WEBVTT 1 00:00:00.000 --> 00:00:05.000 That negotiation lasted about three minutes, and it was, among other things, a matter of short versus long. 2 00:00:05.000 --> 00:00:08.000 I'm Sami Miettinen, the Negotiator. 3 00:00:08.000 --> 00:00:14.000 Today my guest is Petri Roininen, who is the CEO of Investors House. 4 00:00:14.000 --> 00:00:25.000 Before this episode I posted a short video where [unclear] I sold a [unclear] apartment using the anchoring technique. 5 00:00:25.000 --> 00:00:28.000 In it, I anchored it to the price per square meter. 6 00:00:28.000 --> 00:00:40.984 But let's move from this negotiation technique into the real estate world, so let's meander a bit here - maybe you, Petri, could tell us what your background is and what kinds of negotiations you've had. 7 00:00:40.984 --> 00:00:52.984 Yeah, thanks. I have to say first, regarding your background video - sometimes it happens that investment banking work starts to become boring. 8 00:00:52.984 --> 00:00:56.984 I think Finland's real estate sector - welcome, gladly, into it. 9 00:00:56.984 --> 00:00:59.984 [unclear] 10 00:00:59.984 --> 00:01:28.984 Yes. I have an engineering degree, have been in business for 30 years, of which about ten years in the finance sector, and then some twenty years in real estate and construction in many different roles, and currently I'm CEO of the publicly listed company Investors House, which is a real estate investment company, and also chairman of the board of another residential investment company, [unclear]. 11 00:01:28.984 --> 00:01:40.984 And actually we got to know each other through that latter one. Back then it was still called Orava, and I was at the time with Nordic Trust's bondholder representatives' 12 00:01:40.984 --> 00:01:51.984 company's CEO, and then when it felt like there might be [unclear] here and the board was about to change even before that, I thought I'd [unclear] Petri, so I'd know on behalf of the bond investors 13 00:01:52.465 --> 00:01:57.965 what might be going on there and whether there was any need to do anything regarding the bond. 14 00:01:57.965 --> 00:02:04.465 Nothing much came of it after that, but that's probably where it started, this collaboration of ours. 15 00:02:04.465 --> 00:02:12.465 Yeah, that's where it started, and then we've also worked together around these growth-company matters. 16 00:02:12.465 --> 00:02:37.465 Yeah, we'll get back to that too - real estate. There's also the growth business, but Nasdaq, meaning the stock exchange, Finnvera, and especially the Finnish Entrepreneurs association launched last year a [unclear] 360-day IPO program, where 34 growth entrepreneurs were coached. By the way, how did you pitch to get those 34 entrepreneurs on board? 17 00:02:37.465 --> 00:02:45.291 I found it interesting, this whole IPO coaching program - it's thinking about this kind of... 18 00:02:45.291 --> 00:02:53.291 negotiation theme. Here it was important to find two things: Finland's best coaches for it, and then on the other hand 19 00:02:53.291 --> 00:02:59.291 companies that are interested in growing and, at some point, would like to [unclear] list their company. 20 00:02:59.291 --> 00:03:06.291 This first one was, in that sense, a pretty simple matter. The question posed was that 21 00:03:06.291 --> 00:03:36.091 'I represent 115,000 companies, would you be interested in cooperating' - so in a way that opportunity is quite big, and that's why there was interest, and actually I'm really glad that everyone who was asked joined this effort. It's done somewhat in a pro bono spirit, and a really strong group there, and then 34 companies and entrepreneurs were found for it quite quickly, and 22 00:03:36.091 --> 00:03:57.691 last year we then held this kind of seven-day coaching session, and I strongly believe that we'll see somewhere between five and ten of the participating companies listed within the next few years, and now of course the plan is to run a new program again this year, 2020, which is then even... 23 00:03:57.797 --> 00:04:01.797 and hopefully more advanced, building forward from last year's lessons. 24 00:04:01.797 --> 00:04:07.797 That was good, and hopefully TransLink at least will be one of those listing, but we'll see. 25 00:04:07.797 --> 00:04:13.797 That was fun, and maybe let's move to that anchoring theme, since it was brought up at the start here, 26 00:04:13.797 --> 00:04:19.797 there were some questions about it too - that you have quite a lot of followers in the real estate sector. 27 00:04:19.797 --> 00:04:26.797 There were various questions about that - this price per square meter in general, it's almost the only [metric] for a private individual 28 00:04:26.797 --> 00:04:51.797 and what they look at. In that video I said that the price per square meter in the Kamppi area happens to be, according to Reaktor's AI [unclear], 7,148 euros per square meter, and I explained that from there you could try to anchor upward if you don't need to sell - as I wouldn't, because I'm happy with my apartment - and I tried to demonstrate how you create added value. 29 00:04:51.797 --> 00:04:55.297 But that price per square meter is quite individual, what... 30 00:04:55.376 --> 00:04:59.376 and how does a professional negotiator draw out something other than the price per square meter? 31 00:04:59.376 --> 00:05:05.376 That probably depends a bit on what the purpose of use is. 32 00:05:05.376 --> 00:05:11.376 The price per square meter is probably what we're used to comparing them by when selling homes. 33 00:05:11.376 --> 00:05:14.376 That's a perfectly valid approach. 34 00:05:14.376 --> 00:05:20.376 It's been affected somewhat recently by the fact that apartments are perhaps getting smaller. 35 00:05:20.376 --> 00:05:37.376 38-square-meter units, 29-square-meter units, average price per square meter, the investment world. In Finland there are a quarter of a million private residential investors. 36 00:05:37.376 --> 00:05:49.376 They're of course interested in the price per square meter, but above all they're interested in the yield - what it returns, whether it yields three, five, or eight 37 00:05:49.555 --> 00:05:56.515 or more percent net yield, and what the corresponding risk is. 38 00:05:56.515 --> 00:06:05.715 And then of course this professional investment market, where entire buildings are involved, has a very diverse anchoring landscape. 39 00:06:05.715 --> 00:06:13.715 There you have yield levels, risks, financing structures and so on, so it becomes, in a way, more complex. 40 00:06:13.715 --> 00:06:21.995 Yeah, and work-wise, Investors House goes through the whole value chain. There's both real estate and ownership, then services. 41 00:06:22.115 --> 00:06:47.715 The real estate value chain is formed in such a way that first there has to be land, and then it has to be zoned in urban planning, and then a building has to be designed for it, built or developed, then it can be rented out and owned, it can be traded, and then perhaps a fund can be made out of it. 42 00:06:47.715 --> 00:06:57.015 and this creates a value chain from that land all the way to an investment product, and what we try to do at Investors House is 43 00:06:57.015 --> 00:07:07.915 to be specifically a part of this entire chain, and we have separate companies at different points along it, and then, at best, we carry this whole chain through at the project level 44 00:07:07.915 --> 00:07:11.615 and in that process the value, in a way, gets refined into it 45 00:07:11.615 --> 00:07:17.015 Right, and sometimes you just take perhaps the best piece, or whatever the resources allow. 46 00:07:17.120 --> 00:07:22.860 You have the campus project, and there you quite creatively broke it up into [unclear]. 47 00:07:22.860 --> 00:07:31.060 Yeah, so that kind of structure and ownership-financing arrangements are one element in this, 48 00:07:31.060 --> 00:07:39.660 but the value chain can in principle be built from six to seven different revenue logics or ways of earning 49 00:07:39.660 --> 00:07:47.820 and if you could combine them creatively, it could result in a good [unclear] and a profitable company. 50 00:07:47.820 --> 00:07:55.740 Yeah, maybe if we go back to that anchoring theme once more, I made a claim there that's based on research, 51 00:07:55.740 --> 00:08:03.580 that you should anchor first, anchor aggressively, use reference values, and don't round off. 52 00:08:03.580 --> 00:08:12.580 and this way you get a good anchor in place - high if you're selling, and low if you're buying. 53 00:08:12.580 --> 00:08:21.580 But I was asked about that - well, but since there are often buyers, sellers, and then both of their advisors 54 00:08:21.580 --> 00:08:27.580 and then all sorts of price estimates, and they're all skewed, and at worst in different directions. 55 00:08:28.073 --> 00:08:36.073 How does the pulling and throwing of multiple anchors go? How do you line them up? What is the truth? 56 00:08:36.073 --> 00:08:53.073 That's a really interesting question. What is the truth? In real estate there's an old saying that a deal happens when the buyer and seller agree on the price but disagree on the value. 57 00:08:53.073 --> 00:08:55.673 and this is hugely telling. 58 00:08:55.673 --> 00:09:03.073 Then, in a way, through what kind of process and work does such a [unclear] outcome come about, 59 00:09:03.073 --> 00:09:07.073 so let me take two such extremes. 60 00:09:07.255 --> 00:09:37.255 On the timeline of deals I've been involved in, the shortest one - if we're talking about deals for entire buildings or portfolios - the shortest was a situation where both the buyer and the seller knew the property insanely well, equally well, and both knew the market insanely well, and also knew who the potential buyers for it were and how they think, so that conversation lasted about three minutes, 61 00:09:37.255 --> 00:09:43.255 by the short or the long [unclear]? Well, by the short [unclear]. Does this work? No, not that. Okay, let's split that one in half. 62 00:09:43.255 --> 00:09:49.255 The question was nevertheless about a big transaction, but both knew exactly what it was about. 63 00:09:49.255 --> 00:09:53.190 Well then, the other extreme is one where 64 00:09:53.190 --> 00:09:59.950 which might, during the negotiation phase, involve as many as 450 people, each of whom has their own angle. 65 00:09:59.950 --> 00:10:09.870 I probably have, as the longest one, a completed nine-month process, which was a full-blown M&A process. 66 00:10:09.870 --> 00:10:13.910 Then of course there are many that don't get completed and just remain a stage, 67 00:10:13.910 --> 00:10:19.390 but so many perspectives come up there that first you discuss exactly that, 68 00:10:19.390 --> 00:10:26.830 whether it anchors, so to speak, to the yield level or to the price per square meter, or wherever each side is seeking its own gold. 69 00:10:26.830 --> 00:10:33.430 Then next come certain risk allocations, payment arrangements and so on. 70 00:10:33.430 --> 00:10:39.990 Finally come the due diligences and their findings, and you try to work them one way or another. 71 00:10:39.990 --> 00:10:57.790 and then when there are experts from different fields involved, from Finland and perhaps elsewhere, and some know market practices or the applicable laws of the land better and some less, then there's really a lot to discuss. 72 00:10:57.790 --> 00:11:00.790 That's a really good observation, indeed. 73 00:11:00.932 --> 00:11:24.932 different values, but the same price. Risto Siilasmaa - when I provoked him a bit, asking whether he felt [unclear] about it, since in a way he tricked Microsoft into buying the mobile business at an overprice and then later [unclear] it - he said that's not how it went, that we actually had the same level of information at the end of the process, we just interpreted it differently. 74 00:11:24.932 --> 00:11:29.932 and that's exactly really important, and Bengt Holmström, [unclear], this whole 75 00:11:29.932 --> 00:11:37.821 information-withholding philosophy entirely, saying that if the other party knows or suspects that you... 76 00:11:37.821 --> 00:11:47.821 are cheating or withholding information, then they won't take part in the negotiation. Or then you have to somehow prove otherwise that there is trust here. 77 00:11:47.821 --> 00:11:55.821 Then maybe one more point about that - you don't always have to tell everything, but it's good that everyone involved is told the same amount. 78 00:11:55.821 --> 00:12:24.821 Then probably just this perspective, given that in the end both sides had the same information - certainly at the start the situation is that the seller has overwhelming information, and as things move forward it converges, and in a way during that convergence it's hugely important not to turn negative, which, conversely, means that those things also have to be communicated at some level early on. 79 00:12:24.821 --> 00:12:26.821 [unclear] 80 00:12:26.821 --> 00:12:31.821 That's actually really common, from when I myself used to do those M&A deals for a living. 81 00:12:31.821 --> 00:12:34.821 There's especially, among owner-entrepreneurs, some dark secret. 82 00:12:34.821 --> 00:12:42.821 And then they always have some shareholder-agreement complication, or some deal on hold, or something like that. 83 00:12:42.821 --> 00:12:46.821 So then I always joke that you always have some skeleton in the closet. 84 00:12:46.821 --> 00:12:49.629 Just tell it, so everyone gets time to deal with it. 85 00:12:49.629 --> 00:13:02.269 the advisor gets to keep this hidden, it doesn't get resolved, and the process can die if this skeleton is brought out at the last minute, when it could have been brought out in a fully controlled and managed way during the process. 86 00:13:02.269 --> 00:13:17.189 That's probably exactly right - that those things too, exactly in this controlled way, need to be out in the open, and even so, in a way, those dealbreakers don't show up later on, and there's wisdom in that. 87 00:13:17.189 --> 00:13:34.189 Yeah, maybe then about that time dimension. In your negotiation [unclear] book you indeed said that the Excel models started to work when there was a long time span and the payment terms were a bit different, and in a way financing came into play there too. 88 00:13:34.189 --> 00:13:46.189 These kinds of synergies and different time preferences are hugely important, and then from that I picked up on the fact that apparently foreign real estate investors have now arrived, and they have, in a way, an entirely different reference point of their own. 89 00:13:46.855 --> 00:13:50.855 looking somewhere at the yields of Europe's major cities, which have been pushed down, and 90 00:13:50.855 --> 00:13:54.855 then in Finland you might find better yields, but you're in the same euros. 91 00:13:54.855 --> 00:14:00.855 Maybe some reflection on those - time, financing, and foreign investors versus [unclear] domestic ones? 92 00:14:00.855 --> 00:14:07.855 Yeah, there are probably a few perspectives there - if you don't lock in that time window, 93 00:14:07.855 --> 00:14:11.855 then, according to the old saying, time is money. 94 00:14:11.855 --> 00:14:14.855 [unclear] 95 00:14:33.423 --> 00:14:45.923 the payment timings were shifted by two years, but the rental income transferred immediately, so that, in a way, solved this question, which means that this time dimension is a truly central negotiation dimension. 96 00:14:45.923 --> 00:15:02.303 And then again on this international perspective and the Finnish real estate market - the Finnish real estate market actually started integrating with the international market in 2002, with the Itäkeskus [unclear]. 97 00:15:02.303 --> 00:15:14.303 The phenomenon is this recent, though. Back then it happened first on the commercial real estate side, and now, in the last decade, during the 2010s, it came to the residential side. 98 00:15:14.303 --> 00:15:30.303 Then the benchmark changes quite fundamentally. Then you don't think about whether Tampere and Turku have the same price per square meter, but instead you might think about a question like whether Kuopio's return-risk ratio 99 00:15:30.303 --> 00:15:35.303 is better or worse than the return-risk ratio of Germany's thirtieth-largest city. 100 00:15:36.422 --> 00:15:47.422 Because that's how it is from the buyer's perspective. And again, of course, we ourselves should understand where this integration is heading and what it affects. 101 00:15:47.422 --> 00:15:52.422 Maybe then one anchoring point that irritates me, since I am something of a patriot after all, 102 00:15:52.422 --> 00:16:00.422 is that when the real estate [unclear] comes up enough for us, someone buys it at NAV, [unclear] asset [unclear] away, 103 00:16:00.422 --> 00:16:07.422 so here we've had Sponda and Technopolis, and now even care-home real estate is finally going that way too. 104 00:16:07.422 --> 00:16:13.250 And in a way, what seems to be there is this net asset value of its own. 105 00:16:13.250 --> 00:16:18.250 that somehow they tend to trade below it, at a discount to it 106 00:16:18.250 --> 00:16:28.250 and then they get picked up at [unclear] valuation, but then again we get back to those valuations - whether their value is then the absolute truth 107 00:16:28.250 --> 00:16:39.250 But how do you see this, on the other hand - this net asset value gap, or the plundering raid of international firms then in Finland? 108 00:16:39.250 --> 00:16:44.250 In Finland - whether there are, like, some dimensions to it that you yourself see. 109 00:16:44.250 --> 00:16:49.250 Well then, 'plundering raid' is a strong word - in practice it's, like, there too. 110 00:16:49.250 --> 00:16:51.250 It's market economy, of course. 111 00:16:51.250 --> 00:16:56.250 Bringing capital to Finland and the real estate still being preserved - that hasn't been such a bad thing. 112 00:16:56.250 --> 00:16:58.250 No, no, no. 113 00:16:58.250 --> 00:17:08.250 But, and then, sort of, sort of, this kind of appraiser tries to determine the value of those properties at any given moment, 114 00:17:08.250 --> 00:17:29.260 [unclear] 115 00:17:29.310 --> 00:17:59.310 for instance if it referred to the world of listed real estate companies, then it's probably been the case that, typically, the Finnish real estate sector has traded below its NAV - net asset value - yeah, Stockholm has perhaps been closer to that net asset value, and then there are these individual deals, of which you mentioned the care-home case last, where the share value clearly exceeded that NAV - so it can be affected by so many [unclear] 116 00:17:59.310 --> 00:18:07.310 factors then - future outlook, again the company's earnings capacity, and so on. 117 00:18:07.310 --> 00:18:20.310 And then one such thing can also be this Finnish taxation, which in a listed real estate company first, in a way, applies corporate tax and then dividend tax for the shareholders. 118 00:18:20.310 --> 00:18:28.030 and that may create a fairly significant wedge compared to an unlisted one. 119 00:18:28.030 --> 00:18:34.030 That may be one reason why the number of listed companies has decreased recently in the real estate sector for us. 120 00:18:34.030 --> 00:18:37.670 Does some real estate sector [unclear] leave anyway? 121 00:18:37.710 --> 00:18:43.210 know-how, since public-company governance leaves from there anyway - or is it actually quite thin? 122 00:18:43.210 --> 00:18:55.210 Yes, I think the headquarters and its location definitely matter. It guides where that capital gets allocated [unclear]. 123 00:18:55.210 --> 00:19:03.710 Although as a general rule I see it as really positive that the Finnish real estate market has become international, it has brought liquidity to the market, 124 00:19:03.710 --> 00:19:15.710 capital, opportunity, and various strategies, so that the market isn't homogeneous but also withstands cycles better. 125 00:19:15.710 --> 00:19:22.710 Of course it's a bit [unclear] then, because in terms of investing I think the stock exchange is unbeatable. 126 00:19:22.710 --> 00:19:29.710 We don't have that many real estate companies there anymore, I think there might be four on the main list. 127 00:19:29.710 --> 00:19:35.110 Yes, yes. Maybe about that time dimension, and then about why some... 128 00:19:35.325 --> 00:19:43.325 ...values are of better quality than others - aren't those long-term customer contracts hugely valuable? 129 00:19:43.325 --> 00:19:53.325 If you have, say, 15-year care-facility contracts with reliable parties, where there's ongoing use, 130 00:19:53.325 --> 00:20:01.325 they are more valuable than, to put it bluntly, a very specific industrial-town property. 131 00:20:01.325 --> 00:20:08.325 and then in between are those buildings filled with people, where they can either work or live. 132 00:20:08.325 --> 00:20:16.325 Maybe actually a quick question about that - they're being mixed now, right, living and working - or at least there's a wish that they could be combined. 133 00:20:16.325 --> 00:20:19.325 Yeah, probably so. That's of course how it is. 134 00:20:19.660 --> 00:20:26.660 value is formed, in the end, from cash-flow projections, and the longer the contracts are, the easier they are to forecast. 135 00:20:26.660 --> 00:20:43.660 Then this, what it refers to - hybrid buildings - I think they've been built for a long time in various major cities, and they've generated income, and they've been part of the development of city districts and urban development. 136 00:20:43.660 --> 00:20:55.260 For us they've now started making their entrance, with the Kamppi Center perhaps being among the first where retail space, offices, and housing came together in a single complex. 137 00:20:55.260 --> 00:21:06.060 Now when you look at the development of Pasila, you're witnessing this same phenomenon [unclear] - the emergence of hybrids is living urban development. 138 00:21:06.060 --> 00:21:16.300 Then there's also probably a phenomenon where, when you build tall buildings, and if hundreds of apartments come into it, the pre-bookings for them can, in a way, be [unclear]. 139 00:21:16.430 --> 00:21:26.430 In a country the size of Finland it's difficult to get, say, three to four hundred apartments [unclear], so there's also a pragmatic starting point that hybrids come in there with apartments around them. 140 00:21:26.430 --> 00:21:35.430 Right, and it's no longer the street-level shops that get the sales - isn't street-level retail a bit dying out, with shopping centers grabbing that space? 141 00:21:35.430 --> 00:21:43.430 It's a bit of a shame - actually, close to where I live, it's actually quite good that there isn't a shopping center there. 142 00:21:43.430 --> 00:21:53.430 Yeah, it's of course a bit of a shame, since those street-level shops create, like, small-scale entrepreneurship, and they create, like, vibrancy 143 00:21:53.430 --> 00:22:07.430 but we wouldn't quite, like, declare it entirely dead, because we also have, like, phenomena where some operators have, like, been trying to get, for example, grocery retail closer to people 144 00:22:07.430 --> 00:22:14.030 bringing back the corner shop and the neighborhood store, and the needle can, so to speak, swing a bit either way. 145 00:22:14.030 --> 00:22:21.030 How about then B2B negotiation, B2C negotiation - meaning Business to Business and Business to Customer, 146 00:22:21.030 --> 00:22:27.430 but then B2G, meaning the zoning authority - is the zoning authority a bit more reasonable now? 147 00:22:27.585 --> 00:22:36.585 Have they, in a way, become wiser on their own, or are there still flying squirrels and parking-space minimums and other such hassle to be found? 148 00:22:36.585 --> 00:22:50.585 The traditional setup is that there's the money-hungry builder, and the zoning authority that looks at broader urban development. 149 00:22:50.585 --> 00:22:54.905 and both have their own justified points of view. 150 00:22:54.905 --> 00:23:07.785 Within the RAKLI industry association I've done a lot of work around this topic and tried to gather this together, and I was chairman of a community-infrastructure steering group for about four years, 151 00:23:07.785 --> 00:23:19.105 and during that time we produced discussion papers together with a large group that includes zoning authorities, investors, and builders, and tried to find, for example, questions like, 152 00:23:19.105 --> 00:23:29.105 the cost impacts of zoning requirements, quantitative material, and ways of how they can be handled. 153 00:23:30.315 --> 00:23:38.015 if you want to build a lot of parking spaces into a building and be able to price them, how much do they affect the rent? 154 00:23:38.015 --> 00:23:45.715 Or if you want large clubrooms or intricate facades, what effect do they have on your price or rent? 155 00:23:45.715 --> 00:24:00.115 Is it customer-driven, resident-driven - does anyone actually want to pay for those - trying to find this kind of discussion where both the building's features and the costs are on the table together? 156 00:24:00.115 --> 00:24:12.515 What about when urbanization proceeds really unequally - there's 'congestion Finland' and the metropolitan areas that Finland has, and then there's, in a way, a dying and aging Finland, 157 00:24:12.515 --> 00:24:20.515 has the zoning authority's behavior changed there, in a way, in that 'falling knife' area, where the price per square meter might drop and stay down? 158 00:24:20.625 --> 00:24:23.225 um, apartments standing empty, and they get demolished. 159 00:24:23.225 --> 00:24:26.625 I mean, like, the challenge is completely, like, the opposite. 160 00:24:26.625 --> 00:24:27.125 Okay. 161 00:24:27.125 --> 00:24:35.125 If we're, like, in the capital region, or, um, then last autumn there was an opportunity 162 00:24:35.125 --> 00:24:40.625 to go meet, like, the municipal directors of six municipalities in one somewhat declining area, so 163 00:24:40.625 --> 00:24:47.625 those challenges are as totally different as they can be, and there's no single same solution for them, but for them 164 00:24:47.625 --> 00:25:17.625 you should really go looking for a solution from that place's own characteristics, but then if we're in a locality where, if I put it a bit bluntly, there are more summer cottages than people, and summer cottages aren't quite as mainstream anymore as they used to be, then the equation isn't easy - in the long run it can't be based on anything other than that some kind of [unclear] needs to emerge there for it, 165 00:25:17.625 --> 00:25:27.625 entrepreneurship. Nothing else lifts that area. Efforts there should be aimed at those things. 166 00:25:27.625 --> 00:25:30.625 This is then in places like Helsinki and 167 00:25:30.625 --> 00:25:39.125 the capital region, which has grown faster and where the number of single-person households has grown faster than ever believed. 168 00:25:39.125 --> 00:25:48.625 Here, the focus should instead be on getting zoned plot land out as quickly as possible, so that housing supply can get out. 169 00:25:48.625 --> 00:25:51.625 Those challenges are very different. 170 00:25:51.625 --> 00:26:11.625 Public authority is also behind everything, partly. There are certain kinds of liabilities that can be triggered, and then there's housing benefit and so on, and, in a way, this state liability tied to the real estate stock. 171 00:26:11.625 --> 00:26:20.625 Some have even half-seriously floated the idea that the state should step in, so there'd be a price floor for apartments, which right now is pure [unclear]. 172 00:26:20.625 --> 00:26:27.625 But isn't there still, after all, this kind of potential bomb that could go off? 173 00:26:27.625 --> 00:26:41.525 Yeah, if we go into this role of the state, this is somehow such a quintessentially Finnish way - that when there's some problem somewhere, the solution is that 174 00:26:41.585 --> 00:26:43.585 someone plugs it up. 175 00:26:43.585 --> 00:26:49.585 It's like, if you carry it all the way through, it's an endless [unclear]. 176 00:26:49.585 --> 00:26:51.585 Nothing can withstand that. 177 00:26:51.585 --> 00:26:56.585 And now, Finnish rental apartments. 178 00:26:56.585 --> 00:26:58.585 We have 800,000 rental apartments. 179 00:26:58.585 --> 00:27:07.585 Half of them are apartments built with state interest-subsidized loans, which are mainly owned by, that is, municipally owned companies. 180 00:27:07.585 --> 00:27:22.585 That creates a peculiar situation - if we start again from the plot, the municipality, meaning us as taxpayers, hand over a plot at half price to someone, so that's the first subsidy 181 00:27:22.585 --> 00:27:29.585 Then when construction starts, the state throws in a start-up grant, that's the second subsidy 182 00:27:29.585 --> 00:27:37.585 Then it's financed almost entirely with a state-guaranteed loan, that's the third subsidy 183 00:27:37.585 --> 00:27:47.585 Then when tenants eventually move in, municipal housing benefit or the equivalent comes into that role, that's the fourth subsidy 184 00:27:47.585 --> 00:27:51.585 Then when it needs to be renovated, a renovation grant comes in, that's the fifth subsidy 185 00:27:51.585 --> 00:27:53.585 and, in a way, this 186 00:27:53.820 --> 00:28:07.820 This leads to there being a massively large body of housing where the risk of ownership and enterprise has actually shifted to municipalities and the state. 187 00:28:07.820 --> 00:28:20.820 And I think that if you add up all these subsidies and then look at putting them on top of the cost of that subsidized housing, it might turn out to be the most expensive housing of all. 188 00:28:20.820 --> 00:28:31.820 The City of Helsinki should, for example, immediately sell half of the apartments it owns onto the market and use that money for something completely different instead. 189 00:28:31.820 --> 00:28:34.820 The City of Helsinki is, after the state, Finland's biggest residential investor. 190 00:28:34.820 --> 00:28:38.820 Yeah, as long as it's not at least put toward [unclear] expenses. 191 00:28:38.820 --> 00:28:44.820 Well, into something - say half into [unclear] expenses and half into something else. 192 00:28:44.820 --> 00:28:59.820 That too, in a way - whether you're on a city leasehold plot versus your own plot - there's become quite a big game around that in Helsinki, wanting to monetize that leasehold plot a bit. That probably changes these Excel models quite a lot. 193 00:29:02.765 --> 00:29:10.765 I think it's entirely right that the city tries to get fair compensation when it transfers its property. 194 00:29:10.765 --> 00:29:13.765 That is, market-based compensation. 195 00:29:13.765 --> 00:29:18.765 It would be good in the sense that it would apply across the board. 196 00:29:18.765 --> 00:29:21.765 No one should be favored. 197 00:29:21.765 --> 00:29:31.765 No one should be favored this way, whether in the transfer of plots or in selling zoning-designated commercial premises to someone. 198 00:29:31.765 --> 00:29:35.765 There are a lot of these hidden elements in it. 199 00:29:35.765 --> 00:29:40.765 Yeah. Then a bit more about that time value. 200 00:29:40.765 --> 00:29:46.765 I was - not the most glorious period in my career, but I was at Royal Bank of Scotland for a time. 201 00:29:46.765 --> 00:29:52.765 It owned a [unclear], probably still owns it, which Nordea used to own at one time. 202 00:29:52.765 --> 00:29:59.765 There I sometimes looked at the structures that were offered, in a way, as financing for some headquarters-type properties. 203 00:29:59.765 --> 00:30:01.765 [unclear] 204 00:30:02.050 --> 00:30:05.750 The DNA headquarters, for example, was financed with something like that. 205 00:30:05.750 --> 00:30:11.950 What stuck with me was that first there was this kind of triple-net structure, where, in a way, there was 206 00:30:11.950 --> 00:30:17.250 the tenant in the property arranged all its services itself. 207 00:30:17.250 --> 00:30:21.950 But then what I found really interesting there was the residual value, because there were two philosophies to it. 208 00:30:21.950 --> 00:30:27.150 One is, in a way, that you just do - whether it's now a [unclear] or you sell 209 00:30:27.150 --> 00:30:31.950 the property to that bank or financier, and then there's that 210 00:30:31.950 --> 00:31:01.950 [unclear] 211 00:31:01.950 --> 00:31:06.350 view among different players regarding that end value, and with that some take that too. 212 00:31:06.440 --> 00:31:11.440 A pessimistic view of who could come into it after that. 213 00:31:11.440 --> 00:31:25.440 Yeah, that's, in a way, exactly about that cash flow and the arrangement of that risk, in that in traditional leasing, if I'm the landlord and you're the tenant, you pay me rent, but I handle everything related to it. 214 00:31:25.440 --> 00:31:34.440 The upkeep costs - if something needs fixing, I handle it, and then I also carry the risk that if you one day leave, then what do I do with that building. 215 00:31:34.440 --> 00:31:58.440 Finland's growth company, property development, tenant, property development, tenant, investor 216 00:31:58.850 --> 00:32:03.050 Then it's fairly cheap that it still works, but... 217 00:32:03.050 --> 00:32:14.010 Then it's more a question of whether I can get cheaper financing in this case than [unclear]. 218 00:32:14.010 --> 00:32:24.890 But when you've watched those - some headquarters is supposedly sold and later it gets pulled off again at an even bigger price to renew it - so somehow that residual value too can be a good play for those tenants. 219 00:32:24.890 --> 00:32:39.890 Residual value is hugely important in hard-nosed calculations, because even by the old rule of thumb, even if you take ten years of cash flows, there's still about half of the total value left as residual value. How that's handled is [unclear]. 220 00:32:39.890 --> 00:33:09.490 Yeah, that's generally, in a way, a negotiation technique too - that you have, in a way, a service period, say you lease some device, three years for a laptop say, and then a lot of people don't actually return that laptop to the seller but continue with that service agreement, and that's maybe already factored in, that the provider is calculating it as fully amortized, so again if you flip the game around, that time value is hugely important there and 221 00:33:09.690 --> 00:33:36.090 Maybe then, quickly going back to the private individual's side - what kinds of tricks, in a way, can now be used to get that apartment's price or value up - are there any general rules of mine just for that, so that if someone watching this is now thinking about selling their apartment, or an apartment purchase, what holds its value, would there be some wisdom on that? 222 00:33:36.090 --> 00:34:02.090 I'll actually dodge this question by recommending you watch Sami's Helsinki apartment presentation video, in which he anchored to certain price levels and created certain added value and smoothed the deal-making with various process promises. 223 00:34:02.090 --> 00:34:05.810 Yeah, I'll put a link to that video so you can go watch it. 224 00:34:05.810 --> 00:34:10.930 That was really like the talk of a professional. 225 00:34:10.930 --> 00:34:17.810 Yeah, thanks. Then maybe, moving to those negotiation challenges for growth entrepreneurs. 226 00:34:17.850 --> 00:34:47.850 briefly, the stock market wants companies that grow and then become profitable, or at least turn into that, and then in this growth-entrepreneur program many had this kind of problem, at least it seemed to be, that you have to sell - this ownership, at least partly, first - in order to put it on the exchange, so fairly similar challenges for pretty much everyone, but if we just jumped straight into this IPO listing, 227 00:34:47.850 --> 00:34:57.850 and their listing was done quite innovatively, wasn't it - tell us first how Investors House became a listed company. 228 00:34:57.950 --> 00:35:12.950 Investors House has two roots. One is the Investors House founded in 2009, which started developing residential apartment buildings and offering them to investors. 229 00:35:12.950 --> 00:35:20.950 The other root is SSK, Suomen Säästäjien Kiinteistöt, which was listed in 1898. 230 00:35:20.950 --> 00:35:31.950 it turned a full 30 years, and in 2004-2001 a group of the three of us acquired a majority in this SSK, 231 00:35:31.950 --> 00:35:40.950 we started developing its operations, expanding it, and as one part then merged this with the Investors House I had founded 232 00:35:40.950 --> 00:35:47.870 operations, in 2015, into this SSK, and in that connection its name was also changed to Investors House. 233 00:35:47.870 --> 00:35:55.190 Since the start of 2015 we've now grown very strongly and taken 234 00:35:55.190 --> 00:35:59.590 this combined entity forward in such a way that its results - and again it has grown a great deal. 235 00:35:59.590 --> 00:36:06.710 And then now we have this whole value spectrum, so this is our stock-market story. 236 00:36:06.710 --> 00:36:07.950 On the other hand, we have thirty 237 00:36:07.950 --> 00:36:15.950 years of stock-market history, but then through this merger five years ago, we started a kind of new phase. 238 00:36:15.950 --> 00:36:22.950 Is that, by the way, a wordplay - 'House Investors' backwards - or where did it come from? 239 00:36:22.950 --> 00:36:31.950 Well, the name Investors House originally came about in the summer of 2009 - we were thinking about this business idea, which we had tested a couple of times before, 240 00:36:31.950 --> 00:36:36.950 but hadn't made it to market, and then it looked like now we'd get there, so we wanted to go with it. 241 00:36:36.950 --> 00:36:44.950 to a club and group related to investing. 242 00:36:44.950 --> 00:36:52.950 Then we found this kind of formation and shortened it further to IWH. 243 00:36:52.950 --> 00:36:56.950 We tried to think what would be close to IFK, but we didn't get there. 244 00:36:56.950 --> 00:37:00.950 So we got IWH, and we made a spelling mistake on purpose. 245 00:37:00.950 --> 00:37:04.950 Tappara, by the way, is actually the right answer - aren't you also from Tampere? 246 00:37:04.950 --> 00:37:11.950 I've lived in Tampere for five-ish years, and I don't know - this question always comes up, which one, and you have to answer it. 247 00:37:17.040 --> 00:37:29.040 about the use of advisors. There I nearly became an unpopular advisor in the IPO program, because I preached there about keeping cost discipline and keeping advisory costs in check. 248 00:37:29.040 --> 00:37:34.040 Do you use advisors when buying or selling? 249 00:37:34.040 --> 00:37:45.040 Yeah, so we've tried to think about it in such a way that we ourselves should be able to do those somewhat routine-like things. 250 00:37:45.040 --> 00:38:01.040 and you have to do them once so you learn them. And then again we try to use advisors in situations where value can be created, since good advisors are always worth their fee. 251 00:38:01.040 --> 00:38:22.040 and that's how we've tried to think about it. Somehow, from this topic of the stock exchange and growth companies and around the program, this connects a bit to the anchoring theme too, where it's also discussed - going public is very often linked 252 00:38:22.410 --> 00:38:32.410 to access to capital, and that's of course hugely important, that the stock market is a channel through which you can raise equity and then again take on debt and grow. 253 00:38:32.410 --> 00:38:45.410 But in a way, I think during this program - and otherwise too - it crystallized that, for the entrepreneur who's considering going public, that capital is also available elsewhere. 254 00:38:45.410 --> 00:39:15.410 [unclear] 255 00:39:15.410 --> 00:39:33.990 [unclear] 256 00:39:33.990 --> 00:39:47.430 among other observations, there's often, in a way, a kind of prison-like shareholder agreement and the original founding team, because they can't, in a way, get away from each other even if they'd want to, and then you have to work together, and some of them don't really fit into that, and it turns into drama. 257 00:39:47.430 --> 00:40:01.430 It's worked at some point, people's lives have changed, the world has changed - the stock market has this good side, and then it also has, in a way, certain other dimensions, 258 00:40:01.430 --> 00:40:19.070 it often opens up many other financing channels as well, and then further, a listed company is, from the perspective of stakeholders - customers, suppliers, and partners - 259 00:40:19.070 --> 00:40:27.030 it's transparent, credible, reliable, it also produces a lot of that kind of added value 260 00:40:27.030 --> 00:40:30.030 Some of it - family businesses 261 00:40:30.215 --> 00:41:00.215 [unclear] 262 00:41:00.215 --> 00:41:15.215 companies that have, in some way, succeeded in combining a strong anchor-investor role with being a listed company - among listed companies they've done quite well by pretty much every metric. 263 00:41:15.215 --> 00:41:22.215 Maybe such a combination is possible in some form. 264 00:41:22.215 --> 00:41:26.215 Yeah, wasn't your first book something about entrepreneurial ownership? 265 00:41:26.215 --> 00:41:28.215 Yeah, it dealt specifically with that. 266 00:41:28.215 --> 00:41:31.215 Siilasmaa [unclear] there, saying that ownership... 267 00:41:31.725 --> 00:41:39.325 is, in a way, a philosophy where it could be pretty much any employee - even if they don't own a single Nokia share, 268 00:41:39.325 --> 00:41:45.325 they might still take ownership of the matter, and that culture of ownership drives things a great deal. 269 00:41:45.325 --> 00:41:50.725 When he had founded F-Secure, there he was an extreme owner, with tight control, 270 00:41:50.725 --> 00:41:55.125 and then all the incentives there were set cleverly, even down to leaky roofs there. 271 00:41:55.125 --> 00:42:07.525 that kind of feeling of ownership and that feeling of being involved, and the fact that, if the whole group shares it, personnel funds might fit quite well into that. 272 00:42:07.525 --> 00:42:16.125 and now at Investors House, something like that was introduced about two years ago, in the second year that is, 273 00:42:16.125 --> 00:42:27.125 a personnel fund, and now there are the first experiences with it, and yes, it does increase that interest toward the employer, 274 00:42:27.125 --> 00:42:36.125 but then, on the other hand, it also distributes that profit to everyone, so in that sense it also, to some extent, aligns the shareholder's 275 00:42:36.125 --> 00:42:43.125 and employees'/staff's interests. Not a bad thing at all these days. 276 00:42:43.505 --> 00:43:12.305 That reminds me. My master's thesis topic, back then, was the use of options as a compensation method, [unclear], where, by the way, I studied under Holmström for the first time - agency-principal theories were being developed there, where you get this interest aligned in the same direction, and that can often break down in too large a company - these incentives - and people, in a way, start building their own internal power positions instead of moving in the same direction. 277 00:43:12.305 --> 00:43:15.305 that kind of thing keeps getting more complex all the time 278 00:43:15.305 --> 00:43:30.305 Yeah, maybe those negotiation levels in a listed company - there are governance structures, there are owners, shareholders, and maybe then some big anchor owners, and then there's the board, which is, so to speak, their workhorse, and in particular 279 00:43:30.305 --> 00:43:39.305 the board's chairman, the CEO, the management team, and all the employees there in the company. 280 00:43:39.305 --> 00:43:46.305 When negotiating there, of course on the public market you have to negotiate according to insider-trading rules, 281 00:43:46.305 --> 00:43:53.200 so that discussions are held only on the basis of public information. 282 00:43:53.200 --> 00:44:22.600 This negotiation - when you said there aren't really that many listed companies, so in a way you're probably negotiating more from a public company outward, not toward a public company, so that's maybe a bit easier, but of course when you have to share that value position in order to get long-term contracts, how do you, in a way, handle that public company's obligation to use only public information versus then unlisted companies, 283 00:44:22.600 --> 00:44:25.600 at least there's a small risk that it could betray trust beforehand. 284 00:44:25.600 --> 00:44:30.600 Yeah, so, like, it's very precisely defined there 285 00:44:30.600 --> 00:44:35.600 and, sort of, this, like, the material-event moment is this kind of 286 00:44:35.600 --> 00:44:39.600 like, the definition of when inside information arises 287 00:44:39.600 --> 00:44:43.600 and, a few years back from now, it, in a way, moved noticeably earlier 288 00:44:43.600 --> 00:44:48.600 and there are, like, very precise definitions of how it's done 289 00:44:48.600 --> 00:45:03.080 Then you set up various project registers and confidentiality agreements and things like that, which form the basis so that you can proceed after a certain point, and then if, like, 290 00:45:03.210 --> 00:45:11.210 If the matter reaches completion, then it's disclosed and it dissolves. If it doesn't reach completion, then it's dismantled. 291 00:45:11.210 --> 00:45:18.210 It's hugely important that it's a process that happens in a coordinated way. 292 00:45:18.210 --> 00:45:23.210 Fundamentally, all those levels need to move in the same direction - I thought there was a fun example, 293 00:45:23.210 --> 00:45:31.210 that Juho Lipsanen said - he had heard it from [unclear], this kind of Swedish ABB CEO, 294 00:45:31.210 --> 00:45:36.210 that when he was working there, he had learned this kind of charm-offensive strategy. 295 00:45:36.210 --> 00:45:41.210 He said that at its best there were 12 levels coordinated, and communication, 296 00:45:41.210 --> 00:45:47.210 that they would go, say, to charm some customer with everything from the driver up to that [unclear]. 297 00:45:47.210 --> 00:45:53.210 all the way up, twelve levels sent the same message to that negotiating partner, that 298 00:45:53.210 --> 00:45:59.210 That's, in a way, maybe here finally about that negotiation-team dynamic, that 299 00:45:59.210 --> 00:46:03.210 maybe the greatest wisdom - maybe that anchoring is the most important thing, but 300 00:46:03.210 --> 00:46:09.210 then this team matter - many waste a huge amount of potential because they don't coordinate at all 301 00:46:09.210 --> 00:46:13.210 or assign any kind of roles to that team, so that 302 00:46:13.880 --> 00:46:43.880 a quick recommendation on that, by the way, I think, is that if you have, say, a three-person team, then the lively value-creating negotiator, who looks for those time-dimension packages, maybe splitting deals and customer opportunities, is the lead negotiator and creates that kind of creative value; then you have a certain kind of quiet decision-maker, who's usually the one whose position is set at least the highest, so that from there, say 303 00:46:43.880 --> 00:46:50.880 too much of a hand, maybe, into the flow of that negotiation, and then there's a really important role like an observer-recorder. 304 00:46:50.880 --> 00:46:56.880 A scribe who observes the other side's reactions to your packages and takes notes. 305 00:46:56.880 --> 00:47:00.880 But you often notice that people go in loose/unprepared and nobody really coordinates anything. 306 00:47:00.880 --> 00:47:06.880 Have you thought about this team dynamic yourself when you go into a negotiation? 307 00:47:06.880 --> 00:47:11.880 Well yeah, I mean I easily recognize that kind of... 308 00:47:12.360 --> 00:47:21.360 ...situation where you go into negotiations too lightly. Whether they're bigger or smaller. 309 00:47:21.360 --> 00:47:32.360 I've tried to think about it this way, whether it's a bigger or smaller negotiation you're going into. 310 00:47:32.360 --> 00:47:39.360 At the very least, what you should do is figure out what happens after that meeting. 311 00:47:39.360 --> 00:47:48.360 and then above all, perhaps, what the alternative outcomes of that negotiation are 312 00:47:48.360 --> 00:47:54.360 whether you go in that direction, or that direction, or that direction, if that's even seen in advance 313 00:47:54.360 --> 00:48:02.360 but I think that very often in Finnish culture people go into meetings sort of to see what happens there 314 00:48:02.360 --> 00:48:08.360 this might sound a bit dumb, but I think it's more common than we believe 315 00:48:08.360 --> 00:48:14.360 because those who conduct negotiations are often quite busy, and so on. 316 00:48:15.045 --> 00:48:29.045 preparation can be a bit weaker, and in the end probably fairly little thought is given to very elaborate role assignments beyond what comes about somewhat naturally. 317 00:48:29.045 --> 00:48:39.045 That's a hugely important point, that reminds me that with [unclear] we've developed this negotiation plan, or negotiation dialogue. 318 00:48:39.045 --> 00:48:55.045 In a way, that preparation before the negotiation. Just simply that you put an agenda in the email - that these three things will be discussed - and you calibrate a bit how the positions are before [unclear], so we don't go in completely cold. 319 00:48:55.045 --> 00:48:57.045 Simple things are important things. 320 00:49:20.735 --> 00:49:29.735 You can't precisely plan any creative process, but you should, like, sort of map out the inputs and outputs a bit, so that... 321 00:49:29.735 --> 00:49:42.735 Yeah, good point. I think we've managed to map out pretty well both real estate world negotiations here, and this is a bit of a [unclear] podcast, since I'm just starting out here now. 322 00:49:42.735 --> 00:49:50.735 and now the jingle should have kicked in, so music should be coming here, and thanks for all this feedback. 323 00:49:50.735 --> 00:49:59.735 Then I'd hope you'd give tips on good negotiators - since real estate and housing are Finns' biggest source of wealth, 324 00:49:59.735 --> 00:50:05.735 then one will be shares, which are unfortunately a small share of our wealth, 325 00:50:05.735 --> 00:50:10.735 but on that front Martin Paasi from Rahapodi will [unclear] be coming. 326 00:50:11.385 --> 00:50:18.385 I'd hope for tips from you too on this. I don't know - does a good person from your field come to mind who could be interviewed? 327 00:50:18.385 --> 00:50:20.385 [unclear] might be pretty fun, maybe. 328 00:50:20.385 --> 00:50:26.385 [unclear] is really skilled. I'm wondering if maybe from there... 329 00:50:26.385 --> 00:50:30.385 Or then maybe some zoning guru from the public sector could work too. 330 00:50:30.385 --> 00:50:35.385 That could work too. If I take a bit of time and think about it, I'll get back to this. 331 00:50:35.385 --> 00:50:40.385 Yeah, but thanks for this, and I think this will generate questions. 332 00:50:40.385 --> 00:50:58.385 So hey, put your questions in that feed and subscribe, and this is an interactive thing, and also whether this works - meaning this five-minute anchoring example and then, like, an expert interview - I'd like to hear whether you think that's a good idea for a format. 333 00:50:58.385 --> 00:51:08.385 But indeed, this has been the Negotiator channel, and I'm Sami Miettinen, and we'll continue with negotiations later. Thanks. 334 00:51:08.385 --> 00:51:09.385 Thanks.