protect the brokers who bring us transactions and that's important. So I think of that fits under the  corporate value of integrity and do the right thing and treat people fairly and honestly and transparently. And so we were able to tie up this asset before it went to the market at what I think was a fair price for both sides. They might have been able to get a higher price had they taken it to auction, but they wouldn't have had the certainty of close that they had with Paladin. And it helped that I knew the seller. And we all got on the phone together and kind of looked at each other in the eyes. He wanted to validate the trust that he got a sense was already there, given our relationship, but he needed to communicate, Fred, this is important. I need to close this transaction. And I said, we do too. There's relative scarcity in certain markets for certain types of products and that's one of the reasons we have really focused our US strategy on value-added apartments here in LA because there is very little developable land here in Los Angeles. And when you finally do assemble and you go through the five year process of getting it entitled and then getting it defended with all the lawsuits that are going to happen, after five years and several million dollars of investment, maybe you can build something.

But the cost of the land and that front-end process, and then just the cost of construction makes for, you would have to go up five plus stories. It'll cost you $750,000 to $1,000,000 a unit, even if you're targeting affordable housing, which is just an astonishing number. And we're all in, by contrast. The assets we're targeting are low density. They're irreplaceable in this market. You would never assemble a buildable lot and build a 36 unit, low density, two story external walk up around a swimming pool. But that's what was in back in the fifties and sixties and seventies. And so, we're able to target irreplaceable assets in one of the most supply constrained markets. And there's a finite amount of these assets, and there's an even smaller amount of assets that are under sophisticated, I would say, institutional quality management like Paladin's portfolio. So, we truly are light years ahead of the "mom and pop" competition with safe, contemporary, well-maintained, well- managed buildings that are still affordable to our target audience but they're half of the rents of class A space. To us, that is the value proposition for what we're doing here and a lot of it has to do with the fact that, the scarcity of developable land here compared to Phoenix, where you can just add another freeway off ramp and build the next suburb.

Dallas fits the same. Most cities, whether it's Atlanta, Dallas, Phoenix, they all fit that profile. Los Angeles, the next freeway off-ramp is 2 hours from where the jobs are. Whereas, we can offer it within a short bus ride from where the jobs are. In Latin America, it's all ground up. But here in the United States, residential, we've never been fans of deployment. There's plenty of sophisticated investors that do that. The margins, in our view, are a little too thin. It's much more market cycle dependent. And again, we like focusing on strategies where the demand drivers are cycle resilient. What we're doing here in LA, when a recession hits, we find that occupancy goes up in the Class B, Class C space because of the value proposition and it goes down in the Class A space. So if we were doing ground up development, I'd be offering as many concessions as I can - free rent and others to get buildings filled up. You have to slash rents and you can't stop the occupancy wave because people - when a downturn hits, Class A space gets hit significantly. I think in this space, in Los Angeles, what sets us apart is the fact that we're an institutional fiduciary. We've been a fiduciary for three decades. And so, whether it's our client base that's backing the strategy, the disciplined nature of our investment process.

The comprehensive and transparent nature of our reporting, which has to be best in class, actually, one of our largest institutional clients, uses our reports as their templates for value-added investors. And just the regulatory compliance oversight of being a registered investment advisor, that's unique in the LA apartment investment business. I think that what sets us apart from other institutional managers is the fact that we are a sharpshooter in our markets. We're a developer, investor, operator, so we're flexible. We can joint venture with local developers and operators, but we also have the teams in-house and we do the asset management in-house. It's what we do in Latin America and here. And I think the other thing that sets us aside is our track record. Not just the overall performance and proven ability to add value, but just the scale of our track record in all of the markets where we're active. We've done $800 million of these value-added apartment investments, here in the United States over the last 30 years. 90 different assets, over 15,000 units. We've round-tripped 83 of those for mid 20 net IRRs to our investors. Half of those investments were here in Southern California partly because of the the market dynamics that I described that are unique to any other market in the US, with the possible exception of the San Francisco Bay Area. And partly because we're based here. We're headquartered in LA and it's just easier to do deals in your backyard than to get on an airplane to Atlanta, Georgia.

Any other investment, but real estate in particular, is cyclical and real estate markets are cyclical and they are highly dependent on employment and economic trends and vulnerable to capital flows and supply side risk. And so you have to understand where you are in a market cycle and how each of those factors, the demand side issues of employment and economic trends, the supply side risk and the pricing risk that gets overlaid in terms of capital flows. You have to understand where you are in the market cycle and adjust everything. You have to adjust your strategy, you have to adjust your deal capitalization, you have to adjust how you're executing your business plans accordingly. I think one of the things that maybe sets us apart from many investment managers is that, you know, Jim and I in Paladin, we've been through a lot of cycles in our careers. Jim had a 20 year career before starting Paladin with me, nearly 30 years ago, and I had similar, almost ten years of experience. And so, we don't buy into "Now this time is different", without a lot of skepticism. And so that gives good perspective for a firm like Paladin and particularly being involved in multiple markets, we can see how cycles affect markets differently, different product types differently.

And so we can see that there's certain, if you're pursuing a strategy that's underpinned by a resilient demand driver, whether it's demographics or just the lack of affordable housing here in Los Angeles. Look at this year as an example. So, coming into the beginning of this year, 2022, the economy was firing on all cylinders. The labor market was getting much tighter. You were seeing a lot of pent up demand as we came out of the pandemic lockdowns. And you also saw supply chain bottlenecks and you saw labor shortages. And so you saw inflation starting to tick up this year to the highest level I think it's been in my lifetime, at least in 40 years. You saw a war break out in Europe and the ripple effect that that has had on energy prices, inflation, interest rates, economic uncertainty and so forth, rising interest rates in response to rising inflation. And you've definitely have seen economic growth moderate, this year, as a result of all of those factors. So, in terms of where I think we're poised now, halfway through or two thirds of the way through 2022, it feels to me like we're a little bit in extra innings. Whether it's the housing market or the economy as a whole. And so what we're doing and we're hearing a lot of other investors do is pursuing more defensive strategies right now. And we're hearing it across all classes, not just real estate.

I'd be very wary of starting any new development project, any new construction right now, unless it is a pre-leased Amazon distribution facility and you've got a guaranteed maximum price contract. So you've kind of de-risked that proposition. But to do any kind of speculative new development right now is probably a risk that Paladin is not willing to take. There's also some bigger trends though, going to that paradigm shift. Maybe there is a little paradigm shift going on - some megatrends that are disrupting certain real estate sectors and those are being caused by technology, whether it's Uber or Zoom, outsourcing is contributing to it, automation is contributing to it. It's really mostly technology-driven. And examples of that are, the negative effect - the Amazon effect is having two effects: one positive, one negative. It's having a negative effect on shopping centers and retailers. It's having a potentially positive effect on smaller retailers who are able to expand their marketplace beyond just a walk up on a street. So, certain smaller retailers are actually benefiting from selling their merchandise on the Amazon marketplace. Clearly turning industrial and warehouse and distribution space and last-mile industrial into very, very hot markets. Office buildings, before the pandemic, were already starting to look and operate more like hotels with shorter term leases and amenities that you don't normally associate with an office building like free fitness centers and Starbucks and delis and lounge areas in hotel lobbies.

You think the WeWork's business model was trying to exploit and capitalize on that trend. Unfortunately, I think the business model didn't work that well for landlords. But office buildings, you know, the pandemic accelerated that whole effect of office buildings becoming a little bit more like short-term flex space. And I think that, as a result, there's a lot of winners and losers depending on the product type and the market that folks are focusing on. And there's a lot of smart folks out there that are trying to capitalize on the creative destruction, if you want to call it that, that's taking place in certain real estate sectors like retail and office and hotels. But that's never been Paladin's focus. We have always been, I think, a little bit more defensive oriented in what we're targeting. We like strategies that are first and foremost demand driven that generate really good returns in good times, but also remain resilient during downturns. And that's one of the things that has caused us to focus, in all of our markets, pretty significantly on workforce housing, because those are tenants or buyers by necessity, not by choice. And in what is an essential asset, residential real estate for them. They don't have the choice that the professional worker had during the pandemic of working from home and connecting via Zoom. You have to live somewhere. You can't live via Zoom.

Let's say we're halfway through a value-added business plan. We've got 24 units down in Long Beach. We bought it a year ago, and despite a COVID eviction moratorium, we've already turned and upgraded half of the units. Some of the existing tenants voluntarily paying more rent to be in an upgraded unit, which is always a great success story that we love. We love those kinds of stories. But, what it's causing us to do, as we're seeing inflation creep into our cost structure - we're continually looking and trying to assess the unit upgrade specs. It's one of the things that we perhaps have the most control over is, if we were budgeting that we were going to put $20,000 into a unit, replace all the cabinets, put all new flooring in, put in canned lighting, etc., etc., stainless steel appliances. Well, are we pushing the envelope too far for the tenant base who might be facing cash flow pressures, whether it's due to inflation or slowing job growth. There's still robust job growth. I mean, you could argue that the Fed is maybe able to pull off a soft landing here with the latest job numbers. I'm skeptical because the Fed generally doesn't have a good track record on that. We're doing that, whether it's a up market or a softening market. I wouldn't say it's a softening market, here in LA, but we're looking around the corner and we're thinking, okay, 2023 might have different pricing pressures.

There might be tenants that can't afford Class A, and now they're looking to come into our space and they're really cash flow oriented. So, we can adjust the amount of the upgrade that we're doing and the cost that we're spending and then the resulting rent that we would need in order to generate an attractive return on that incremental investment. We've always gone in with conservative approach when it comes to debt capitalization. We don't like to take interest rate risk, so if it's floating rate, we'll buy caps. We always make sure that whatever budget we have for value-added improvements, we have a high degree of certainty that the money will be there, whether it's going to be from a lender or whether it's going to be from equity. We build pretty healthy contingencies into our investments. What we did on the most recent acquisition, there was a category of debt that's available to value-added apartment investors. We did adjust the type of debt capitalization that we put on. But once you've already capitalized a project, it's not easy to go and recapitalize it. You're kind of dealing with whatever the market conditions are at that time. And so we try not to have refinancing risk exposure. We want to make sure that the debt term that we put in place spans the business plan and then some - a little bit of extra cushion. So we don't have any guns to our head debt wise. We're fortunate on that.