Episodes
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How to determine what is the highest and best use for a piece of land? What is a new product that is in high demand in certain areas? What systems to put in place to manage a growing company? Amy Johnson, managing partner of Y Street Capital, shares her knowledge.
Read this episode here: https://tinyurl.com/4ajk387f
How to find the highest and best use for a piece of land?
It comes down to vision. For us and our process, if it's under 5 acres, I don't want to worry about it because doing something with 3 acres is the same amount of work, and the same amount of headache, as it does with 300 acres. I'm going to look at the overview of the market, what is the need, what is the city's master plan? And just because they have something in their master plan doesn't mean they want to stick with it. What's the city's vision? What's the market's vision? What is the market demanding right now? For example, right now, I am not looking necessarily for really large lots or humongous houses, attainable housing is a lot more in demand, that means multifamily housing and townhome developments. It is not because I love the look of townhomes, but that's what the market is demanding and what is needed in the community. We've the city's vision, the market conditions vision, and then the possibility of what's there. There may also be some products that were very successful in other cities that we put it in this city.
What is a new product that is in high demand in certain areas?
We’re fitting 30 units in 5 acres that the city wanted to just zone commercial. The commercial is great if you have a specific tenant. You've to build it specifically for the commercial people. Jack in the Box wants a specific look, Starbucks, etc. We've built this product in Brigham City, and I've also seen it be successful in other cities, the market was saying "We want some commercial but we also need attainable housing, multifamily housing, or townhomes on top". We've designed this unit that is one single tax ID. It's an individual townhome. The bottom is a commercial use that they can run a business from, they don't need to get a special license and the other two floors are the residential housing. The maker spaces are usually in high demand. They sell for about $100,000 more than the typical townhome unit.
Can you share a couple of tips on how you manage things, and how you keep the company growing from a leader's perspective?
These are important: 1) Delegation and utilizing the actual systems. 2) Being able to say "no" to things that don't serve you, and 3) Set expectations, and that can be expectations for vendors, other contractors that we're working with, and civil engineers having a clear scope of work. 5) I live and breathe by my calendar, if it's not on my calendar, it doesn't exist. That means even if my executive assistant and I need to work on a project, and it's just working on something, we will block that time, and we'll put it in the calendar. Or even if it's in person, it has to be on my calendar. On Sundays my husband and I go through our week and plan our week and say, "What does this week look like? Am I missing anything?"
Amy Johnson
https://www.linkedin.com/in/amy-johnson-358217162/
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Missing episodes?
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How to form a successful partnership as real estate operators, what are some of the important tools and processes to make your company run smoothly? Amy Johnson, managing partner of Y Street Capital, shares her knowledge.
Read the interview here: https://tinyurl.com/bddxjmvv
How did you partnership come about?
My husband and I decided to get into the rental game market of residential houses and we turned our own little primary house into a rental and moved into an ugly, disgusting house and kept doing that over and over. It was difficult for us to scale, to keep doing individual residential house: get the loan, qualify, find the right property, all of those things and we knew we wanted to continue to grow. Fast forward, we acquired a great amount of properties, and decided to sell some of our portfolio and roll those into some larger assets. And one of those assets, we were an LP or a limited partner in some self-storage and saw the power of that.
Then we got into land development, I needed some additional support, and that's where I met Victor Menasce, through a different mastermind. I paid him as a consultant on a project. As we were bringing on different projects, I had brought on some others and we just had a really good working relationship with different things, and they had some skills and knowledge and different things that I needed. I realized, that if I wanted to scale this, I couldn't do everything on my own.
How did the conversation start so people can understand where values come from? Why would you both want to do that?
Both companies were very successful before and I think that it is like a relationship, because partnerships are a good relationship. Instead of coming for a spouse or boyfriend having a cup that's half full, and expecting your partner to fill the other half, both of you come with a very full cup and come together, and then you get to create something even bigger. It wasn't that one person came in and tried to save or rescue or take over, that is not a great partnership. Now, that can be a business move. I have looked at other companies where I could see where I could add value. It doesn't mean you can't add value to them, but you're going to come together full and create something bigger, so that each has one cup and, together instead of making two cups, you make three.
What tools have you implemented? What has been the most helpful to your company and how do you manage and oversee everything?
One of the systems that we utilize is our EOS system, our rocks and our wigs. It is aligned and doing our level 10. If you have a good EOS system, it's because you have your priorities straight. When you have a company that is only handling emergencies or firefighting, you're not putting your priorities in straight and that's where you're not growing as well. Another system for us is Asana, but that's more for our project management standpoint. I used to use Google Doc to make my to-do list, and I'd share it with my assistant. Good tracker, but there's more accountability with Asana.
Some individuals say, "The last thing I want to do is taking four meetings a year of two days each, plus every single Friday for two hours to go over our rocks and wigs and our issues lists, and things like that. If you're busy, sometimes that can seem overwhelming and I was grateful for the structure. There were times that I was like, "I'm so busy I don't have time for this." You need to make time so that you can create it.
Amy Johnson
https://www.linkedin.com/in/amy-johnson-358217162/
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What are the lessons learned from the very first development? What factors to look out for when looking for a land to be developed? What is the state of retail sales and leasing today in a specific market and are prices coming down? Raphael Collazo, Associate Broker at Grisanti Group Commercial Real Estate, shares his insights.
What is happening in your area and market?
Probably similar to a lot of people around the country, transaction volume is down significantly year over year on the buy and sale side. Leasing activity has been pretty active over the last year or so. The sales side had a slowdown, but on the leasing side, there's been definitely an uptick. I think a lot of it has to do with the fact that although we see some negative signs in the economy, with the unemployment rate ticking up, inflation's still not quite under control as of yet. For whatever reason, the consumer still is spending a lot, which is probably a bad thing long term, but in the short term, it seems to be keeping a lot of these enterprises afloat. On the retail side, it's been a very active last year or so. But, regarding investment real estate, it's been affected. I work with a lot of people who are looking to do development, especially in land acquisition, and ground-up construction, and that's been very slow over the last year or so.
Are sellers coming down on price at this point?
Some are, and a lot aren't. I think what it comes down to is the staying power. There are a lot of sellers out there that do have bank notes that are coming due. Now, the kicker is that a lot of banks are trying to work it out with the sellers, especially if they see that there's a path towards them ultimately being able to be compliant soon. Banks aren't in the business of owning real estate, so they don't want to have to get foreclosed on the property and then have to go through the whole process of getting it off their books. In most instances, if they see a path toward the seller or the owner being able to perform, they're usually going to be able to work things out with the owner. Now, there are also a lot of sellers out there that own the properties outright, and they're just like, "Hey, we'll wait around and we don't have to sell right now." There's no real urgency and so, do I think that there will be a mountain of distress? No, I don't think so, but very optimistic over the next 12 to 24 months that rates are going to start coming down and transaction volume is going to spike because there's a lot of demand. It's not like people don't want to buy stuff, it's just kind of we're at an impasse. And so, once the gap is bridged, I think we're going to start seeing significant volume.
What do you look for? I'm briefly guessing multifamily projects are being built in the area.
You look at residents. Rooftops for retail are huge because those are the demographics that are ultimately going to be shopping at the places or eating at the places that are going to be nearby. We look a lot for different city initiatives that are kind of pushing for certain things to happen in areas. I follow closely with different rezoning that are taking place, though, these are all publicly available. By the way, you can go to our metro market, we have the Metro council that votes on rezoning that is taking place. If you just look through a list of the ones that are being heard every two weeks, it's a treasure trove of information.
Raphael Collazo
www.linkedin.com/in/raphaelcollazo
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What is the current state of the real estate market and is there a recession coming up? What are some investment strategies for healthy investments? Jeremy Roll, president of Roll Investment Group, shares his knowledge.
Read this entire interview here: https://tinyurl.com/ykutphd6
What do you think is the state of the market now? What's on your mind in terms of the economy and your investments?
On the economic side, one of two dominoes has fallen that is going to impact investors in general: 1) interest rates spiked up which caused a lot of other domino effects and a huge adjustment in prices. When there's a 20 or 30% price adjustment in the stock market, everybody calls it a crash. I've not heard anybody call it a crash but that's factually what's happened here on the real estate prices. Some assets have gone down more, and some have gone down a little less, but on average is 15 to 30%. And I think that's domino number one. 2) The domino that I am still waiting for is a recession that I think is a very high probability based on macro data. And then when you get that, you would typically have a stock market crash. Unfortunately, this time around, there's a direct correlation between the length and an inversion of the yield curve, and how long that goes for, which is at a record right now. If you were to chart it out, which I've seen and I've done, it implies a 45 to 50% stock market crash, which even when I say that I can't picture it, but that's what theoretically should be happening, taking history and applying it to today in terms of the length of inversion.
I'm bracing for a very major second domino to fall and not a lot of people are talking about. A lot of people are talking about interest rate cuts, I'm expecting at least one and possibly two before the end of the year. But I think what a lot of people tend to forget is that the reason why they cut rates is because there is a recession or a recession is about to happen and the economy is doing bad. It's not just randomly happening.
We had some interesting data today. They released the CPI data, it was -0.1 month over month and it was at 3.0% over a year, that's the regular CPI. The core CPI was at about 0.1%, I think 3.4 but it's trending down. There's a very high probability that it's going to continue to trend down because 43% of the CPI is comprised of what they call the owners’ equivalent rent, which is a highly likely 18-to-24-month lag indicator of rents. The CPI number has been overinflated for a long time.
How many deals do you have right now under your belt? And how are they doing?
I'm highly diversified because I have been doing it full-time for so many years. I'm currently in over 60 active LLCs, and I've been in over 150 to 200+ over the past 22 years. They're all different because some of them are from the 2000 era and some of them are from last year, or even this year. One thing that I think was very important is I didn't invest in any floating rate bridge loan deals, which was very difficult to not do because in 2020 to 2023, let's say, literally 90%+ of anything I got was that. If you wanted to invest in anything, it almost always had to be that, but it didn't match with my bucket, which I typically look for a 10-year fixed rate loan long term because I'm looking for predictable cash flow. I sidestep that so I'm not dealing with any of that, thankfully, although a lot of people are and I feel horrible about what's going on right now.
Jeremy Roll
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Today we celebrate our 200th episode of the Commercial Real Estate Investing From A-Z podcast, I will share some of my most recent learnings and observations, some are in mindset, some are related to real estate investing.
Read this entire interview here: https://tinyurl.com/2vy2tnhz
Real Estate
Every single deal has multiple problems you will have to overcome, a friend of mine that has been building multi family projects in California for several years told me that for each problem you must "block and tackle”, and I have never heard anyone say that there was an “easy” deal, especially in development. In fact, they say “if there was ever an easy deal, they all happened before I started my career, we were only left with the difficult ones”.
Another thing I learned is that buying a portfolio of properties for a discount is a fantastic way to invest. You not only get a discount on them, but you can turn around and sell a couple of them individually for a higher price and keep the other properties. As far as the car washes, I got 3 of them, and a self storage facility, and I got a discount on everything because I bought a portfolio, plus I negotiated a price reduction. And today, 3.5 years later, with the sale of that 1 car wash, I could have paid the entire mortgage for the 3 car washes and would have had money left.
I have also been working on partnerships with people that know their field very well but don’t have cash to invest, for example employees working at commercial real estate firms that are very good at what they do and haven’t thought about doing their own thing, or incredibly driven individuals. Say, you have 5 partners that are very capable, each working on a deal, yes your slice of the pie is smaller, but you now have 5 properties that you’re working on with very capable people. Regarding partnerships, you must do your due diligence on them, for me, it works to get to know them over time, see how they act and react to certain hurdles, see their integrity, and then I will partner up with them after I know them for a while.
Mindset
You may already know this first one and that is “Readers are leaders” indeed, I try observe what common traits highly successful people have, a lot of them did read a lot in their childhood, some of them started reading in their adult years, but what they have in common is that they do read a lot. The reason that this makes sense is because we can read one book and, no matter how amazing it was, we forget most of what we read. However, when we have “reading” as a regular thing in our lives, a lot of the messages of these books are very similar, they’re just written in different ways, and it’s through repetition that this information begins to stay with you for the long run.
Another trait that I have observed from some very successful people is that they experienced different extremes in their lives, wether they experienced poverty, or lived in a country that had a lot of problems, or even if they were born with a silver spoon but their parents made sure that in the summer time, they’d spend half of the time working at a farm doing hard labor, and the other half with the time they’d spend at one of their parent’s friends companies doing an internship. The common trait was that they had seen the good life and the bad life and that made them very driven. They are also very curious people and good listeners.
Earlier this year I realized I was becoming very negative with all that I was learning about what is happening to our country, I was not sure if this is how it has always been and we now just have more access to this information, or was it indeed getting worse. I have my personal opinions on that, but I decided to delete social...
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How to overcome the largest problems and issues in land development? What are some tips in creative financing, collaborative problem-solving, and long-term planning for infrastructure development? We continue the interview with Pike Oliver and Michael Stockstill, authors of Transforming the Irvine Ranch book.
Read the entire interview here: https://tinyurl.com/y8dvzpbf
Buy the Transforming the Irvine Ranch book here: https://www.amazon.com/Transforming-Irvine-Ranch-William-American/dp/103212783X
What are some of the largest problems you have worked on? How did you overcome them?
Michael: Let me start with transportation in the late 70s. For various factors, Orange County was not getting its fair share of state or federal transportation money and there just was not enough money to build the level of infrastructure that was needed. There was a change in law, allowing Santa Clara County to impose its own sales tax and use it for transportation. The Irvine company took the lead in gathering people in the county, and other jobs, primarily other big businesses. People were suspect that a developer would be asking that they raise their taxes for the good of everybody and so a coalition was put together, I worked on that for probably 8 years. The citizens in Orange County were pretty conservative and we put it on the ballot "Let's raise the sales tax by a penny for transportation" That got beat very badly. We regrouped. We came back a second time and finally a third time. After a change in state law, we got 55% to make that happen but that was an 8-year effort to make that happen and it took an awful lot of time. The Irvine Company was the leader, both behind the scenes and publicly in making that happen.
Pike: We would survey people in the community at least twice a year. One of the things I've always been fascinated by what came back was that two things would make a difference in the community’s acceptance of continued growth: 1) adequate roadways and 2) adequate good schools; so, the company put a big focus on that.
How did you tackle the water quality issue which is a major issue that came in at the end of things?
Pike: It was an issue that came up with a little area called Crystal Cove, at the end of the whole effort. The approach the company took is the same approach it always took which is to find the experts, get them involved, tell them to work out a solution that will be acceptable to the people whose primary mission in life is water quality, and figure out how it can be done and still allow the company to achieve its goals.
Michael: In the 30-40 years that this has been done, the specialized attorneys, the consultants, the engineers, when El Toro was an issue, people that understood jet noise, there was just an army of people that worked for the Irvine company on a consulting basis that helped to make this happen. The bill has to be in the hundreds of millions of dollars over time for those people to give their expertise and, as Pike said, that was a real big part of dealing with bureaucrats, with regulators. Once you're willing to speak their language and try to meet them halfway and have facts to deal with, that makes a big difference. The Irvine company was rarely confrontational. It rarely raised its voice, if you will, and it could look long-term and say, "We can solve this, it may take some time, but let's put the resources to it."
Pike Oliver
Michael Stockstill
www.thebigplanbook.com
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How did Mr. Donald Bren buy, manage, and expanded the company that made him the wealthiest real estate investor in the world?
Read the entire interview here: https://tinyurl.com/46m22v7b
Buy the Transforming the Irvine Ranch book here: https://www.amazon.com/Transforming-Irvine-Ranch-William-American/dp/103212783X
You both participated in writing a book called Transforming the Irvine Ranch which one of the heiresses, Joan Irvine, also participated in, how did you get to write a book and what was the reasoning behind it?
Michael: We've always loved history when we were together at the Irvine company. We looked around and asked questions about the background of the company, we read the book, and we talked to other people who had lived it. Fast forward 40 years after talking about it many times, Pike called me one day and said, "Why don't we write that book." Ray Watson had written six chapters, and he gave a 500-page oral history. And with that as a base, we set out to write the book and had a great time doing it.
I would love to understand how Mr. Bren got himself into the Irvine company from your perspective.
Michael: Donald Bren had an interest in planned communities as a young man and as a builder. He started his own building company in his late 20s. He was 31 years old when he and some partners purchased 11,000 acres of what is now Mission Viejo, which is south of the Irvine Ranch. Bren was very interested in whole communities and design. Unfortunately, that was a bridge too far. Bren sold out after 3 years and eventually, Mission Viejo was bought by Philip Morris, they had deep pockets. He kept his eye on the Irvine Ranch, and built houses on the ranch. And in 1976, it became apparent that the ranch was going to go up for sale. Bren rounded up $100 million, and was prepared to join the bidding and it very quickly exceeded that. He was invited into the winning group, which was headed by Al Taubman from Detroit and included Joan Irvine. And in 1977, Bren owned 35% of the Irvine Company. But he did not have control and the other owners rallied around Al Taubman. And Taubman for the next five years became the real force in terms of decision making at the ranch.
What shapes Mr. Bren’s focus is an incredibly broad bandwidth of perspective, as compared to most people involved in real estate. For example, he will spend quite a bit of time looking at a site plan and making sure that the houses next to each other do not allow people to look in the other person's house. Then, he can look at the entire ranch to figure out the purpose and intent, and begin to think about how to implement open space and habitat preserves that amount to over 50,000 acres. There are very few people that can work across that dimension of detail.
The other element of this was Brent surrounded himself by very energetic people. They were well paid, they were motivated, and when things needed to be done, the usual response was: "We'll figure out how to get it done, and tell us the resources you need to make that happen." The Irvine company never had a lobbyist in Washington DC, we ended up hiring somebody there and it made a tremendous difference in some of the issues that we had to deal with at the time. Bren was very willing to spend resources, he was not a spendthrift, there were budgets but it was a huge property, it was a huge job.
Pike Oliver
Michael Stockstill
www.thebigplanbook.com
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How to find and assemble large projects? What are the real estate market trends? Victor Menasce, an author, real estate developer, and host of the Real Estate Espresso Podcast, shares his knowledge.
Read this entire interview here: https://tinyurl.com/nut4m6b8
You have many projects right now, one in particular is huge. How did you get it? How did you put it together? And what are some of the good, bad and the ugly so far?
Every single one of our significant projects has landed in our lap. Somebody says, "I've got this deal. I don't know what to do with it. Can you help?" This was a huge property on the edge of Colorado Springs, it's 77 million square feet, and the perimeter is about seven miles.
Someone approached us who got it under contract, he didn't have the money to put it together, and had negotiated a reasonable price of 10,000 an acre, about 23 cents a square foot. If you look at agricultural land anywhere across the United States, it will vary between 3 to 10,000 an acre, depending on where it's located. If you're growing weed on it, it's maybe towards the higher end of that spectrum. I typically talk about the entitlement multiplier that comes with land because it's just dirt, why is this dirt worth more than that? It's because of what you can do with it. An agricultural land, 3 to 10,000 an acre, if it's entitled for development, and maybe you can put a subdivision on, it might be a couple of 100,000 an acre. If you can put a 40-story building on it might be several million an acre, but it's all still the same dirt. If we can transform this from agricultural land into the growth path for the city of Colorado Springs, we can probably create a reasonable multiplayer value.
We took over the contract, renegotiated it, and got it re-signed with us. We negotiated a fairly lengthy closing period, which included the entitlement. It had some timelines associated with it, so the sooner the entitlement or the expiration. We did not meet the entitlement timelines that we were originally expecting, based on conversations with both the county and the city of Colorado Springs, that this is something that would be pretty quick. It has turned out to not be quick, but it's still an amazing project.
Where is the market today? Are the deals better? Is it time to buy?
I would say that it's better in the sense that there's less insanity than there was because I think we would all acknowledge that many of the valuations that we witnessed in 2021, 2022, and parts of 2023 made no sense at all. I think reality is setting in for many of those and that's going to create distress for a number of them. If you think about folks who would have started a project, maybe a value-add project in 2021 with certain interest rate assumptions, assumptions about rent growth, etc, they find themselves in a very different world today, probably with no path to get into permanent financing without writing a massive check. And initially, they were probably thinking they were going to get a significant cash-out to refinance, but it's going the other way.
I think the lenders are still in a mode of "extend and pretend", bridge lenders in particular. The forecast flood of deals is a trickle, not a flood yet, I think it's coming but a lot of lenders don't want to recognize distress on their books. We are starting to see valuations become more reasonable. We are evaluating deals daily and looking at two projects that are significant opportunities for office-to-residential conversions at a decent price.
Victor...
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How is self-storage doing today? What are the benefits of joining a mastermind? Scott Meyers, founder and CEO of Self Storage Investing , shares his knowledge with us.
Read this entire interview here: https://tinyurl.com/rt4pvac2
You have been doing self-storage for 20 years, how is self-storage doing today?
We're bullish on storage. It doesn't matter what the economy's doing, because our asset classes are largely unaffected by what's happening when things are good, people buy more stuff and there's a need for storage so we do well. When there's a contraction in the economy and people are losing their jobs or businesses, it is going a little slower. They have to put their inventory in storage, or they sublease their office or whatever their business looks like and we benefit from that, as well. We are heading into a time that we've been preparing for years, which is kind of the intersection of all that. Interest rates are a little higher and the cost of capital is higher but we are seeing a contraction in the market, which is causing people to downsize businesses.
I heard this morning that in Austin, Texas 20% of the workforce is unemployed right now. Some of these companies are laying their people off. But there is a pullback right now, and the jobless rate is a little higher than even what the government statistics would show because we're seeing it and feeling it in the marketplace.
Do you think self-storage is being overbuilt in places?
You can't say that the industry is overbuilt. If everybody's rates all across the country, were going down and everybody was at 50% occupancy, maybe, but I don't think that we would ever get to that standpoint. There are lots of safeguards in our industry and we do know what it takes to do our homework and understand as developers, what makes this successful self-storage development project. With today's very difficult capital markets: appraisers, lenders, and private equity partners, they are not just throwing money at us, assuming it's going to win, they are forcing and they want to see our feasibility studies and the demand studies that we're doing in the marketplace to understand what a deal looks like before they're going to grant us a loan or loan us our limited partners that are going to come alongside of us or the hedge funds and invest with us. We shouldn't be coming forward if we didn't have that, and we really wouldn't get it anyway.
What are some things that you have seen happen at your mastermind?
A lot of the things that we've seen are things that we've built in an environment in which all the good things that we see in a mastermind can occur and some of that is true. As we take a step back, we recognize that following the Napoleon Hills model, which is when like-minded people come together and operate at a certain level, good things happen. They share best business practices, they can do business together and so from the beginning, that's the way we designed it. And we see other masterminds out there where they'll just accept anybody into the group, as long as they can write a check. We have an interview process, and it's an exclusive group that we've put into place in the mastermind.
Scott Meyers
www.selfstorageinvesting.com
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Join us for an insightful panel discussion featuring some of the top names in the real estate investment world. In this video, you'll hear from industry veterans Steffany Boldrini, Tom Wilson, Beth Azor, Irwin Boris, and Sarah Sullivan as they share their experiences and strategies in the dynamic world of real estate.
Discover how these experts have navigated the ever-changing real estate landscape and learn about their investment portfolios, which span various asset classes such as retail, industrial, multifamily, and more. They provide valuable insights on the challenges and opportunities they've encountered, from dealing with construction costs and interest rates to the impact of COVID-19 on their deals.
You'll also gain valuable knowledge about the importance of cash flow and how it factors into their investment decisions. Plus, find out about alternative investment strategies, including leveraging algorithms for trading and exploring the world of forex.
If you're looking to enhance your real estate investment knowledge or seeking inspiration from seasoned professionals, this video is a must-watch. Whether you're a seasoned investor or just getting started, these insights will help you make informed decisions in the world of real estate investment.
Don't miss this engaging and informative discussion that can potentially shape your investment strategy for the better. Subscribe to our channel and hit the notification bell to stay updated on more expert panels and industry insights.
Join our real estate investing club here: www.montecarlorei.com/investors
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Today, I'll discuss my second syndication, which was fully committed 2 hours after the webinar, and how this partnership came about.
Read this entire interview here: https://tinyurl.com/bden8yy4
I met my partner for this syndication six years ago at the Real Estate Guys Summit at Sea. I've always emphasized that the expensive events are the best because everyone there is serious about real estate investing; they are industry veterans who want to connect with like-minded individuals. Most veterans avoid rookie events that cost $300 to attend because attendees are typically early in their careers, and many won't pursue real estate investing long-term.
It's crucial to cultivate relationships over time. Beyond learning about real estate investing, observing partners navigate various situations offers valuable insights. From my partner, I learned about his experiences with past partnerships and his dedication to protecting investors' interests. This aligns with my values, as I prioritize investors' funds over my own. Witnessing his integrity in personal interactions and how he handles adversity solidified my trust in him.
How did this opportunity arise? After six years, my partner approached me about collaborating on a deal. Despite my busy schedule, I accepted, recognizing the alignment with my goals and viewing it as a chance to evaluate our compatibility. I entered without expectations, emphasizing my willingness to defer to his expertise regarding compensation. This approach allowed me to showcase my abilities while demonstrating trust in his judgment.
Working with such a reputable partner was immensely enjoyable. Despite occasional challenges inherent to the asset class, our collaboration was overwhelmingly positive. Our complementary strengths facilitated smooth teamwork; where one hesitated, the other stepped in confidently.
Regarding compensation, we finalized discussions shortly before closing, with my partner proposing a generous split. I initially felt it was overly generous and suggested he retain more. After adjusting, he reiterated his appreciation for the opportunity, attributing his generosity to my demonstrated value and diligence during due diligence.
The ultimate outcome will be revealed upon exiting the deal in 2-3 years. So far, however, our webinar presentation garnered full commitment within two hours, and we secured a $100k discount post-webinar, to the delight of our investors.
I share this not to boast but to underscore the importance of integrity and patience in forging partnerships. Trust in the process and the individuals involved is paramount. Additionally, competence is non-negotiable; excellence breeds opportunities.
In conclusion:
Great individuals are rare, and integrity sets one apart. Regardless of age or experience, doing the right thing attracts opportunities. I've witnessed this firsthand, partnering with a diligent 20-year-old whose character and work ethic impressed me consistently.My partner frequently encounters individuals seeking partnerships, yet most fail to invest in building relationships. Approaching someone out of the blue with partnership proposals rarely succeeds. I echo this sentiment; without rapport and shared values, collaboration is unlikely.Send us your feedback about our podcast to: [email protected]
Sign up to hear about our investment opportunities here: https://montecarlorei.com/investors/
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What are some ways to increase income on a commercial property? Joseph Woodbury, CEO of Neighbor, shares his knowledge.
Read this entire interview here: https://tinyurl.com/wewybvt5
What kind of fees do you charge and how does it benefit the property owner?
We only make money when our partners make money. We don't charge any upfront or recurring fee, free to use the service. Just like an Airbnb or other marketplace, will take whatever you decide to charge as a host and we'll charge the renter a service fee on top of that, and that's where our money comes from.
It is a sliding scale take rate based on the size of the dollar amount of the rental. For smaller rentals, if it's $30 a month, we're going to take a high percentage take rate on top, to make the money that you need to, versus we have some spaces that rent out for 1000s of dollars a month, we're going to take a very low percentage take rate on top of that. It varies by the amount. But again, very similar to what you'd see on Airbnb, where it kind of slides based on the amount of the reservation.
Have you scaled the operations to cater to your partners who are listing their spaces with you?
It's very much scaling the technology. The value of the platform is the value of the tools that we provide. Every year we're trying to think how can we make this more of a passive income experience for our hosts because that is one of our differentiating factors. If you think of other marketplaces, to make money on Uber, there's labor involved, you have to go drive around, or Instacart or DoorDash, and you have to work for the income that you earn. Even Airbnb tends to have a decent amount of management and turnover and customers. Oftentimes, management companies are hired, Neighbor, on the other hand, is the first platform where we can bring you a renter, and you're going to get a payment from that renter every month without doing much of anything, it's very passive income.
Further along in the business, we've gotten the bigger hosts and have started to use the platform to where today. We have hosts that may own a $30 billion real estate portfolio across the country, office or retail or multifamily and they're listing lots of space on our platform in 100 cities. The tools required to manage that amount of space are very different than the tools required to manage a driveway or a garage. And so, building more robust payment systems to work with any large enterprises, custom payment systems, or building tools, almost like SAS-type tools where you can see the layout of hundreds of spaces and assign renters to different spaces, we use this cool tool called a blueprint for large owners of the land...
Can you share an example of a REIT or a larger investor that has onboarded some properties with Neighbor and how did that go?
In the retail space, we work with a group called Federal Realty, one of the largest owners of retail space in the country both on the East Coast and the West Coast. We onboarded them, we work with them both the suites that struggled to rent then will rent those out for self-storage, and also the parking in a strip mall. There's always that parking in the back that nobody parks on, we've rolled out nationwide with them.
On the multifamily side, an example of one of the many multifamily groups we work with is Equity Residential, one of the largest owners in the country. In some properties, they have 20 different vacant parking stalls while in some properties, they have five, but at every property, they have and it's all income, and those properties get leased up very fast. If I look at properties that are onboarded, they get up to 75-80% occupancy quickly. And then, when you add on the interior self-storage opportunity...
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How to find, analyze, and convert small boutique hotels? What are the systems and tools to use and the processes for hiring top people? Blake Dailey, a real estate investor, owner of boutique hotels, and founder of BoutiqueHotelCon, shares his knowledge
Read this entire interview here: https://tinyurl.com/yevhs2u3
How long did it take you to surpass your W2 income after you started investing?
It took 13 months from the time of purchase. Short-term rentals helped me achieve that goal more quickly.
How do you find a small boutique hotel? How do you analyze it, including conversions, if you undertake them?
Municipalities across the country are increasingly regulating short-term rentals in places like New York, Dallas, Atlanta, and Southern California. These regulations aim to protect the single-family housing market and the rental market. Hotels, classified as commercial properties, are designed for nightly rentals and thus aren't subjected to the same regulations. Authorities aren't shutting down major hotel chains like Marriott and Hilton due to the influence of hotel lobbyists. This lack of regulation provides an opportunity to invest in prime real estate in metropolitan areas or their suburbs.
To find these opportunities, I seek out tired hospitality assets typically owned by Mom-and-Pop operators who often reside on-site and handle all management tasks themselves. The inefficiencies of managing a business where you both live and work can be substantial. Many of these operators are slow to adopt technology, neglect online travel agencies (OTAs), and fail to engage in marketing efforts beyond word-of-mouth referrals or basic direct booking websites. By acquiring these properties, refreshing and renovating them, and listing them on OTAs such as Airbnb, booking.com, and Expedia hotels.com, we can attract a wider range of guests. We also focus on collecting guest emails and contact information to facilitate direct marketing efforts, which can significantly increase margins by avoiding OTA fees.
We target markets such as destination markets, ski towns, and beach towns. For instance, Panama City Beach attracts 17 million visitors annually. However, similar opportunities exist in various markets nationwide, including metropolitan areas. I've found success in acquiring outdated properties owned by owner-operators, improving their efficiency, updating their design, and consequently increasing their average daily rates (ADRs). Since commercial properties are valued based on net operating incomes, these improvements can significantly boost property values.
Can you discuss your systems, processes, and approaches to hiring and developing your team?
Investing in this asset class requires a team effort. I couldn't manage all my hotels alone, although I did gain experience managing all my short-term rentals while still involved in residential properties. I outsourced administrative tasks and guest communications to cope with increased demand. Boutique hotels generate revenue from the outset, enabling us to hire and outsource roles early on. For instance, with a property generating hundreds of thousands of dollars annually, we can afford a full property-level team, including a director of operations, operations manager, revenue manager, and guest relations team. Regarding guest check-in processes, we employ self-check-in systems for smaller properties, while larger properties with higher revenue may warrant on-site staff
Blake Dailey
www.instagram.com/blakejdailey
www.botiquehotelcon.com
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What are the top lessons learned over a four-decade real estate investing career? What are his thoughts on the current real estate investing market compared to other difficult markets that he has been through in the past? Is there such a thing as work-life balance? We are chatting with Stephen Bittel, Chairman and founder of Terranova Corporation, he manages their sizeable portfolio of properties in several asset classes such as retail, multi-family and office.
Read this entire episode here: https://tinyurl.com/2s3u5u3y
What is like investing today compared to the past?
This is the hardest investment market we have ever participated in. There's staggering uncertainty about the future, with half of the pundits predicting a recession and others foreseeing a soft landing. People simply don't know what's coming, and this uncertainty freezes both debt and equity capital.
Part of the challenge today is that most of the people making investment decisions have only experienced an era of continually declining interest rates and cap rates, where you didn't have to be particularly skilled to make money. However, the current situation is different. While there was a brief interruption in the last quarter of 2008 and 2009, the past 15 years, and even longer for those under 50, have been relatively stable. Positive leverage, which used to be a hallmark of real estate investing, is now extremely difficult to achieve. In the past, we could finance properties at lower rates than their initial yield, resulting in immediate profitability. However, achieving such positive leverage today is nearly impossible. Despite this, we continue to invest in properties with tighter yields if we see opportunities to increase income.
What are some of the toughest lessons learned, and what advice would you give without someone having to experience it themselves?
Managing cash flow is crucial both corporately and at the property level. We've always prioritized managing our balance sheet, promptly paying down debt after liquidity events. The key lessons are:
Invest in projects with potential for revenue growth, especially in areas experiencing positive population growth.Establish strong capital partnerships, as demonstrating the ability to close deals is vital. Seller financing can be advantageous for both parties.Consider being a nonrecourse borrower to protect against personal liability in challenging times.Honor loan covenants, and prioritize maintaining a clean balance sheet.Regarding nonrecourse loans, although they may incur slightly higher costs, the benefits of a clean balance sheet outweigh the expense. While our model may not be replicable for everyone, I would advise paying the premium for nonrecourse loans if given the choice.
Commercial real estate is a fantastic industry with long-term wealth-building potential. While it's not without challenges, such as the current uncertainty in the market, it offers numerous advantages, including tax benefits and opportunities for cash-out financing. It's essential to treat real estate investment as a full-time commitment and to prioritize understanding the details of every transaction. Ultimately, success in this industry requires dedication, hard work, and a deep understanding of market dynamics.
Stephen Bittel
www.terranovacorp.com
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We continue our education of the history of The Irvine Company, picking up where we left of in the 1980's through 2013. Excerpts from the book: The Irvine Ranch: a Time for People" by Martin A. Brower.
Read this entire episode here: https://tinyurl.com/y6s85em4
About 4,000 residential ground leases made over a 15-year period were coming up for renewal. The new rent, set at 5, 6, or 7% of the fair market value of the land, had been written so that rent would remain flat for an original 20 or 25 years. At expiration, the Company could charge 5, 6, or 7% of the new fair market value, but few foresaw how steeply land values would rise during the two decades. The residents created a Committee of 4000 to ask the company to discard the leases they had signed and to obtain more favorable conditions. They secured extensive news media coverage, took advertisements, held mass rallies, and won favorable community support, and as a result, the Company’s credibility plummeted. The Company made the Committee of 4,000 a new offer. The leaseholders could buy their land at an average of 50% of its appraised market value, and because interest rates were high, the Company would permit homeowners to pay for the land over a 30-year period with a variable-rate loan beginning at 10% - an acceptable interest rate in the mid-1980s.
Key takeaways:
Donate land to create a university or anything that will attract a lot of people to live in the area, build around it.Donate a lot to the community to help your company have a good public image.There were many trials and tribulations, even when the city entitled something; some activists were able to reverse that.They went through all economic cycles. They very rarely, if ever, sell, which is something I fully believe and agree with.I heard from someone familiar with being a tenant that they are very strict landlords; you can’t have one thing out of place.I personally looked at some of their multifamily apartments, and they are very well run.He is very particular about how things look; he would remove trees that looked “old school” and put palm trees to make a certain area look better, and now I notice that every shopping center he owns has palm trees.He made his execs work very hard; I met someone here that knew one of his VPs, and when this VP was taking a vacation, Bren made him come back to work due to a problem, and it turned out that the problem wasn’t that big of a deal. To me, what that says is that the VPs were highly paid, and also that we all need to resolve an issue very quickly when it arises at that level, or at any level, in my opinion. Don’t ever let things linger.Nothing lasts forever; if you made a mistake on one thing here, you fix it for the next one.Key takeaways on purchasing The Irvine Company:
Be where the people are, go to the events that they go to, be in front of them. One of the partners that Bren had was at a horseshoe, and he ran into an Irvine Company family member, and that started the conversation of “has the ranch been sold yet,” which led to this person partnering up with multiple people, including Bren, to make the initial 50% purchase.Talk to the people who will get the deal done, in this case, they contacted the same lender. Bren always worked with the top people in the industry, whether they were CPAs, attorneys, lenders. Always go to the top for a significant opportunity.Get the seller what they want, in this case, one of the heiresses, Joann, to be a 10% stakeholder on that initial purchase.Corporations have a target number they will stop bidding at; this one was just under 20x of annual earnings, this one 3 million below the 20x annual earnings.Subscribe to our...
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We continue the introduction to the richest real estate investor in the globe, the owner of The Irvine Company, Donald Bren.
Read the entire episode here: https://tinyurl.com/m2ehfys7
1970's
At that point, cities and the County were increasingly imposing costly demands on the developer. These demands included roads, flood control channels, parks, and schools — all of which were previously provided by the cities and the County. The James Irvine Foundation became serious about selling The Irvine Company to comply with the Tax Reform Act.
When thinking of purchasing the company, Bren combined forces with Taubman, Allen, and the others. Understanding from Bren the need to have heiress Joan Irvine Smith on their side, Taubman and Bren had decided to allow Joan Irvine Smith to become an 11% partner of the consortium, allowing her to retain partial ownership of the Company she loved after the proposed purchase — which she relished.
On May 18, 1977, Mobil bid $336.6 million. The next day, May 19, the consortium bid $337.4 million — more than one-third higher than Mobil's original offer. At noon the following day, May 20, 1977, Mobil announced that it would not attempt to outbid the consortium. The consortium was prepared to go higher. The court approved the price, declared Taubman-Allen-Irvine the winner, and the sale of The Irvine Company was completed. Therefore, 112 years after James Irvine acquired the Irvine Ranch, the company became a Michigan corporation.
The consortium purchased the company for $337.4 million. Key to the financing of the acquisition was the $100 million loan, which was assembled by a group of 9 banks. The timing of the acquisition could not have been better, as the nation came out of the 1973-74 recession, and the economy grew warm in 1976 and 1977.
1980's
In 1983, Bren made a startling move. He offered to buy out Taubman and his partners by launching his own leveraged buyout of The Irvine Company, for their 51 percent of the Company, for which they had contributed less than $100 million six years earlier, Bren offered the “Eastern” shareholders $516 million.
Determining that they had made a sizeable profit and uncertain about the future resulting from the heated “greedy eastern carpetbagger” campaign and the residential leasehold crisis, the Taubman-led easterners agreed to accept Bren’s offer. Orange County newspaper reporters tried to uncover why these astute businessmen would sell a company which appeared to have an unlimited financial future, but Taubman would only comment “My father always told me you take some and you leave some.” To his hometown “Detroit Free Press” he boasted: “This was a better deal than the Louisiana Purchase.”
But Joan Irvine Smith objected to the buyout price as being too low, and objected to Bren’s saddling the Company with a $560 million debt (the $516 million buyout plus interest due to five banks making the loan). This valued the company at just over $1B and her 11% shares at about $100M. She filed suit. With the buyout also came $560M of debt. Bren worked with First Boston Company on financing the buyout, and he worked closely with accountants Kenneth Leventhal & Company on how to make the payments. The lawsuit lasted quite a few years in the 80s and after endless months of discovery, depositions, the trial which was in Michigan (where the company was incorporated) resulted in the judge awarding her $256M including accumulated interest.
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A little background on the history of The Irvine Company.
Read this entire episode here: http://tinyurl.com/55zadwbj
In 1864, James Irvine and three partners bought a 101,000-acre ranch, for around $26k. Much of that is now a city called Irvine, in California. It was initially a ranch focused on agriculture and it also encompassed coastal land. In the early 1900’s they started developing some of the real estate, and in the 1950’s they started large scale planned community development, also known as master planned communities, which encompasses building everything from residential to commercial and industrial buildings. The city of Irvine became one of the largest planned communities in the US.
I recently read the book The Irvine Ranch: A Time For People by Martin A. Brower, and I will be sharing what I highlighted from the book below for my own knowledge.
50's
Novices in such real estate transactions, The Irvine Company prepared lease and sale agreements which did not require development as proposed nor reversion of the land to the Company if not used by the lessee or purchaser.60's
As they were expanding and continuously growing, one of their developments in the 60’s pioneered the “zero lot line” concept, in which a house is placed on its neighbor’s property line, resulting in one wide side yard rather than two small and useless side yards for each home. The unique plan placed groups of homes around a series of central green parks. Homes were priced from $27,000 to $32,000, a step below the prices in Turtle Rock Hills.As with all other Irvine Company village centers, included architecture consistent with its community, an attractive service station with pumps away from the streets, and with a supermarket and shops opening from a broad walkway rather than directly from the parking lot.Master planned to group buildings by size and use, the IIC was developed with strict covenants regulating land coverage, architectural design, landscaping and sound, odor and visual emissions. They were known for their innovative planning concepts.70’s
The Company’s Residential Division had developed strict guidelines for each village which builders had to obey if they wanted to be invited to build homes on the Ranch. One of the homebuilders in Greentree — The Bren Company — was felt not to be cooperating. It was determined that Bren would never again be invited to build on the Irvine Ranch.When a citizen spokesman completed an attack one of of the Irvine company’s plan for a new project and the city stood with him, the president at the time Raymond Watson, applauded. “You’re not supposed to applaud,” chided Company director of public relations Martin Brower. “Sure I am, this is real democracy in action, with each of us respecting the other’s role”.We will continue this exploration on the next post as I will highlight how Donald Bren became a partial owner of The Irvine Company and how he then became the sole owner of The Irvine Company.
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How to canvass tenants for retail properties? What are some techniques to get a new tenant? Who to target? Beth Azor, the "Canvassing Queen", CRE leasing coach, developer, investor, author/speaker, and CEO of Azor Advisory Services shares her knowledge.
Read this entire interview here: http://tinyurl.com/2jdstyra
How to canvass tenants for retail properties?
Canvassing is when we knock on doors to find tenants to lease spaces in our vacancies. I was taught very early in my career not to sit around and wait for the phone to ring, go out, and knock on doors. If you think about what would qualify as a great tenant, it would have other locations, someone that's paying another landlord rent. How easy is it? This is why I love retail, It's just great to be able to go within 1 to 2 hours from your property and knock on doors of retailers to see if they're interested in expanding or opening in your shopping center.
Canvassing tips and examples:
- I was sitting at a red light, and there was a van across the way from me. On the bottom of the van, there was a plumbing supplies company, and they had five locations listed. What I always tell my students or my leasing agents who work for me is this: if someone has one location, it's a 50/50 shot if they want a second; if they have three, four, or five, they want more – they're in the expansion business. That is why I took a picture of that van, saying, "Hey, everyone, open your eyes, this is a business; they have five locations, here are their locations." Now, I know that one of my shopping centers was a hole in their doughnut of locations. I called the place, and they said they weren't interested in my area, but they gave me two other areas, and I have no friends that own properties there, so I sent my friends the information.
- There are prospects everywhere. There are prospects on bus benches, where you're driving down and it reads "Hey, have a smoothie!" and they list multiple locations under the bus bench. I love getting the little magazines that they hand out at doctors' offices or pediatrician offices, where it's the little community magazine. I grab those, and then on the weekend, I go through them, and I have found tons of prospects, because what does it tell you if they're advertising in a magazine? They've got money because we know the first thing that goes, if attendance is not doing well, a business isn't doing well, is marketing. They have another location, and they have money to spend on marketing, so I'll call them.
- I just did a deal with a men's clothing store that I found an ad in a magazine and called them up. I said, "Hey, I've got this property; we'd love to have men's clothing," and they were very interested. Within 90 days, they opened in one of my properties.
- I have an assignment that I'm working on in Cleveland, where I took over a 15% occupied mall and we have signed 49 leases in two years. I've met over 1800 businesses in Cleveland personally in two years. That's how you sign 49 leases. I realized that because the property was in downtown Cleveland, with lots of office buildings around and the food court had only two or three tenants, but because we got their sales, we knew that they were doing very well. I created a flyer that showed a picture of the nine available food court spaces. I said, "Food court spaces are available. I think it's a great rate, utilities included." Then I asked, "Which ones had hoods and which ones had refrigeration?" And I went and handed it out to 50 restaurants like fast-casual restaurants. Within 90 days, we leased five of them. Flyers—where the guy can come into the store and the gatekeeper goes, "Oh, this lady dropped this off, but it's got nine...
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Will interest rates come down in 2024? What is the economic outlook? What will happen with inventory by the time the rates go down? Should you buy real estate right now? Chad Zdenek, real estate investor, and owner of CSQ Properties, shares his knowledge.
Read this entire interview here: http://tinyurl.com/8y6b9k57
You are in tune with the economy and economics. We have some interesting news on interest rates recently; let's dive into that and see where your thoughts are for 2024 and 2025.
The interest rates and how fast they increased have been a big shock to the real estate system. Any industry relying on borrowing has been challenged by the interest rate increases, and real estate has been hit particularly hard because we normally have 60 to 80% leverage on the commercial side, and that involves a lot of loans. Anyone on variable-rate loans has been feeling the pressure.
At the Fed Funds meeting, they mentioned they're not planning on increasing rates. They didn't increase rates, shifting away from the narrative we've been hearing for a while, which was higher for longer, meaning these interest rates, which increased the fastest in 40 years, were expected to remain high. The Federal Reserve aimed to take some steam out of the economy, but they've seen that while unemployment is still low, inflation has come down. That's encouraging, and they indicated they are looking towards three interest rate decreases next year. The 10-Year treasury, on which many mortgages in the commercial world are based, has already been retreating, and that good news for investors with debt on their properties. It will also indirectly affect cap rates, correlated with interest rates. Cap rates, how we value properties, have expanded, meaning property values have gone down, and different real estate sectors have seen different decreases, but with interest rates coming down, we hope cap rates will compress, and values will go up.
You started with multifamily and then moved to different asset classes; can you share your reasoning behind it? Why did you pick those asset classes?
I'm investing in three asset classes: multifamily, medical office, and self-storage. For people newer to real estate, they might see real estate as an asset class, but within real estate, there are several different asset classes.I was heavily invested in multifamily and knew I should diversify because you never know what will happen. I diversified into self-storage properties, which has been great. I also invest in California and out of California. Living in LA, I'm one of the rare investors who invest in California and out of state. Diversifying within different asset classes has been a good way to spread out the risk, especially with tenant rules and regulations constantly evolving, they're a lot more strict with multifamily than with self storage. Migration patterns affect both asset classes similarly, but tenant laws and COVID restrictions apply only to multifamily, not self-storage. During COVID, seeing restrictions in multifamily, I realized my investors were exposed to legislative liabilities. Diversifying into self-storage, with less regulation but good returns, has worked well.
The last 18 months have been crazy in the real estate world, and some people have a mutual fund or stock mindset, trying to time the market. A common saying in our world is that it's not about market timing; it's about time in the market. These should be long-term investments. Whether you buy at the bottom or 10% off the bottom, they should be viewed as long-term.
Chad Zdenek
www.ihelpbizownersretire.com
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