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Interview Summary

In this insightful episode of “The Business Brew”, host Bill Brewster sits down with Ryan Dobratz, Portfolio Manager of the Third Avenue Real Estate Value Fund, to delve into the firm’s distinct approach to real estate investing.  Ryan shares the evolution of his career, highlights Third Avenue's focus on long-term value creation, and provides a nuanced perspective on sectors such as office, residential, and industrial real estate, as well as REITs versus real estate operating companies (“REOCs”).  The conversation offers a wealth of knowledge for sophisticated investors interested in navigating today's real estate landscape.

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Interview Highlights

• 03:09 The Journey to Third Avenue  
  • Ryan recounts his path to becoming a Portfolio Manager at Third Avenue, including influential mentors and the foundational advice to "learn deeply" and pursue a CFA designation.  
  • He reflects on how Morningstar’s real estate coverage piqued his interest in Third Avenue’s contrarian and value-driven philosophy.
• 08:32 The Strategic Move to Austin  
  • Discusses the opening of Third Avenue’s Austin office to gain proximity to key residential real estate markets.  
  • Ryan emphasizes the advantages of being on the ground in high-growth regions, especially post-pandemic.
• 11:41 Navigating the Office Sector's Uncertainty  
  • Ryan explains the capital-intensive nature of office properties and the challenges in forecasting earnings.  
  • Highlights why Class A office buildings may thrive while B and C properties face obsolescence or repurposing.  
  • Introduces real estate services firms like CBRE and JLL as strategic alternatives for exposure.
• 18:20 The Evolution Toward High-Quality Real Estate Investments  
  • Ryan shares how Third Avenue transitioned from focusing on "statistically cheap" companies to high-quality businesses compounding NAV by 10%+ annually.  
  • He details why real estate services firms are favored over office-heavy REITs, given their recurring revenue streams and capital-light models.
• 24:16 Why Third Avenue Prefers Real Estate Operating Companies (REOCs) Over REITs  
  • Ryan discusses the inherent advantages of REOCs, including self-financing flexibility and long-term capital appreciation over income distribution.  
  • Reflects on lessons learned from historical REIT bankruptcies during periods of capital market disruption.
• 28:31 Prologis: A Case Study in Resilient REIT Investing  
  • Highlights Prologis as a differentiated REIT benefiting from below-market lease rates, strong cash flow growth, and innovative ventures like solar rooftops and data centers.
• 47:51 Third Avenue’s Unique Residential Real Estate Exposure  
  • Ryan explains the fund’s diversified residential strategy, with investments across homebuilders, timber, and land development.  
  • He emphasizes the favorable U.S. housing supply-demand dynamics and the rise of large public builders like Lennar.
  • Unpacks the investment thesis behind Lennar B shares, including their discounted valuation, potential spin-offs, and optionality tied to the share-class structure.
• 1:00:48 Fannie Mae & Freddie Mac: The Case for the Preferred Equity  
  • Ryan provides a comprehensive overview of the transformation of GSEs while in conservatorship, their unappreciated progress and profitability, and upcoming potential for recapitalization and release.  
  • He explains the opportunity the team recognized in the junior preferred securities and their favorable risk-reward profiles at the time.
• 1:21:33 The Tower Sector: Risks and Rewards  
  • Discusses the structural and valuation challenges of investing in tower REITs, including high leverage and potential threats from low-orbit satellite technology.  
  • Ryan notes more attractive international opportunities in this space, particularly through Brookfield’s initiatives.
• 1:14:32 Why Active Management Wins in Real Estate  
  • Ryan shares data demonstrating the outperformance of active managers in real estate versus passive indices over 3, 5, and 10 years.  
  • Highlights Third Avenue's robust, collaborative investment process designed to sustain long-term outperformance.

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Learn More:  

To learn more about Third Avenue’s distinctive approach to real estate investing, view our strategies or contact us at clientservice@thirdave.com.