Former Vornado CEO Michael Fascitelli On Inflated Stocks, Milwaukee Bucks And One Bad Bet On Toys R Us

The economic crisis has investors turning over new leaves for places to find yield, and few investors have as wide a range of experience as Michael Fascitelli.

After graduating from Harvard Business School and a stint at McKinsey, Fascitelli quickly rose to the head of real estate investment banking at Goldman Sachs, where he headed the Whitehall Street real estate fund. He spent the largest part of his career as president and then CEO of Vornado Realty Trust, and after stepping down in 2013, has served as investment committee chair of real estate investment platform Cadre and he's a part-owner of the NBA's Milwaukee Bucks.

On the latest Walker & Dunlop weekly Walker Webcast, Fascitelli and Walker & Dunlop CEO Willy Walker discussed the current outlook for investors as well as turning points in Fascitelli's career. Here are some of the highlights from the conversation:

Willy Walker: You made the move from partner at Goldman Sachs to Vornado in 1996, and The Wall Street Journal ran a piece on your compensation. But after Goldman went public in 1999, did you ever do the math on what you missed out on?

Michael Fascitelli: I was always pretty good at math, much better at math than English, anyway. But even if I didn't do the math, many people were doing it for me and sending it to me. I thought that both of these positions would be financially rewarding, and I didn't really compare one against the other. I was happy for the people at Goldman when they went public, but Vornado was a more singular bet. I felt we could control our own destiny. So I didn't really ever look back.

Walker: Everyone is trying to make sense of the landscape right now, looking for green shoots and conviction to start looking for opportunities again. While today isn’t analogous to the Great Financial Crisis in many ways, what takeaways from 2008 and 2009 can help put money to work again?

Fascitelli: That was a scary time. Volatility was really high, so the first thing we did was to hunker down and make sure we had liquidity. We got very conservative with our own assets.

What we realized, though, was that we had very little diminution of cash flow. One of the mistakes we made was that we could have been much more offensive coming out of the recovery. We were protecting the mother ship first and looking for growth second. 

Walker: Colin Powell said that in making decisions in the military, you need to wait at least until you have 40% of the needed knowledge to make a decision, but if you wait for more than 70% of the information, you’re too late and you’ve forced your hand. Looking at earnings this week from JPMorgan and the Moderna vaccine news, do you think we’ve reached that 40% threshold yet with the coronavirus, or even gone past the 70%?

Fascitelli: It doesn't feel like we're over 70% from where I sit. The virus is still a big unknown. I think the right strategy is to be patient but ready to pounce. The stock market seems to be betting on a V-shaped recovery, but I think that's a very narrow stock market that only about 10, 12 or 15 companies are driving. That's not a broad recovery. If you look beyond that, you look at what's really happening in America, I don't think we're at the 40% mark. 

I'm no stock market guru, but the market seems to be ahead of itself. One of the big questions is what will happen to collections and rent if and when the government reduces the stimulus that it's putting into individuals and the economy. I don't want to say we’re propping up the economy, but we're giving it some stimulus, and rightfully so. But I think we’re going to see a further contraction and depth before we get back to the point where the economy is self-sustaining. In terms of stock predictions, we’re going to be back probably the fourth quarter or first quarter of next year, maybe. And I think that's an aggressive prediction, and I wouldn't want to underwrite on that basis.

Walker: When the deal was announced for Vornado, KKR and Bain to buy Toys R Us, it looked like a recipe for success: two big PE firms and a real estate firm with great operations. What happened?

Fascitelli: You know, if you will look back at my Vornado days, I think we did $18B of acquisitions, and I would say 90% of them worked out really, really well. You picked one that did not.

It was working out really well initially. Bain and KKR are incredibly good at what they do. We switched out management, we took the EBITDA from 750M to 650M, then all the way up to over a billion dollars. We thought we were going triple on our investment. We went into it thinking that the stores were worth more than the business at that point — there is always an option that if you think the business doesn’t work, you can liquidate the stores and reposition them. That was how Vornado started, that was what Steven [Roth] had done with the Two Guys From Harrison chain and Alexander’s department store.

So we'd worked this before successfully. The problem was, we held on so long, and we didn’t monetize those stores, and the value of the stores began to drop for the first time. We ended up with, unfortunately, a very leveraged situation and diminishing value. If we had monetized those stores in the first few years, I think we could have made a lot of money.

Walker: Do you think your Milwaukee Bucks will have a chance to play a real season this year with the NBA decamping to Florida?

Fascitelli: Well, I sure hope we play basketball. Obviously, we're still dealing with cases of COVID-19 in the league and team members are still concerned about playing. I think Adam Silver, the commissioner of the NBA, has been doing a fantastic job navigating through a very uncertain, unpredictable situation. The owners have been united in trying to do the right thing. 

We had a magical year last year: top five all-time NBA records, the new arena was crushing it, all the venues around the arena were full, then COVID hit and it came to a screeching halt. We haven't had an event since March 11 in the arena.

I’m hoping we’re going to be successful in Orlando. I’m knocking on wood. I think people are starved for sports. I think the ratings are going to be super-high. From a Milwaukee perspective, it’s better than not having a season, but it’s not great, because we don’t have a full arena and the ancillary benefits. I'm hoping that the marquee stuff in the arena is back up to its full potential by the 2021 season. 

Walker: You’ve invested in a lot of real estate and private equity over the years. Is being part of the ownership of the Milwaukee Bucks the most fun you’ve had? 

Fascitelli: I think it's been great. We have a great group of people, to turn around a franchise that was one of the bottom in the league and become a contender for the championship, and have an MVP on the team, and a brand-new state-of-the-art arena, we had a great five-year run.

Walker: What’s the Greek Freak [Giannis Antetokounmpo] like? 

Fascitelli: Great guy. Works his butt off. Super dedicated.

Next Wednesday, Willy will host Larry Sabato, founder and director of the UVA Center for Politics. Register here.

This feature was produced in collaboration between the Bisnow Branded Content Studio and Walker & Dunlop. Bisnow news staff was not involved in the production of this content.