Retail Contrarians, with Sorin Capital’s Jim Higgins and Tom Digan [Invest Like the Best Ep. 68]

So far, I’ve spent no time in the podcast discussing real estate, so I was excited to get the chance to talk to the team at Sorin Capital, a billion dollar hedge fund which specializes in commercial real estate, REITs, and commercial mortgage backed securities.  Sorin is lead by Jim Higgins, who founded the firm, and Tom Digan, who coincidentally was a college classmate of mine at Notre Dame.

The conversation has two unique angles. The first, which starts about 20 minutes into the conversation after we introduce the sector and opportunity set, is a deep dive into a specific trade: a fairly contrarian take on the retail industry, specifically comparing different types of retail real estate. As you’ll hear, the dispersion of mispricings in the sector may be huge, creating opportunities for specialists to earn real alpha by doing bottom up work.

The second angle we explore is what I believe to be a strong model for the future of asset management businesses, that is tailoring products, strategies, and even specific trades to the needs and risk-return profiles that clients want and need, instead of just selling a one-size-fits-all comingled fund.

You’ve probably heard me joke that this podcast should be called “This is who you are up against,” and this episode is a good example. I always enjoy exploring a niche part of the market, and this conversation on real estate is a perfect example of the type of work that firms do on behalf of their clients.  Please enjoy my conversation with the team from Sorin Capital.


Books Referenced

Ugly Americans: The True Story of the Ivy League Cowboys Who Raided the Asian Markets for Millions

Liars Poker

Barbarians at the Gate: The Fall of RJR Nabisco


Show Notes

2:43 – (First Question) –Outline the Real Estate Investment Trust world and what the assets and total value look like


6:10 – What does the profile of investors in the space look like compared to investors in the broader debt markets


9:43 – What are the characteristics of a liquid real estate portfolio that make them so attractive to investors


10:54 – Looking at the history of Sorin Capital and how the business has evolved to where it is today


12:35 – Understanding the idea of securitization of commercial mortgages


17:01 – What really led to the formation of Sorin after working for Bear Stearns


20:19 – Looking at the retail sector in real estate in the scope of actual trades that are being made


25:08 – From an investing standpoint, how do you craft a portfolio that takes advantage of the real estate space as retail appears to be suffering on the surface


30:09 – The different type of real estate investments in the retail sectors and what piece of the pie do they make up


32:43 – How does the business model of the mall work and why is it so connected to the department stores


34:08 – What is the future of malls itself with the big changes happening to the legacy stores that helped them proliferate


37:44 – Why won’t the same thing that has happened to apparel stretched to all sectors of the retail industry


39:09 – How do they search for inefficiencies in the market


41:20 – One of the craziest things they saw on the road that outlined real world craziness in real estate investment


42:23 – What is the duration involved in these types of investments


44:41 – How the portfolio is positioned across these different real estate types


47:49 – Why haven’t others come in and taken advantage of the investments that Sorin is able to


49:03 – Reaction to the idea that the growth of passive ETF’s and investing styles has lengthened the time over which certain inefficiencies would be corrected and are distorting things


51:27 – How much does momentum play into their thinking


54:19 – How evenly distributed are the vintages of these ten year cycles


57:15 – Explaining the idea of deep value bottom up work in the real estate investment world that they have done a deep dive on


59:31 – Best stories from boots on the ground visits


1:04:04 – The origin story for the original Sorin partnership

1:04:42 – Ugly Americans: The True Story of the Ivy League Cowboys Who Raided the Asian Markets for Millions

1:04:43 – Liars Poker

1:04:44 – Barbarians at the Gate: The Fall of RJR Nabisco


1:07:51 – What was it like for Tom getting started and the lessons he learned after an incredible hard time for the market


1:09:24 – What was it like for Jim coming through the crisis


1:11:18 – What is the trend for funds to craft investments specific to investors vs having them buying products that they produce


1:18:29 = Are other hedge fund firms moving to a client demand or solutions-based model? Or are we still very early in the transition


1:22:50 – What would the generalists miss in this space vs someone like Sorin that is a specialist