Weekend Interview: CenterCap's Deborah Smith On Opportunities In CRE, Plus 1980s Music

This series goes deep with some of the most compelling figures in commercial real estate: the deal-makers, the game-changers, the city-shapers and the larger-than-life personalities who keep CRE interesting.

Deborah Smith has come a long way from milking cows and checking her rubber boots for recluse spiders.

After a childhood spent on a dairy farm, Smith moved to the U.S. 20 years ago to work for Morgan Stanley. After riding the waves of the best and worst of the U.S. economy, Smith now reigns as the CEO and co-founder of The CenterCap Group, a commercial real estate advisory firm that has been involved in more than $400M in mergers and acquisitions since its inception in 2009.

Most recently, Smith and her firm represented The RMR Group in its $80M all-cash acquisition of the multifamily firm Carroll, whose former CEO Patrick Carroll has been embroiled this year in scandal over claims of domestic abuse and egregious public behavior.

The graduate of the University of Sydney has had her hands involved in more than $100B of M&A activity throughout her career. 

This interview has been edited for length and clarity.

Bisnow: How did you end up making a career in commercial real estate financing and M&A activity?

Smith: I grew up in Australia on a dairy farm in the middle of nowhere. I graduated from the University of Sydney and moved into Morgan Stanley in Australia doing utilities actually. They transferred me over to the States. So then I moved from there to Wachovia where I landed on my very first real estate deal, which was the Gables [Residential] transaction to go private. I happened to be at the right place at the right time for the real estate market and started doing 100% real estate. And the rest is history.

I moved to Lehman [Brothers] to build out their M&A business and then from there to CBRE to run their global M&A business management platform. And then from there with my partner [CenterCap co-founder June Munshi], who I was at Lehman with, we started our own firm in 2009 during the [Global Financial Crisis]. Not smart doing that move, but somehow it’s worked out.

Honestly, if someone had told me then what I know now, I don’t know if I would have done it. You had frozen credit markets back in the GFC, it was hard to raise capital. I don’t think we paid attention to that it couldn’t be done, we just kind of decided this is what we’re going to do and we did it.

Bisnow: Being a women-led firm in a male-dominated industry, what challenges did you encounter throughout your career and how did you overcome them?

Smith: Throughout my career, women have always been in the minority. I'm not sure I noticed it that much until I became a senior [executive] and I looked around and there are not many of us. Then you get the questions of what did you do in order to break through the challenges.

I didn’t pay a lot of attention to it. I just focused on doing what I needed to do. I would say on a positive note, most of my mentors over time have been male, and I think I’ve been very fortuitous that my business partner [CenterCap principal and Chief Operating Officer Lisa Beeson] and my co-founder [CenterCap co-founder June Munshi] are probably two of the most talented women in the industry. They happen to be on my team and we’ve been friends and colleagues for many, many years. I totally lucked out with that. But as part of being senior now, I look back and I think I was just blessed. I think a lot of women have challenges in the industry of trying to continue to perform in an industry that just doesn’t have a lot of women around.

Part of the strength is that [the firm’s clients] have been with us since almost the very beginning. Part of the strength, at least for us, is we’re very focused on relationships, irrespective of whether they’re men or women. I’m not sure I had awareness of it early in my career, but I’m certainly aware of it now.

Bisnow: Today's commercial real estate capital markets are stressed at best, with banks pulling back on lending and values being called into question. How are you navigating this market? And what sobering truths are you telling your clients?

Smith: I think if you were just in the brokerage business or just in the capital-raising business, there is definitely stress on the open market because debt is not available and I think cap rates are moving. And you have interest rates moving and it’s tough to get bank financing, especially if you don’t have a relationship.

We’re seeing it as well. So it’s harder to raise capital if you’re looking at asset level and portfolio deals.

But within niche segments, there is very much capital available. If you are in the single-family home segment as a niche sector, if you're in senior housing or affordable housing, or you know, your outdoor storage — if you're in some of these very specific niche sectors, which are arguably still not fully institutional, there is still capital available to pursue those strategies, particularly in the housing sector. There is still very much opportunity, it just depends on what it’s for.

Now on a corporate level on the M&A side, for corporate companies that work in real estate or have their business in real estate, we’re finding this market is incredibly active. It’s a wonderful time to think about what to do with your company. 

Most of our business is focused on the buying and selling of investment managers, buying and selling of property management companies, brokerage companies and real estate owner-operators. That segment of the market is incredibly active. 

It is the busiest I think I've been in my career. 

Bisnow: How would you compare today's economy with that of the Great Recession?

Smith: I think the difference today versus then is the macro environment is different. I think we’re still having credit challenges that we didn’t have a year ago. The credit is tough. What has helped this time versus last time is the fundamentals of real estate are strong. Multifamily apartments have performed well. Retail is coming back as an asset class. There hasn’t been a whole lot of development in it. Industrial is performing very strongly as well. And we got the growth of the niche products as well.

With respect to office, office was in trouble last time. Office never really came back. What’s interesting is I’m hearing of more folks that are looking at the office sector on the basis that maybe valuations have adjusted enough to re-enter the market on it where six months ago no one was interested in touching office. We, as a firm, haven’t taken on an office deal in a year. But there is a sprinkle of investors who are looking at the office sector and asking whether there is an opportunity there.

Bisnow: When completing a deal for a client, is it more satisfying to do this during troubled economic times than when things are going really well?

Smith: All deals are good deals in the sense that we’re very specific in the deals we take on. We take those on that we truly believe we can get done. And over the past three years, we’ve been extremely busy. 

For many of our clients [we] actually do repeat assignments as a result, because we’re very customized, we're very strategic, very sharpshooter, on the opportunities we take on and these opportunities we take through to fruition. If our client is happy, if the counterparty is happy, that is a good enough job for us. That is a job well done.

Bisnow: Interest rates were near zero for a long time. There's an entire generation of investors who don't know the world where rates were above 5% until recently. What impact does that have on investor psychology? And does that mean that the adjustment to the new interest rate normal could take longer than had they raised rates earlier in the cycle?

Smith: Everyone has been a rock star over the past 10 years. Lots of people have fabulous returns. It was a lot easier to have a great track record of performance when capital was free. Now that it’s not, I think that this is where the rubber hits the road. In the next 12 to 20 months [we'll see] who actually had the risk management policies and procedures, who actually needed financial engineering in order for that deal to work, who had the policies and procedures to make sure they were good custodians of their investors’ capital. 

I think if you're a good manager, and you're a good management team, it’s coming to great times here. Because, finally, we get to distinguish between those who relied on cheaper capital and rising markets versus those who were good custodians of their investors’ capital. 

Bisnow: Back when you were at the University of Sydney, what was your weekend decompression method? 

Smith: I am a huge, huge runner. I’ve been a runner since I was a kid, I still run today, and it’s my greatest source of release and joy. And I’ll run anywhere. I don’t care what the temperature is. I’ve made it part of my daily life ever since and pretty much nothing is going to change that.

Nothing makes me happier. And I do my best thinking, and I’ve always done my best thinking when I’m not thinking at all. It’s the absolute truth. Feet on the pavement and stuff just comes to you.

Bisnow: It's been said that Australia has some of the most extreme wildlife on the planet. Having been in the U.S. now for 20 years, what does North America have that would absolutely terrify an Aussie?

Smith: There’s nothing here that even rivals anything in Australia. Nothing is poisonous or that venomous that it can kill you. Australia has the top 10 deadliest animals in the world. 

I grew up on a dairy farm. And my mom used to tell me to always use your hand to check your boots because you can afford to lose your hand and not a foot. We would never go outside without wearing boots, we would never put our hands in a hole or under a brick in the garden without our gloves on. It’s definitely a different environment than here in the U.S. I understand we have bears. But for the most part, you don't have to worry about them biting you in the middle of the night.

Bisnow: You said you’re an avid jogger. When you jog, are you a podcast or music listener or are you a thinker?

Smith: When I’m running, I usually like to listen to 1980s music. I’ll even move into the 1990s, too, if you want me to be ambitious. But I do listen to podcasts usually when I’m driving. The podcasts I listen to are usually on a topic that I think would be harder to read, because it's to listen to, you do something different. I read a book on recycling. I read through The Wave, which was an excellent book about the role of oceans and power. And so I'll listen to those things because I think they're a little harder to read on paper, but I'm happy to listen to them when I'm driving around.

Bisnow: Who is the better Aussie '80s band: Men at Work or INXS?

Smith: INXS. Yeah, INXS. That was tough.

Bisnow: And would you say Iva Davies of Icehouse is the most underrated musician out of your country?

Smith: Oh my gosh, I love Icehouse! Do you know how hard it is to find the Electric Blue song? That's one of my favorite songs of all time and it's actually on my listening list I have for when I run because it was so hard to find.

Bisnow: You once said that social media was a big part of the rise of your company, in raising its awareness. Given the changes that we've seen with X, formerly Twitter, the political polarization of speech online and the fragmentations of audiences over different social media platforms, what value for small businesses do you see with social media still, if at all?

Smith: I think it's hugely beneficial. I think it’s a great way of widening your relationships and widening your reach and being able to communicate to the market who you are, what your capabilities are and what you have achieved. If you’re a small company, [it’s beneficial] to be able to use social media as a substitute for hiring personnel. If you can do that well, then I think it’s a great source, a great medium to create new connections with people.

Bisnow: Give us a bold prediction for the rest of the year.

Smith: Through the rest of the year, life is gonna get a lot tougher than what it is now. And out of that are going to be winners and losers. There were winners and losers coming out of Covid. There were winners and losers coming out of the GFC. For a real estate investor, there is nothing more exciting than dislocation. Out of dislocation comes opportunity. 

Bisnow: What's your favorite weekend routine or weekend activity?

Smith: You know what I’m going to say: I run. Actually, my next thing is I usually read a paper newspaper on Sunday morning with a cup of tea before anybody gets out of bed and it’s still dark outside. It's my little moment of peace to read a regular newspaper. Otherwise, I have pretty much a paperless existence except for the weekend newspaper. I find if I don’t have that paper, I find I miss a story, and I like to read every story that’s in that paper. 

I really enjoy the routine. I'll be able to sit there in peace because my life is crazy. I have lots of children. It is what it is to sit there and just read it cover to cover over a couple of cups of tea just like I did when I was younger.