What the Great Depression Teaches Us About Today’s Market

Episode Transcript:  

  There's been a lot of doom and gloom in the headlines, a ton of uncertainty and reasonably a lot of people are on edge. What can we look at when it comes to the Great Depression and maybe draw some lessons that we might need to apply to today? Not saying that we're at that point, but I am saying that there is wisdom even in the struggles of the past.

So today we have a very interesting guest with us that's going to unpack that and more. Let's get REady2Scale.

Hey guys. My name is Jeannette Friedrich, the Director of Investor Relations here at Blue Lake Capital. Joining me today is Adam Gower. Adam is the founder of Gower Crowd, which is a real estate capital raising firm based here in California. He's raised over a billion dollars for his clients, where he actually assist them in navigating Jobs Act regulations to enable them to also raise capital from news sources.

Prior to that, he was actually the president of Asia Pacific for Universal Studios. He has a Bachelor's of Science in Media and Political Psychology from London School of Economics, as well as a PhD in history banking and risk mitigation from University College London. He's joining us today from Beverly Hills.

So Adam, welcome to the show. 

Thank you so much for having me. Really appreciate it. Somebody did some good research on me, didn't they? I don't normally share all that, but anyway, 

I have my team do a pretty extensive amount of digging. Yes. Very good. And I'm very excited to have you on the show. I love the fact that you have you PhD, particularly in risk mitigation.

That is very interesting to me. Right now there's a lot of uncertainty in the market and people are afraid. You shared with me that you began to study the Great Depression to see what wisdom you could pull from that time. And so I'd love to hear about some of the findings and insights that you've been able to pick up through this study.

Yeah, 

sure. Thank you. And thanks for asking. So look the context of how we got to that paper as we were chatting before we started was that these are tough times. It's not just commercial real estate. Every industry is. Wondering what the heck's going on. The entire world is wondering what's going on.

So it's a period of very intense uncertainty. And I've been through a couple of my career, as I mentioned, I've been through a couple of major downturns. I. The first was the savings and loan crisis, the second, which was the late 1980s, early 1990s. And then the second major downturn, and I gloss over the two thousand.com bust because it, it wasn't really a real estate downturn.

There was, it was a blip for real estate. It was mostly just hubris from the internet. And the early growth of the internet. And then the second was the global financial crisis in 2008. So having gone through both of those cycles the first one, when I went through that, I actually believed what everybody was saying, but I didn't really understand the concept.

What they were saying was. This time is different. Okay. I, that's interesting. Different than what? I'd never been through anything, so I didn't know what they were talking about, but they were, population growth is great. It's a diverse economy. Jobs are growing like this. Time's different. Okay, fine.

So whatever. I just rode that wave until the bottom dropped out and the savings and loan crisis and the millions of dollars on paper. That I had made and earned in partnership interests evaporated completely. And because I'd been living the high life and spending my entire salary at that time, I had no money.

It was like a whole thing. But I was also single and so it was relatively easy to up and go somewhere else, which is what I did the second time during the global financial crisis. I actually went into that, selling everything. So I sold out in 2007. My entire portfolio, I'd been doing my own deals and developed ground up development work.

And I just got nervous in oh seven the subprime market was beginning to tilt. And the Alt A. Assets were beginning to go bad, and it was just, I was waking up in the middle of the night kind of suffering, angst, and I just wanted to get out. So I got out. That's what I've done this time.

So in February, I sold everything that I had in stocks. Actually right at the peak. I got lucky at that time. So it's come down and it's come back. And I've just gone into, short term insured deposits at four and a half percent, whatever. It's a net before tax seven to me, so I'm okay with that.

But right now, but. I do have, and you actually opened your introduction with the term doom and gloom. I don't wanna seem to be too doomy and gloomy because I do approach these things with a very pragmatic perspective. I'm actually very glass half full, but I'm also very pragmatic. And so what's going on in the overall economy and also what.

Is being triggered internationally on a macro and geopolitical level is like nothing I've seen in my career. And I've been in this, I've been in real estate since 1982 when I first started. Wow. So as a young fellow, and I think that we're headed to a very significant downturn global financial crisis.

Close to, if not worse, than GFC. So I thought, okay. So I've been through two downturns. I've seen it from both the sponsor side where I was working for a sponsor and lost everything. And I've seen it from the other side of the choir. So I actually brought in by a bank during the global financial crisis to help them clean their balance sheet.

So I saw it from the lender side. But I thought, okay, what. If this is as bad as I think it's gonna be, what is the reference? What's the point of reference? And so being a historian, I thought, okay, I gotta look at the Great Depression 

now. Wait one moment before you get into that. 

Yeah. 

Just to clarify, when you say that you believe we're gonna, go through a very serious correction.

You mean well beyond real estate? Oh, 

Yeah. It's, yeah, it's absolutely, so real estate sits on the foundation of the general economy, of the overall economy. And and so when that wobbles real estate goes with it. It's just, there's no escape. I actually, I was talking to Jim Dowd actually who's you probably know Jim.

He's very well regarded that, oh gosh I always forget the name is First something or other. Anyway, I always forget the name of his company. Sorry Jim, if you're listening. I forgot the name of the company. But anyway and his comment was, there's really no such thing as diversification because what happens, it's an illusion diversification into other asset classes.

Is an illusion caused by the illiquidity of real estate essentially. So you think that real estate is not, is immune to the cycles that the general economy has because it doesn't go up and down in value like a stock, right? You buy a stock now, you can sell it in five minutes and make a profit or make a loss, whatever.

You can do it very quickly. You can't do that with real estate. 

Generally it tends to stay more steady, regardless of where we're at.

But his point is it doesn't. It doesn't that overall, it actually has the same it will go up and down with the economy in the same way.

It's just delayed. 

Yes. It's just delayed. The impact on cap rates, that impact on valuation, it just 

takes time Exactly. To go through its own cycle, but it's still correlated. 



And so you asked me a question and I forgot. No, 

Just to open the picture a little wider. Yeah.

So when you're saying that you anticipate we're gonna go through a massive correction Ah, yeah. You are talking about, are we talking about global currency and global markets that will then ripple through, not only obviously the United States, many countries. What is your kind of.

Prediction about exactly what you believe is headed our way. 

Okay. So yes. So I'm, I've started really for the first time in my career really tracking certain indicators or signals in a way that I've never been watching before, because I don't think you've needed to really watch it. Before it's not really had any immediate or predictable.

Effect on commercial real estate in the same way as it does today. For example, the dollar, the strength of the dollar. Treasury rates and the 10 year treasury. What's going on with that and what are the factors actually driving that as a result of administration policies? And again, I'm very careful.

Jeanette, not to be political, right? So I try to look at the world through the lens of real estate. I don't care what the tax bill has in it, I don't, I do. There are certain things in it. I do take exceptions. That's a different math altogether, but I don't care about the politics behind it.

All I want to know is what is the impact of this going to be on real estate? How is this gonna affect real estate? And so I do try to strip out politics as much as possible because it's so di what's the word for it? It just



Diversive. I forget whatever value.

Yes. Di yes. 

That's the right word, right? Divisive. Complicated. Yes. Divisive. Divisive. That's right. Uhhuh divisive. Yeah. I thought of many words. I just wasn't sure which one I should say. So I 

think, I do think that yeah, I think that the economy is gonna suffer some major downturns, but I think a major downturn.

But I think the biggest challenge is going to be actually balancing that. And managing it. I'm concerned that the usual fiscal policy, the fed's fiscal policies are, he's gonna be torn in both directions. It's gonna be very difficult to manage the downturn. We have a mercurial president that is unpredictable and that's, again, I was again talking to.

John Chan of Marcus and Miller Chap the other day. And he talks about, you know what a black swan is, right? Black Swan event. He thinks there's a flock of black swans circling. Wow. That's how he describes it. And he's one of the most optimistic guys he possibly wants me is that Marcus and Miller Chap growing up brokerage, they have to be positive and optimistic, and yet he sees, a flock of black swans flying around. So yes, I think that the economy is going to suffer and that real estate is going to be on the really, the sharp edge of that rent's going to, I just think there's a lot of challenges in the market.

Yeah. Yeah, no, for sure. Now and digging into this great depression focus now. Yeah. And I just wanted to expand on that so people understood the magnitude and the scope of why we move into the Great Depression, because you know that, I know it's a bit right, the worst doom and gloom scary period of time that most people today can think of.

And what, what did you find as you began to study that from a risk mitigation standpoint?

Okay. That's a really good question. Every Downton has different characteristics, people, this again, I've been writing a lot on LinkedIn. I don't if you know that Jeanette, but I'm very, I'm prolific.

I've started to like to communicate more than I have done before. And there is people like, say, history doesn't repeat itself, it rhymes. What on earth does that mean is like the most meaningless co. What does that mean exactly? So my understanding of what happens in history and when you look at history is, especially in this case, is that every downturn has different.

Characteristics, they're always different. They going, you would never know that subprime did this or that CDOs did that, or that something else did something you just, or that we have a president like this. With the, with tariffs, you just, it's always different, 

right? 

What is consistent. However, through every single cycle, this what I call golden thread that runs through them all is how people.

React to them. And how you come out the other side better off than you went going in. So I thought, okay and this realization only really came to me when I looked at the Great Depression, 'cause I'd been through two major downturns. And so this was the only one I hadn't been through.

Not that old, 1929. And then subsequently three years later, there was another crash in the market. So it was like a double, it was a double whammy that they got then. And what I realized was a couple things. So first of all, those that went in tended to have the capacity for access. Okay. Access to cash.

So that they had some reserves. Deep. Positive relationships with lenders, good relationships with lenders, because once when the market really crashes out, lender and lenders start coming back into the market. They're looking for people to work with. And so be good to your lenders. It doesn't matter what's happening.

Today and the struggles of, but if you are dignified and professional and establish good relationships with lenders, those will serve you well. Going forwards as well. And low debt. Eat debt low. That's the single most important factor. 'cause that a bad debt structure will crush all of your capital reserves and cash flow to just eat up all of that.

So having low debt, but here's the thing that I also discovered that was interesting. And that was, that's what I saw in the global financial crisis. So in the savings and loan. When I hightailed it, I actually ended up going to Japan. I'd raised a lot of money from Japanese investors in the eighties, so I ended up in Tokyo.

That's where I ended up running Universal Studios, Asia Pacific and their interesting. But before I started working for them, I was working for worked with my investors. I'd raised a lot of money from, and I. Forgot completely what line of thought I was going down there. I lost my total train of thought, what I was saying.

But great depression. So the, so Oh, creativity. So here's the thing that's interesting. And I did see this in the global financial crisis. I didn't see it in the savings alone because I was too far removed from it. But the Great Depression, so I'll give you an example. I think it was.

The Empire State Building was almost completely empty. And the owner, and again, I'd have to look at my paper again just to remind me who it was, but the own it was this, the property was called the Empty State Building. They joked about it. It wasn't the Empire, it was the empty state building.

And they were in deep trouble and they came up with this idea of putting an observation deck, so way up that, and charging a fee for people to come in and go up the Empire State Building. And they were able to generate revenue from that. At a time when they weren't able to put people into offices and to populate this thing.

And so that helped them through Hilton. Conrad Hilton lost his entire portfolio. He was incredibly successful. Wiped out. Completely wiped out. I think he held onto one hotel. But what he did during the Great Depression was he negotiated with his lenders, look, you gotta take these things back, but if you take them back, you gotta operate them.

I know this personally, Jeanette, during the global financial crisis, I was at East West Bank. We took over a hotel, and it wasn't until we started on the foreclosure process on this thing that I realized, wait a minute, on whatever date is August one or whatever, on Friday when we take this back. We gotta serve coffee and donuts in the morning and change sheets.

How are we gonna do that? Yeah. We're a bank, we don't know what to do. Yeah. So I had to figure out how to run a hotel until we are actually able to sell the thing out of REO as an REO once we took it back. What Hilton did, Conrad Hilton did was he negotiated with the banks. That had lent to him who took the hotels back to operate them for them.

So he ended up with income running the hotels that he'd lost and eventually bought them back. Wow. Over time. So he got creative, he found alternate sources of revenue that helped, helped him through. 

Yeah, 

so creativity was for these and and they, and the people that came out The Great Depression, like the Rockefellers and Hilton and again I've sent you that link.

There's a bunch of them came out incredibly. I. Successfully. Because they had they just, they positioned themselves right. They were pragmatic and they adapted to these tough circumstances. And they also, they lost a loss of money, but they made it up for themselves and for their partners in the years to come.

Yeah. That is very encouraging to think about it and to hear, and, also, let me be the devil's advocate a little bit just to Yeah. Keep the conversation interesting. And applicable to maybe different types of listeners with different strategies. Yeah. Particularly young people, so if they're in the market, the general advice is, eh. Stay in the market for the long term, for 20, 30 years. Don't worry about, about, the swings. Just ride the long train, play the long game, and then, other people are very focused on, having income, generating assets to get them through potential, say, market downturns or tougher times.

So when you take all of this into light. If someone is trying to work towards wealth creation, et cetera, what is your advice to them if they want to still find a way to chart the course forward, even through the downturns, to potentially even take advantage of the opportunities that are arising during a downturn?

Yeah. Okay. That's a really good question. And difficult to answer. But I'll, it's not actually difficult to answer. I just think it's very easy to answer. It's difficult to implement. Because so just hold that thought. Your question was exactly how should people think about their investing strategy.

Is that right? In the, in life Uhhuh essentially? 

Yeah. As they navigate through a downturn. Okay. Since typically traditional advice is just, ride through it. 

Okay. Hold that thought because I don't want to forget my ch train of thinking. I wanna come back to that question. Okay.

But I'm gonna answer it by sharing with you a non-scientific study that was con conducted at Harvard some years ago. It is actually written up by a layard, it's, I forget his first name, Lord Layard. Anyway, he is a Lord in England, Lord Layard, and he advised the Blair government. On taxation. And the way that he did that was by analyzing the concept of happiness.



So how do we tax. The people in a way that elevates at the average level of happiness in the country, how do we increase happiness in the country? And so to do that, you had to study happiness. He wrote a book called happiness Notes from a New Science, and he goes through all the studies, but there was one non-scientific one.

It goes like this. So at Harvard, they asked the question, which scenario would you prefer? Which would you prefer? Scenario a. Scenario A is you earn a hundred thousand dollars a year and everybody else in your world earns 75. So you earn 25,000, 33% more than anybody else that you know you can afford more.

A nice house, better car, better vacations. You are better off than anyone else. Scenario B, did I say A or B Anyway, A and now B is that you earn 150,000, in comparison to scenario A, you have 50% more purchasing power even than B than A, but everybody else in your world earns 200,000. Which would you prefer?

And probably not surprisingly, we would all like to think we'd go with B, where we have more but less than anyone else. But most people actually would prefer to have more than anyone else even if it means having less than they could have. And the reason for that is what makes us unhappy is not what we have.

It's by comparing ourselves with what other people have. And looking to see what they have and thinking that they've got it better and it makes us miserable. It's one of the, the torments as I wave my phone at you furiously as a prop on this video podcast. It's one of the, the the torments of social media that every, no, no one posts what's making them miserable today. It's all, everybody's happy life. And so you go on it and you just think why is my life so miserable? And why are they having such a good time? Okay. Now let's get back to your question.

So the answer to that, this idea of how do we deal with our investments and how do we navigate a downturn? Or go into a downturn or how do we think about our finances? I think very simply spoke speaking is be more modest in your aspirations and what you want. Don't. Chase rainbows.

Or these cliches, I see it all the time. Apologies if you've used it and I have to, I'll confess, I've used it as well as uncomfortable as it's made me even when I have done, but these cliches earn passive income, build wealth, and gain financial freedom. These are cliches.

And and what you really want to be doing is to understand. What really makes you happy? And to think long term, I'm getting long in the teeth, long in the tooth and as I approach, the last two, three decades, hopefully, if I've got that much left of my time I am supremely grateful for some of the investment decisions that I made.

A quarter century ago and just sat on and held onto for the longest time and had to deal with and look after nurture and, maintain, and it was a pain at times. But that long-term perspective is really the most important. But it comes at the sacrifice of quick wins. I. And this idea that you can just double your money every three years if, you invest in these kinds of deals even every five years.

And just, I want more and more 

yeah. Capital and the perspective of patient capital. Patient capital, Uhhuh. Yeah, exactly. 

Yeah. And then probably, also, again, this is obviously very personal. I don't give financial advice but to me personally, I think, to look at what your burn rate is so what lifestyle realistically would you like to have?

That would be quite, you'd be quite content with, right? It's can you be satisfied and whatever the, whatever those, whatever the drivers are that give you that sense and you have a much more, yeah. I tend to, I think people tend to be a lot more gung-ho as they're younger, although I've met some people who are, much more mature in their earlier years when it comes to finances. But look at what your burn is your monthly burn or annual burn, and aim to achieve that somehow on an ongoing sustainable basis. And then live within that and move towards that gradually. So that's what I would say is have.

More modest aspirations for your wealth 

than 

everybody online would like to persuade you. You must have. 

Very interesting. Very interesting. I think it also very likely ties to a sense of security. If you have more than everyone, then somehow you have the illusion of security. Which really is quite comical because money can only solve so many problems.

And then there's many others that it can absolutely not. But I think that, that sometimes people tend to also take a sense of a false sense of security from that as well. So just the interesting thoughts on, human nature as correlated to that. Study there. All right very interesting and very insightful.

Adam. I appreciate your perspectives and sharing your research with us. I will be sure to include the link that you shared with me in the show notes as well. So if any of you listening today would like to read this study that he conducted, look in the show notes and we'll have the link for you there.

Before we wrap up though, I do wanna ask you what we call the lightning round questions. Which are five questions that I ask all of the guests on the show. So are you ready? Cool. 

I'm all for it. Good idea. 

Alright, so when you're not studying the Great Depression as your idea of a good time, what do you actually do for fun?

So my favorite pastime actually is I like, I have a Labradoodle, a dog, and I had a dog all my life. We didn't grow up with hounds. Or any pa closest I got was a goldfish. But I have a I have a lovely Labradoodle and I like to take him to the beach. There's an off leash beach here near where I live at Daybreak.

So I get there about half an hour before the sun get comes out. And I like to just walk on the beach as he gallops around. And yeah, I like that a lot. So that's my favorite pastime. 

Wonderful. Now what is something interesting about you that most people don't know? 

I used to be a cop. 

Oh, wow.

That is really interesting. That is 

interesting. And this is at the end of the podcast. So anybody that's lasted all the way through probably doesn't have too negative an opinion of me by now or Right. So I'm okay accepting, admitting it. I actually joined the LAPD as a, what's called a line reserve.

This was unpaid, fully sworn post. Certified peace Officer Safety and Standards. It's, every COP has 24 7 peace officer status for 14 years. Wow. And I used to go on I used to patrol. Where are you actually? I'm 

actually in Century City here in la. So 

I thought that's where you were. So I used to patrol exactly your area.

In a black and white for 14 years, twice a month. So I went out twice a month. It was unpaid and 

wow. Was this your idea of a good time community service? Both, 

Candidly when I signed up for it, I thought, oh my goodness, LAPD are gonna teach me. Tactics, martial arts, how to use a firearm law, all these cool things.

I'm gonna get into amazing physical shape Uhhuh, and I don't have to pay for it. Yeah. It's just like free training, Uhhuh. So I signed up for a year, and it didn't occur to me until I was on the first day in West la roll call that, oh my goodness. I'm. They actually expect me to patrol the streets now oh my goodness.

So it did take me a bit of a sh it was a bit of a shock, that reality. I always said I was gonna, as soon as I qualify, I'll quit. But I, of course never did and stayed on for another 14 years or something. Wow. That was, there was a lot of interesting experiences. Oh, 

I have no doubt. LA is a very interesting place, is how I always say it.

Yes. Uhhuh. All right. 

So not many people know that, by the way. Very fun. Because a lot of people don't like cops, so I don't like to admit it. 

I think it's a lovely, interesting story, so I appreciate it. Sure. Now, what about as far as a book or a podcast? If the listeners, really wanna enhance maybe their insights into either the global economy or risk mitigation.

Yeah. Anything along those lines that you think the listeners would find helpful? What podcast or, yeah. Book would you recommend? 

Really good suggestion or good question. So I have, because I've been done, I'm looking at my phone now while I'm talking to this. I've just opened up the podcast app because I am really hyperfocused on macroeconomics at the moment, again, more than I have.

Ever been before to understand what's going on in real estate? I've started listening to a lot of really good podcasts. And the ones that I like that are I are the financial Times. So of course I'm terribly biased towards British journalism. English journalism. The Financial Times.

Actually has a whole series of podcasts. There's a bunch of people that produce podcasts for them. And I, what I would recommend is go to the, probably go to the finite ft.com and when you scan down the page, there's a whole raft, I think, somewhere on that page, or there's probably a way you can look them up.

But the achman inter review is very good. I'm looking at the economics show. That's also the FT. And Unhedged is is with Katie Martin, who is an absolute crack up. And she talks to Rob Armstrong most of the time who's based here in the States. And they give a perspective that is deep, analytical and non-partisan.

But if you are, if you do hold partisan views, you might not like their perspective. But it's the overseas view and that is what I think is largely driving and will drive what happens here in the years to come. I. 

Interesting. Very interesting. I'll be sure to check that one out on my commute today.

All right. Now one of the other things, and you actually already touched on it a little bit earlier. But I will ask it just in case you wanna add and expand upon it. So one of the things that we like to always talk about on the show as well is, it's great, we all wanna make money.

That's fabulous. You wanna have some good returns, that's great. But the point, for at least maybe us here and our listeners is building and living an extraordinary life. So what is your advice to someone that's focused on doing that? 

Ooh, living an extraordinary life 

or building an extraordinary life.



Yeah. That is a very deep question. And it's actually one that I struggle with a lot. I struggle with the idea of. Continually sprinting until the lights go out. All the way to the finish line and just trying to do as much as I can and as much as possible, or hanging out on the sofa and doing nothing.

Okay, so at the end of the day, what does it really matter? But what I've come to realize is that probably what gives me the greatest. Satisfaction And we, again, it's back to this idea of happiness. There is always gonna be somebody that has more always you, you will never gonna outpace that.

Even the richest man in the world turns to other people who he perceives has more, right? There's always somebody with more with. What I've realized is helping people, I know it sounds I dunno a little, I don't know what it sounds like. Again, cliched maybe, but I really, I think so.

I think so. I really like helping people. I really do. I get the big, the biggest a productive day to me is one where I've had a bunch of calls. I. With people who I know have walked away thinking, gosh, that was really helpful. And I sit upstairs and I just think, yeah, that was a good day.

I, I may not have made any more money. But I do have that sense. Yeah. I think an extraordinary life is one where you help people and you give. Yeah, you give, so this idea, again, this idea of having more than anyone else and when we were talking about you can think through it.

One nice thing about that is you can still downshift to whatever their standard of living is, so that you're not the only person with the big house on the street, and you can give the rest away. 



What a nice thing. What could be better actually than living that life. 

Yeah. A life of impact.

Yeah, for sure. All right, wonderful. And last but not least, Adam, if folks wanna get in touch with you and follow up and maybe have some more conversations, how can they find you? 

Okay, thanks for asking that. So I have a newsletter. It's at goer crowd.com. So that's my last name, G-O-W-E-R, goer crowd.com.

It's free. It comes out whenever I publish my own podcast at the moment, and is focused on macroeconomic understanding of what's going on. Through the lens of real estate. And if you get one of the, subscribe to that, soon as you get one of those hit reply and it comes straight to me.

Wonderful. Yeah. 

All right, good. We'll be sure to include a link to that as well in the show notes for our listeners. So Adam, this has been a very interesting, fun little scary but still reassuring conversation today, and I really appreciate you having it with me. Thank you. 

Thank you for.

Choosing the topics that you did, 

and for those of you that invested your time with us today, thank you. Please make sure to leave us some comments. Let us know anything else you'd like us to dig into, and in the meantime, be bold, be extraordinary, and keep moving forward. We'll see you guys in the next episode.

Ready to Scale is brought to you by Blue Lake Capital, where we hunt down the best multi-family investment opportunities that we can find and invite investors to join in with us. We target class B value, add multi-family properties across the Sunbelt. Our CEO Ellie Perlman, invest a substantial amount of capital into every deal.