The Dealmakers’ Edge with A.Y. Strauss

Empathy and Leadership in Real Estate with Stephen Bittel, Founder and Chairman at Terranova Corporation

• A.Y. Strauss • Season 1 • Episode 53

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In this episode of The Dealmaker’s Edge, Aaron Strauss is joined by Stephen Bittel, founder and chairman of Terranova Corporation. With over four decades of experience, Stephen shares his remarkable journey in real estate and offers insights on leadership, market strategy, and the importance of empathy in business.

From his early days in Miami to managing an investment portfolio of over $1 billion, Stephen reflects on the lessons he’s learned while building one of South Florida’s leading commercial real estate firms. He delves into the value of cash flow, adapting to market cycles, and how aligning interests with partners leads to lasting success. Beyond business, Stephen discusses his commitment to giving back and the joy he finds in family and community.

Key Takeaways:

·         Success requires perseverance and a strong work ethic.

·         Empathy and community service are integral to leadership.

·         Building a loyal team is essential for long-term success.

·         Adaptability and timing are critical in real estate investments.

Enjoy the show? Have a guest in mind? Email us at podcast@aystrauss.com to let us know your feedback and who you want to hear on the next episode.

Connect with Aaron and the A.Y. Strauss team:

Aaron Strauss: Alright, welcome to the Dealmaker's Edge, everyone. Today, we're really excited to be joined by the one and only Stephen Bittel, founder and chairman of Terranova Corporation, a leading commercial real estate firm based in Miami that firm manages an investment portfolio of over one billion in assets. Stephen is a prominent figure in U .S. real estate and a pillar of the Miami community. He launched Terranova after a brief career in law, driven by his passion for commercial real estate. Over the years, he has built the firm into a powerhouse, overseeing a diverse portfolio of assets that have shaped the commercial landscape in South Florida. And a lot more we'll learn too. Beyond his business, Stephen has dedicated time to community service, serving on numerous boards such as Miami-Dade Expressway Authority, Achieve Miami, and Fairchild Tropical Botanical Gardens. Stephen, I know you're super busy, so we're really thankful for you taking the time to join us today on the Dealmakers’ Edge. Welcome.

 

Stephen Bittel: Thank you, Aaron. And my legal career was limited to limping through law school and barely graduating. 

 

Aaron Strauss: Yeah, because at the time you were also juggling real estate business. So you had more than enough of the excuse. And you were an economics major in college too, but maybe we even step further back. I know you grew up in Miami, so you're a native son. Maybe you could talk about from those early years all the way to college, how you got through that part of your life, how you enjoyed that part and kind of the ideals that shaped you to sort of launch in your business career. 

 

Stephen Bittel: Well, first I was born in our public hospital Jackson Memorial that I remain quite engaged with and I'm a product of our public school system one through 12 in an era when we had no air conditioning in our public schools, which of course everyone finds astonishing, but we, I don't recall it ever being a problem. Clearly the bedrock of me as a person. I really had an idyllic growing up two wonderful parents. My dad was uniquely brilliant. And my mom, while smart, had incredible social skills. I'm not as smart as my dad was, or as social as my mom who remains alive was. But the real secret is, is, you know, I was a classic grinder and outwork everyone. And of course, you know, I have an older brother and a younger sister. So I have all the middle child syndromes of having to do more.

 

Aaron Strauss: And be diplomatic and negotiate deals, I'm sure. But from there, you decided to go to the Northeast for college. And what made you decide to go where you did and

study economics? You like the freezing cold? Is that it? 

 

Stephen Bittel: The joke is that I took the wrong flight, but my dad had been a professor of debate at Tufts and was uniquely impressed with the reasoning and communication skills of competitors from traditional New England liberal arts colleges. So I applied to a bunch, I got into them all, and had this magical tour of Bowdoin where the tour guide who was of course much taller and more handsome and had buckskin gloves and I was very impressed but he talked about the Bowdoin experience as though it was this mystical

state of higher being that you could only know if you went and so I did and my

sister two years after me and my son in 2010. 

 

Aaron Strauss: Amazing so it was, and you studied economics, and I know you did quite well in that major. We've talked about how that helps shape your overall business perspective and approach. And you also went abroad. Maybe you can describe some of that. 

 

Stephen Bittel: Well, you know, an undergraduate degree in economics at Bowdoin was probably better than a master's in most places. And I left twice and worked at the Congressional Budget Office in D.C, which was my first computer experience. You know, I was way ahead of my time. Of course, today I'm way behind my time in that I don't know how to use Word or Excel, but I can read the outputs. As a senior, the president of the college invited me in to visit. You know, back then you didn't get an email. You got a little pink slip in a mailbox with dials. Of course, I was terrified, thinking I must have done something awfully wrong that I was unaware of. But he came in and they said they'd like to nominate me for a Rhodes, a Marshall, and a Watson. I had had a really good undergraduate academic career and played a sport, so somehow I fooled another one. And anyway, I accepted the Watson Fellowship and spent a year in Europe requiring no classroom work and I had been really a classic tool grinding away, so I was ready for a break and I met my bride there in Paris in my first month.

 

Aaron Strauss: Amazing, that's like a win-win-win. 

 

Stephen Bittel: Most days she thinks it's a win – not every day though. 

 

Aaron Strauss:  Then you decided to go to law school, but while you were in law school you also decided to work in commercial real estate and I guess that became so successful that eventually you decided just to focus and pinpoint your career specifically on the business side 

 

Stephen Bittel:  So I applied to law school while I was away. I got into some fancier names. Miami offered me a scholarship. I had a sister in medical, starting medical school about the same time. So, you know, my dad was really wonderful and said, “go where you wanna go”. If you wanna be in business, you should go to Miami. And if you wanna practice law, you should go to Columbia. That was the decision. I went to Miami, I had written an article that was published in the South Florida equivalent of Cranes that I mailed in handwritten every other week. So I got back and I was offered a bunch of jobs right away. I spoke at a lot of conferences in Europe and was a consultant for the Department of Agriculture studies on foreign investment in U.S. real estate and primarily farmland and I took a job at another real estate company right before starting law school. I did both simultaneously my first year. Of course, I got terrible grades and lost my scholarship. The first and only person in the history of this scholarship program to have ever lost it, that's a great distinction. In the fall of my second year of law school, I started Terranova after the firm I had been offered to trade my salary for commission only. I started law school thinking a square foot was a birth defect and later learned more at the end of 14 months, I was generating my own opportunities and placing them. So I recklessly went on my own in the fall of my second year of law school, you know, months before my March wedding.

 

Aaron Strauss:  I think that scholarship is still waiting for you, Stephen, to adhere to its terms. But all kidding aside, it seems like you made a great decision. You followed your passion and your heart and you're clearly really good at what you do. So maybe we'll jump ahead a little bit. I mean, it's been over 45 years now and running your own shop. And I know Terranova is not the only thing you do besides all the other work. You've other companies you're involved with and sit on boards and invested in. But I was taken by a lot of your kind of philosophy. I mean, I know you have gone through a lot of markets and a lot of cycles and clearly where you've invested is very hot today, but it wasn't always. So I think I quote you from somewhere. I think you mentioned, “Laser like attention to cash flow and balance sheet, surviving market cycles, but also in those downturns to be aggressive and seize opportunities when other people may be kind of caught off guard”.  And I think that's sort of been a consistent theme in your career, has it not?

 

Stephen Bittel: Yeah, I mean, Warren Buffett had this comment that I'll get it wrong, but the paraphrase was “Be greedy when people are scared and scared when people are greedy.” You know, I was completely ill prepared for the first downturn in the late 80s.

I was inexperienced, undercapitalized, and, and paid a price. And, you know, I swore to myself that if I ever survived, that I was going to do it with a lot less leverage the next time around and I did. After that first shocking era of standing on the cliff and looking down, I did it differently. We built a huge third-party management leasing business. It generated significant cash flow. It gave us a great vision into the market and a broad geography, access to tenants, relationships with institutions. Really not planned. We were just trying to survive, but it was really good. We took the profit and started quietly buying again. That business was built out. It did management leasing, construction management, tenant rep, mortgage bridge and it was great. Eventually our portfolio was big enough and

our current president Mindy McIlroy wanted to urged me to get out of the third -party business and focus on our own portfolio because she said one good equity deal every five years made so much more money than the fee business and she was right and of course the tax consequences were better. So, you know, I'm always teased locally that my timing is good, and that goes back to my economics degree about supplying demand both from tenant’s point of view, from investor appetite, and from on monetary policy. So we've had relatively good fortune in selecting the right time to go long on debt or exit certain assets or by others and that's kind of been the score but you know it's, it's been a lifetime of getting up early staying up late reading everything and trying to be the best informed investor I can be. 

 

Aaron Strauss: No well said I know you really focus on knowledge every day which is I think a key theme for every successful investor. You hit on that long-term equity strategy, you know, transitioning from third party, from cash flow to long-term equity. And if you look at your stable roster of partners you've had, it reads like a who-who, who's who rather, of the institutional world. So clearly people align with your long-term philosophy and your style and approach to business. And I think one of the things I've read you push back on is there's a tendency from a lot of sponsors, not investing their own capital, right? You need to, and I think you're a big proponent of making sure your capital is aligned with your partners, make money together, not just from each other. 

 

Stephen Bittel: One of my long -term favorite lines. I haven't used it since in New York on Tuesday. 

 

Aaron Strauss: Yeah, but it's absolutely true. I think people can kind of very quickly understand if somebody's fee -driven or long-term equity driven and you put your money where your mouth is and how you style and fashion your deals. And also where the profit sharing occurs, you know, as you're doing a transaction, you can make regular payments through the course of that lifecycle of investment or just have the portfolio sort of churn out the partner GP promotes. And I think you really focused on that cash flow but also aligning the interests. If that's something that's been your mantra from day one or have you kind of evolved to that over time?

 

Stephen Bittel: I mean, I always thought we should have aligned interests. I think I've done a lot better job over certainly the last 25 years of making sure our interests were aligned. You know, when I started I didn't have anything to invest. Our first big institutional partner was principal and they said they wanted, you know, after doing a lot of workouts for them, they said, let's start buying and we should do it together. And I said, that's great, but I don't have any money. So, you know, they gave me the initial deals where I got a 10% profit share over a 10 IRR, which of course sounds a tough hurdle today, but, you know, we bought at higher yields back then. And after several of those deals, then they said, they knew what I was making. You know, we had had the round trip and it exited and they said, "I should start co-investing." And I did. And the initial investments, there was a million dollars in every deal. The head of their RISA fund, now their US property fund moved over to what became BlackRock Real Estate. And after doing several deals with them, he promised to make me a better deal. And he said he was to wind down the principal relationship as he wound up the BlackRock one. And we did, and it was good. And one of the big bosses there said, the CEO said, “So explain to me why you put a million dollars in every deal”. I said, “Oh, that's very easy, that's so can I can remember how much I have in every deal”. He laughed and said, “Really?” I said, “Really”. Look, I can't do that anymore. In most of our transactions today, save one, I am the, you know, I and my family, we're the largest investors in the deal. And we did that for a few reasons. One, we really loved the deal. We wanted more of it. Two, it enabled us to get similar economics with less work 'cause we could do fewer transactions and have bigger pieces. Bad news is, when additional capital is needed, we get to write that check with everyone else and ours is always the biggest but certainly finding investors is a lot easier when you're eating your own cooking. 

 

Aaron Strauss: 100% and you learned that the hard way and you built it up and you built that integrity and you've done right long term and that really shows. I know this is a real estate focused podcast and we're focusing on the real estate portfolio but I know you've also been involved in other companies and other businesses, maybe you can touch on that

and how you've managed to balance all these different competing interests in your

life. Forget about even personal or all the charitable work you're doing, but just

on the business side.

 

Stephen Bittel:  Oh, look, the best balance in my life is, I have four grandchildren now. So, you know, I will be home at 5:30 tonight for dinner with two of my grandchildren. That's the best, you know, you got another chance to do a better job than you did as a parent. That's super important to me in a way that I never imagined I would get to. Love of your grandchildren is so much easier than loving your children. So that's one. So yes, in '96, Lehman Brothers provided us a $300 million line of credit, which was a lot of money back then. It's a lot of money today, but probably over a billion today. It was 100% advanced rate acquisition line to do sale leasebacks in the gas station industry. Went great for a while until it didn't go great. The debt in that sector stopped performing. I got to fire most of our team and we went into the asset management mode, a ton of litigation. It ended up over the years that we owned the gas stations. We today are the operators. We are the fuel distributors. I bought out all the other partners and paid off Lehman at par well after their bankruptcy. So It's a great business for us. We have today. Similarly, we have a big position in, you know, the overwhelming majority in a dental insurance company that I started as a 5% investor. And as they grew and needed more regulatory capital, I had moved them into our building and every time they needed more quickly, I provided it. And anyway, I own 88 % today. 

 

Aaron Strauss: Terrific. Some reason I guess that I guess that might increase over time as they need more cash, who knows. But the fact is you've juggled so much. I read somewhere that, you talk about success a lot and it's relative. And I read in an interview you gave a while back, you had a definition of success I wanna read back to you and that, “The freedom to reach higher and higher for your goals while earning the respect and trust of friends, family, colleagues and peers. To be the one that gets the first call to help others, and that's deep and meaningful”. And I think also the key theme for you in business is empathy. I think people just sort of trash anything that's not metric oriented. I know obviously it's all about people, but the soft side of business, people kind of just put in a separate bucket. But you've managed to achieve terrific performance, maintain your value core, divine success in your terms, and also treat people well. And how could you kind of

discuss that empathy as a driving theme for your business and kind of vice versa?

 

Stephen Bittel: Aaron, that's probably the most challenging interview question I've ever been asked. So let me think. 

 

Aaron Strauss: I know I caught you by surprise, but it's very meaningful because a lot of people say, you know, "Hey, just be a shark. It's all about the numbers and the math and the dollars”. But to be good and do good business is something I don't think people discuss enough, and I'd love to elevate that in the Marketplace.

 

Stephen Bittel: I always say that the Jewish religion teaches that, you know, and I talked about it at Chavez dinner all the time. And I made a national political speech once where I talked about it, that Takuna Lum shouldn't be a once in a while activity. Healing the world should be a daily activity. And the more you have accomplished, the more people you know, the more you have, your ability to do it on a meaningful basis goes up. So, look, I joke that I am, you know, my community's most important medical

concierge. But, you know, we've been generous to a lot of hospitals, not because I love them all. I mean, I love one of them, but because it enables me to get better and quicker access to healthcare for my family, our employees and friends. And, you know, I get calls all the time for people I don't know and I make sure they get in quick. You know, I was at a YPO breakfast this morning and someone said their kid has got waitlisted, early decision, is there anything I can do to help? I do that stuff all the time and I think we're all supposed to do that stuff. I don't know why everyone doesn't and you know, I think you get a reputation of saying yes, when asked, but Jewish religion also teaches that when someone gives you the opportunity to do a mitzvah, you should thank them, not they thank you. So it makes me really happy to do this. It's the best part of being 68 and born and raised in the same community in that I can help lots of people all the time. So I expect everyone to do it. And yeah, I remember there was a guy in the real estate business who was in a terrible car accident years and years ago. And one of his friends calls me from the emergency room and they said, he's been waiting there for two hours. And no one has seen him. And I said, hold on, I took the other phone and I called the CEO of the hospital. And before I was off the phone, three doctors marched in. Well, that wasn't so important to me, you know, saving a life is a big deal. The guy that I did that for thanks me all the time whenever he runs into me, he said, you saved my life. I said, I didn't save your life. The doctor saved your life. I got the doctors to see you maybe five minutes quicker. Maybe they were coming anyway. We all should be doing that stuff. 

 

Aaron Strauss: Yeah, from what I hear you say, it seems to me as if the greater the success, the proportionate greater responsibility you have. And it seems like you've certainly lived by that doctrine. And a lot of people appreciate all the little things and big things that you're doing daily. Another theme, I think, is you keep adjusting, right? Markets move, rates move, governments move. A million things are moving around. And I'm not asking you to prognosticate on 25, because I think from 23, 24, everyone's just second guessing all their analyses. It doesn't change your thesis, I'm sure, which is long-term thoughtful capital. But where do you think things are gonna shape out in 25 on a macro and perhaps

somewhat micro level with all these different nuances happening in real time?

 

Stephen Bittel: Yeah, look, we always talk about that I wanna stay ahead of the FOC. I wanna be where it's going, not where it's been. Everyone in 24 thought rates were coming down more and faster than they have. I've talked a lot publicly about that small and mid-sized banks that are the primary debt capital providers to small and mid-sized businesses and much of the real-estate industry have really been absent from this hoop for recovery. The last couple of years, the economic data has been good, inflation has been coming down, employment has been growing, corporate profits have been generally quite good, stock markets performed, and the commercial real estate industry is stagnant, clearly this bid-ask gap. I grew up in an industry where you always could borrow at 250

basis points lower than the cap-rated acquisitions. So you made money from day one, and if you grew rents or renovated, you did something good, it got better. And we have a whole industry that only has lived in a market where cap rates decline and interest rates decline, and you didn't have to be good, you just had to be in. We've been obsessed with operations to the chagrin and derision of most of my friends for a long time. Now we're back in fashion for a moment, but I don't know where this is going. I think the banks blame all of their challenging relationship issues on the regulators, I really think the banks are more scared of another silicon value type run in the banks and they don't want to get caught with, with not enough liquidity. That's a problem. And, you know, the government should be encouraging banks to more fully engage with their performing customers, so that we can climb out of this. And it's stuck. That's the bad news. What's the good news? Our core holdings, what we have stuff in Texas and Georgia in the state of Washington, our core is overwhelmingly in Miami Dade County, which probably has been the best market in the country, maybe the world. And that's good luck, you know, that's the luck of geographically opportunistic birth.

 

 

Aaron Strauss: Yeah, I don't know if that's an impossible question. It probably annoys you too, because no one knows, but you have a great track record. 

 

Stephen Bittel: Look, we bought, we bought a big office building in Coral Gables a year and a half ago and then bought the debt and foreclosed and gotten, you know, now own it, another one that abuts it. So, but it's a good market down here. And, you know, you can't say that about DC or Philadelphia or New York or Chicago or San Francisco, Portland, LA. I mean, there are a lot of markets that are suffering and some are getting, you know, San Francisco is showing signs of life. I don't know if Chicago ever shows signs of life. Clearly, Miami's been buoyed by what I like to call the “Citadel Effect". And that announcement and that consumption of space both directly and by the people, the firms that serve them has really driven this market to heights that we didn't dream of. 

 

Aaron Strauss: For sure. No, it's been amazing to watch. Stephen, what question, if any, and there may not be any, could I or should I have asked you that we could have addressed on insights you could share to some of our listeners on this podcast? It's sort of a catchall and there's no pressure here either. 

 

Stephen Bittel: Look so the answer – the real answer to the one you asked before is how did I juggle all these things? So really from college through 2018, I slept four to six hours every night needed or not. I got a stern talking to an early 19 from my doctor saying, that was not a long-term  strategy that was going to be effective for me. So I work hard now to get seven hours. That was really the secret. I got, I had more time. I was completely absentee dad. I mean, I was there a little bit on weekends, but, and I always tried to make it home for dinner Friday night, but I worked all the time. My kids are, you know, they still like me, usually. They think I have some control issues, which could be true. But the things I think about a lot are, how do I get the next generation of my family to be as committed to both their careers, their families and their charitable involvement as I've been. So the good news is with the leadership team at Terranova you know it's blessed our president just started 28th year and the guy that runs the other half of the balance sheet just started his 23rd year. Our controllers have been with us 14 years. People in this industry don't have that kind of longevity. The good news is our leadership team usually often knows how what I'm going to come out on an issue or how I'm thinking before I do. That's not normal. And people say what's the secret? I always say identify your game changers and overpay them so that when they get that head call, their first response is “Do you have any idea how much I make?”

 

Aaron Strauss: I imagine it's also the way you're treating them too with respect and in a

partnership that I respect to you as well for your values. 

 

Stephen Bittel: But look, I'm better. All the rumors about how tough I was in my youth were true. You know, you start a business out of your house, undercapitalized, you're terrorized that you're going to make a decision that's going to blow it all and you're going

to lose it all. That fear of failure was an incredible driver in my young years, you know, by 40, mid 40s, I probably started to mellow. It wasn't complete till my early fifties, but today, you know, I never raised my voice and I'm pretty happy. And, you know, my favorite line when someone does something bad is I say, I'm disappointed and it's unfortunate, which is came from one of our lawyers, which was his advice and a deposition once instead of getting upset. So I, which I said to him yesterday. 

 

Aaron Strauss:  Well, I guess I'm very thankful I'm interviewing today, not 20 years ago, or I wouldn't probably yell that for some of the questioning, but–

 

Stephen Bittel:  I wouldn’t have taken, I wouldn’t have done it. You know, who would take time for that stuff? 


 

Aaron Strauss:   Fair enough. Well, I'm lucky to get you an idea, and I think people will really learn a lot from this conversation, which not only touches on the industry, but its values and how to treat and invest in your communities. So, Stephen on that will wrap. But again, I just really want to thank you for taking the time and being a leader on many levels and hopefully we'll continue to watch your success day to day and more and more achievements across the board. 

 

Stephen Bittel: Thank you so much, Aaron.

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