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Multifamily Syndication Depreciation Appreciation Leverage and More with Feras Moussa – CREPN #283

J Darrin Gross 0:21

Welcome to Commercial Real Estate Pro Networks CRE PN Radio. Thanks for joining us. My name is J. Darrin Gross. This is the podcast focused on commercial real estate investment and risk management strategies. Weekly we have conversations with commercial real estate investors and professionals who provide their experience and insight to help you grow your real estate portfolio.

Today my guest is Feras Moussa. Feras is an entrepreneur at heart with a tech background. Feras worked with Microsoft. And he later left Microsoft to bring tech to industries that lack it, where he later found his passion for real estate. He founded Disrupt Equity. It’s a commercial real estate acquisition firm that works to provide investors with strong passive income by leveraging multifamily syndications. At Disrupt Equity they focus on identifying B and C class multifamily assets with 90 units or more in key markets, including Texas, Florida, Georgia and Tennessee. Their goal is to provide investors with strategic tax incentivized investment opportunities that create the highest potential returns.

And in just a minute, we’re going to talk with Feras, about investing in multifamily real estate. But first a quick reminder, if you like our show, CRE PN Radio, there are a couple things you can do to help. You can subscribe, like and share. And as always we love to receive comments. So if you would, please let us know what you think. And also, if you’d like to see how handsome our guests are, be sure to check out our YouTube channel. And that’s Commercial Real Estate Pro Network. While you’re there, please subscribe. With that, I want to welcome my guest, Feras, welcome to CRE PN Radio.

Feras Moussa 2:22

Thanks for having me, Darrin . Glad to be here..

J Darrin Gross 2:25

Yeah, well, I’m really looking forward to our talk today. Before we get started, if you could just take a minute and share with listeners a little bit about your background.

Feras Moussa 2:35

No, absolutely. So I mean, I, I kind of have almost with my worlds become the traditional thing where you have a lot of people in real estate that came from kind of a tech or an engineering background. So you know, I fit that mold. But you know, me personally, you know, I was always been kind of an entrepreneur, I always knew I’d go off and do my own thing. And so from high school, I had my own little web company that did really well and then, you know, kind of went off to Microsoft, right? Kind of accidentally really fell into that I did an internship there. Love the people, I worked with a team and I’m like, Alright, I’m gonna stay here, do this for two, three years, get this on my resume, get the experience and move on. And so I ended up staying, you know, three and a half years, I wanted to make sure I left not in the middle over release, but at the end of a cycle. So kind of time that well and, you know, went off and did my own software company after that and kind of had that going for several years. And like a lot of probably your guests, you know, start looking at Okay, what else can I invest in? Besides the stock market? Right?

Being from tech stocks is the thing everyone does. But, you know, to me, I wanted to diversify a little bit more and started educating myself on real estate right listen to a lot of podcasts such as this, I read a lot of books, and you know, kind of learned all I needed to know and then it kind of hopped in and figured out so before I even moved back to Houston, I had a four Plex under contract that you know, is now coincidentally about a mile away from our office but uh, you know, bought a four Plex bought a bunch of houses and kind of, you know, got into real estate before I then transitioned into multifamily. So, you know, love real estate, fun business fun space, and so I’m glad to kind of be able to share that.

J Darrin Gross 4:03

Awesome. So the attraction of real estate, what was the attraction for you to invest in real estate?

Feras Moussa 4:11

I mean, for me, so I’ve been there’s a book that I highly recommend called The Millionaire Real Estate Investor, Gary Keller, the guy that started Keller Williams. It kind of does a good job positioning really just what I like to call the pillars of real estate, right, you know, what does it mean to make money from you know, real estate investment, whether it’s cashflow, appreciation, depreciation, leverage, right? All of these things compounded really turns into actually a very powerful investment vehicle. And I think a lot of people, and again, coming from Tech, a lot of my friends are sipping the stock Kool Aid and you know, you tell them about real estate and what do they do, right, everyone thinks they’re a genius. They search Google, you know, they go Google it and say real estate versus stock market. The thing that you see is, oh, well, the stocks of you know, the past 50 years have averaged, you know, 10% a year, right real estate prices. It’s only two and a half percent. So clearly real estate a terrible investment, right?

But they’re not really factoring in the other pieces of that. Like I said, appreciation, depreciation, leverage cash loss, I mean, all of those things combined is actually a much more powerful. So to me, the math made sense, right? And then you know, it is a real asset, right? It is always there. And if you buy it, right, where, you know, you get it, you be pretty resilient, right? Because, you know, rents, you know, will fluctuate, but they’re not going to fall 100, you know, at 80% in at night, right? We’re certain stocks have done that, right? individual stocks, so you’re not beholden to some CEO somewhere not doing something they shouldn’t do kind of thing. And so, you know, for me, it was just another opportunity to get into a different asset class. And as I got more and more into it kind of started to really learn the power of it, you know, kind of run with it.

J Darrin Gross 5:48

So you said you had a four Plex, and some single families? Did you buy the four Plex first? Or did you buy some single?

Feras Moussa 5:54

So everyone talks about in all the podcasts, you know, four plexes is much better? Right? Well, the problem is, I knew I was in Seattle at the time, I knew us moving back to Houston and get into real estate. And there’s not a lot of for plexes in Houston. For those that don’t know, Houston is one of the largest cities in the world in terms of landmass. So in Houston, we don’t build up, we just build out, right. So there’s a lot of houses, there’s not a lot of for plexes. And so I know and I still do Houston pretty well, and most of the one for plexes that existed in areas that I would want to buy. And so luckily, I did find one, and I’ve you know, bought that. And then from that, you know, bought a bunch more houses, right? Which made more sense. And then, you know, after that point in time, okay, I saw the power of the four Plex all the power of the houses. And again, you can make money in real estate a million different ways. There’s no right or wrong. For me, the residential side didn’t really scale very well. And that’s kind of what led me into learning more about apartments and then kind of hopping all in.

J Darrin Gross 6:49

Let’s talk about that. Because I think that like, like a lot of people, myself included, I was, there was an lewer of real estate, I saw people that were investing in real estate. And I remember one guy was telling me, he goes, Yeah, make $100 a month off that $100 a month off that $100 I’ve gone, man, you know, you can add up, you know, pretty fast, you can have a couple thousand bucks extra cash coming in kind of thing. Mm hmm. And so that was kind of my allure. Yours? Was it the the Gary Keller book, kind of the big picture and the math or was there anything more?

Feras Moussa 7:25

It was the big picture in the math for me. I mean, it’s the numbers made sense. Right? And, you know, and then I could see that there is a path to scale that right. You know, I since didn’t realize some of the pain points of the residential side, right, I have 12 different properties, 12 different insurance policies, you probably know that, well, 12 different loans. I mean, all that becomes a pain because they’re all different. They’re all different times, right, etc, etc. And so, for me, I didn’t even have the headaches that people have in our tenants. Luckily, I had pretty good tenants for the most part, right? But it was some of the other stuff that led me to kind of realize, okay, this works, but it’s not gonna scale to where I want to scale to so.

J Darrin Gross 8:02

So you started off, you got the taste, you realize you need to scale? What, what were some of the hurdles going from Single Family to multifamily for you?

Feras Moussa 8:15

Um, hurdles? Honestly, I don’t want me to, I’m getting educated. Right. So once I kind of realized I wanted to make that transition, I was, you know, I was looking at doing my own smaller apartment complex, right, as a 32 unit in Conroe. And I’m glad I did not win that, because I was going to do that on my own. You know, no syndication, no nothing. And I didn’t win that one. And I was doing 32, because I was about the size that I could comfortably do right in terms of cash. And I didn’t win that and instead started learning, you know, again, educating myself more and started learning more about syndication, right. And syndication. For those that don’t know, it’s really the concept of, you know, let’s say, Darrin, you had $100,000 to invest in a property right. But hundred thousand dollars will let you buy a $400,000 property roughly. Right? Great if $100,000 property, that’s not enough meat on the bone to have full time staff or system size or anything like that. But now let’s say me, you and eight of our friends have $100,000 to invest right? together, that’s a million dollars, we can buy $4 million property right? So syndication is the concept of pulling together, you know, equity to go do something bigger and better together. And so luckily, I learned about that. And you know, I was gonna go off and go do my own syndication. Right. And, you know, also met my partner and, you know, we did count our first deal went really well then started to kind of continue to do more from there. And so it’s funny because that broker who, you know, that toward that 32 unit, I stayed in touch with him, right. And, you know, I remember I offered it and when we had a coffee and then about a couple months ago, I was asking him about a big deal that they had a for sale recently, right. And A class I think was like a $50 million deal. And his message back to me is like, man, how do you go from you know, asking me about a 32 unit asked me about this massive deal and it’s kind funny jokes, I told him the same thing like, Well, how do you go from touring me a 32 unit thats for me, this kind of large deal? And so, yeah, I mean, hopefully that answers your question. I kind of got a little bit long winded, but it’s education. And I think that’s the biggest thing, you know, people need to get educated. And for me, that barrier was cash, right, not having enough to have a bigger thing, but then I learned about a way to solve that.

J Darrin Gross 10:19

Right? I think you illustrated Well, the just the power of of, you know, leverage is really kind of what we’re talking about, because you could only leverage 400,000 with 100,000. But if you got a million, you can leverage 4 million. Right? And with that, the the the economies of scale, how, how large was the property? Or tell me about the property that you did syndicate? Or where are you at in the syndication?

Feras Moussa 10:47

So right now, I mean, so we, you know, we’re very, so we’ve done nine deals, three, two and a half days gone full cycle. The very first one was a deal that we did in Atlanta, that we bought for, man is about 3.9 million. So it actually wasn’t that big of a deal. We got a very good price point on it, though. And we know we sold that deal last year. And last year that I think is laser sales last year. And, you know, we’ve since actually about a year ago sold and, you know, our investors did really well on that deal, right? I mean, they made more than 40% annualized. So it’s, you know, your whole deal that we knew that we can get in and, you know, we can’t go wrong on that deal. Right. It’s a deal that we had, it’s hard to have, it was a very challenging deal for a lot reasons, because it’s a complete turnaround for kind of, you know, clean out, deferred maintenance, you name it, we saw it kind of situation. But when you as long as that we did our part, meaning our business plan is purely built around me and my partner needed to perform making sure things got done. It wasn’t needing to bet on the market. It wasn’t needing to bet on big rent pops or anything crazy like that. I like those kind of deals, because the deals and I always know for sure I can get done. Right. So right, that was our first deal. And, you know, investors see that they make before you know, they perform, they start getting excited about making money, and they start telling their friends, so it kind of grows from there.

J Darrin Gross 12:09

Right? How long did you hold that property?

Feras Moussa 12:12

That deal was a little less than two years?

J Darrin Gross 12:16

Wow. That’s great. That’s great. So now now that you are in, in multifamily what when you’re out, I mean, not multifamily, just, you’ve gone from the the singles and the more of kind of residential stuff where they look at you, the borrower, the banks, looking more at you to where now you’re looking more at the the banks looking at the property. And the operators? What I’m trying to think so the clearly the power of the numbers is kind of like the compelling theme here that I’m picking up on, or there. What else about the property? I mean, how many numbers was the the first property that you bought?

Feras Moussa 13:05

I think it was 99 units? We bought it for? 38,000? A door? You know, we sold it for 71,000? Right? But if you go if you just do that math in your head, right, it’s about a $4 million purchase price sold for about 7 million. Right? So you know, we profit wise, right? From kind of the purchase price itself about $3 million, right?

J Darrin Gross 13:27

Well, you’re mature improvements, how much were you in exactly as

Feras Moussa 13:31

I say? So we spent about a million a little over a million dollars in improvements, right. But on the deal, we also only raised, you know, one and a half million. So you know that one and a half million dollars allowed us to buy a $4 million property, right? And allowed us to make $3 million, right or two, you know, depending on how you how you size it up $2 million.

J Darrin Gross 13:51

So on that first deal, what were some of the lessons you learned,

Feras Moussa 13:54

Man, choose your lender wisely. That’s the biggest, you know, that was a deal. Again, not most lenders would do that deal. But we did have a professional lender that would have said we have to go into the company that is kind of known to be a loan to own type of lender and they said for verbatim one of the best one of the best turnarounds they’ve ever seen. But they wouldn’t approve the release of all of our CAP EX money. It was just such a circus. So, you know, we ended up actually funding it more out of pocket just because you know, whenever you’re running 40% occupancy, you need to get units online, right. I mean, you’re running in the red and so yeah, that lender was just they made they single handedly made a deal twice as much more than it should have been. So that’s the biggest lesson of that deal.

J Darrin Gross 14:38

No, it’s that’s a you know, it’s a lesson worth worth learning. Hopefully we learn from others rather than learning yourself. Yeah. kind of tight when you’re in the know

Feras Moussa 14:49

No, I like I say we’ve we’ve grineded our teeth on all the hard stuff. So you know, we were probably we know more than we should know about most things in terms of like lending all that. I mean, we just we just seen all the things that go wrong. So,

J Darrin Gross 15:02

Gotcha. So now now you’re a syndicator you guys are finding deals, you’re sponsoring deals, you’re raising capital. What’s the the most challenging thing that you’re, you’re faced you face today from a syndication model?

Feras Moussa 15:20

Um, I mean, I’d say just it’s hard to find good deals, right or last deal we bought was a year ago, and it just hard to find a deal. That makes sense, right? We’re, you know, we’re patient, we’re, you know, we don’t want to get a deal that we can’t perform on for our investors, right. So we’ve since really spent our time you know, we’re vertically integrated now. So we have our own management company. So brought that in house, and now that company is doing third party management as well, for other friends and people to kind of grow on that. Because, you know, going back to the reason I left Microsoft was really to bring tech to industries that don’t have it, right. And issues that are really dated. And property management is about the oldest thing, you know, out there. I mean, it’s just, it’s very notorious for, you know, really being built in the 90s. It just kind of stuck there. Right, not enough companies have modernized or rethought property management. So we’ve been really reimagining that and, you know, it’s since worked out, right. People are, you know, they see kind of what we’re doing, they’re excited, they, you know, there when we start managing other people’s assets, you know, who kind of gain their trust, right, on that sense. So.

J Darrin Gross 16:19

So in the property management space, what what are some of the things that you can you share some specifics with the tech that you, that you?

Feras Moussa 16:27

Oh, absolutely, I mean, you know, let’s just start with the most basic right, most people didn’t know what slack or Microsoft Teams was, until a year ago, right? We’ve been using Slack for like, five years, right? I mean, I’m bringing, you know, that was the norm in tech, right. And again, that just helps streamline things, right, you get people communicating consistently, and you know, kind of moving the conversation rather than being one infinite thread to being more conversation specific topics. So that’s a simple one, right? moving to an actual proper task management system, right? And solution that everyone can see what’s being worked on, people can get updates, etc, right? The biggest problem in property management is get on these weekly calls with a property manager. And we all agree on the things that should get done. But no one really documented it, no one really tracked it. And the following week, it’s like, oh, did you do that? Oh, no, I forgot about that. Right. So really, right now, I mean, you know, another thing too, is just, you know, we have BI dashboards, right? Business & sales dashboards, where we have visualizations of all of our properties, and you know, all real time data, right? Who are their managers, we have five different management companies, no one has given us that right. And so I mean, the list goes on and on and on, right, we make our maintenance, people take pictures of every single move out, and every single make ready. So we can see what it looked like before how much money was spent? And what does it look like whenever the tenants gonna move in, and doesn’t meet our standard, right. And so really kind of cranking up that visibility and transparency piece.

J Darrin Gross 17:52

It’s interesting, you mentioned that because I do feel like there’s a kind of an old school that we don’t do that kind of thing. But But the reality is, I think that the, with all of the the pressure from new laws that are protecting tenants to that kind of thing, it’s almost more of a tool to protect the landlord as well, if you do some of these things like the before and after pictures. And you know, more of a documentation type thing to where you don’t open yourself up to any kind of a nuisance, kind of an exposure or a situation. So it is, I mean, I applaud you guys for doing that. Because it seems like it’s a, it makes complete sense. I question why others don’t, you know, don’t do that.

Feras Moussa 18:45

Property Management is Hard. That’s why. I mean it’s a hard business. And so we have a rock star who kind of leads that part of the business and we’ve been just, you know, building the systems and the processes around her.

J Darrin Gross 18:57

Yeah. That’s, that’s great. Tell me about some of your capital raising. Have you? Is it been friends and family have you have you got about raising capital?

Feras Moussa 19:10

Friends and family and yeah, as we’ve grown, we start attracting more and more people writing for, you know, across the board, friends and family, friends or friends to, you know, people we meet at events and conferences, and now private equity, quasi institutional as well, right. We’ve had, you know, multiple conversations with those people and trying to, you know, I like to say we’ve kind of transitioned to be really glorified matchmakers match deals to equity, right. And so, you know, it’s really kind of up and down the spectrum. And because of that, we also look at deals up and down the spectrum. Right, we kind of got our start with that CB value add play, but we’re absolutely looking at A class properties. We’re looking at B’s we’re looking at C’s we’re looking at it all. So

J Darrin Gross 19:51

Right. No that the in your hold time on the one being two years, I think one of the things that I’ve always found interesting about commercials estate is it, especially with syndication, there’s a there is an exit plan for every property. I mean that just based on the makeup of the investors, they want their money back kind of thing. So there’s constantly I don’t say churn, but there’s there’s turning of properties and opportunities for coming up. And I suppose, you know, being patient right now is key. You know, make sure you find a good deal, not just a deal, kind of thing. That’s great. So, so on the on the tech side of things. Primarily, you’ve applied that to the property management, have you have you had any tech applications for any of the other? Whether it be raising or? Or?

Feras Moussa 20:49

I mean we do use a lot of different tools across the board, right. I mean, even just documenting and streamlining how we do every step of the way matters, right. We also have a team of VA that we leverage to kind of help really systematize and help keep everything kind of greased and everyone accountable. Right. And so I mean, we I’m always very open to looking at Tech and options and kind of how to do things. And so yeah, I mean, we, I’m trying to try to, you know, we do use a system called the IMS investor management system, it’s piece of software that I pay a lot of money for, I’m not really happy with it. But I’ll leave it at that it is acquired, did get acquired by a Real Page. But you know, it’s helpful for investors. Right, I think it’s just overly complex for what it is. But, um, you know, that’s helpful we use. I mean, we it’s really more about systematizing. And making sure you kind of have a plan for all of the common things that happen, right.

J Darrin Gross 21:47

Gotcha. Yeah. If it’s repeatable if it’s, something’s going to happen again. And again, and again, it’s kind of nice to have some sort of system as opposed to handcrafted solutions for every, you know, little situation I get you. Well, so today, you’ve got how many properties?

Feras Moussa 22:06

We’ve done nine total.

J Darrin Gross 22:08

So okay, it should two had gone full cycle

Feras Moussa 22:11

Two. And then we have another third one that’s gonna go for sale here soon. It’s for sale. I mean, we’re about we’re, we’re going to sign a contract very, very soon.

J Darrin Gross 22:19

So gotcha. And have the investors that got their capital back. were they saying, Hey, where’s the next one? Are they?

Feras Moussa 22:29

Sorry, I’m wrong. Three have gone full cycle. We have another one that’s coming up. Sorry for. But yeah, I mean, investors have gotten their capital back, they are chomping at the bit for another deal, right? I mean, especially the deal that we’re looking at selling right now those guys are like, man, can we get into a deal by the end of the year? Right, you’re gonna make a lot of money on that. And they’d rather get into another deal so they can get the write offs from the next one. So

J Darrin Gross 22:48

Right, right, plus a bonus depreciation right now. That’s absolutely, that’s kind of a key thing. And on your deals, are you guys, are you doing cost segregation?

Feras Moussa 22:59

Yeah we do cost segregation and bonus depreciation on every single deal. Okay. So I mean, our investor, I literally had to go back to the pillars that I mentioned the beginning, right? Some people invest for appreciation, some people just depreciation, right, those almost seem like contradictory things for someone that doesn’t know but you know, a little have investors that will invest only for doing the depreciation, because they’re looking at, you know, they have so much in gains, and they’re looking to basically write off, right, and so that literally makes more money for them, quote, unquote, than the investment itself.

J Darrin Gross 23:29

Right?

Feras Moussa 23:30

Because you have to figure I mean, taxes, you know, 30%, right. So you can write off, you know, let’s say you have $100,000, right off and you write off 100,000 you just save $30,000. Right? So,

J Darrin Gross 23:42

Right, right media in that hundred thousand dollar write off from the depreciation is it didn’t actually, quote cost you it was a more of a, an accounting,

Feras Moussa 23:53

accounting thing. And, you know, there’s a lot of tricks to you know, you do owe that at some point in the future. And there’s right, you know, but really, if you’re savvy enough, you can basically avoid ever paying that. So there’s my plan. So,

J Darrin Gross 24:07

Right. With your sale of your properties, have you had any? Have you guys done the 1031’s as far as like, goodness, sometimes? The GPS and I’ve heard of it?

Feras Moussa 24:17

It’s complicated with syndication.

J Darrin Gross 24:18

Yeah.

Feras Moussa 24:18

Yeah. Something that we should have just made way too much. Right, maybe I’m not

J Darrin Gross 24:26

know and I think that’s kind of one thing I’ve come to the conclusion of is if you’re an individual investor, or you you control the deal, and you have the entity that that’s in place, that’s that’s an option. But syndication is more kind of like it’s very comparable to stock markets for the in and out I mean, you get in you get out you could return, pay your tax move on to the next deal, kind of thing, but when the returns are, you know, 40% annualised. I don’t know that anybody’s gonna get too upset about that. I mean, that’s, you know, pay a little tax and move on.

Feras if we could, I’d like to shift gears for a second. Before we started recording I mentioned to you I’m a an insurance broker. And one of the things we do in insurance is we try and manage risk. And there’s a couple of different strategies we typically employ, we look to see if first we can avoid the risk. If that’s not an option, we look to see if we can minimize the risk. And when that’s not an option, then we look to see if we can transfer the risk. And that’s what insurance is it’s a risk transfer vehicle. And I like to ask my guests if they can take a look at their situation. Be your your properties, you know your customers, your tenants, your, your partners, whatever however you want to frame. But if you can take a look at the situation and identify what you consider to be the biggest risk. And, again, for clarity, I’m not necessarily looking for an insurance related answer. But if you’re willing, I’d like to ask you Feras Moussa, what is the biggest risk?

Feras Moussa 26:17

Yeah, I’ll say there’s two I’m gonna answer to two risks. Right? For me, personally, I’m one of them is just kind of really seeing what happens with COVID. And the government stimulus, right? Or deals of you know, I mean, our we’ve collected a lot of money, these properties, but that’s been because of the stimulus. Right? So really seeing, you know, what happens around that situation around evictions, all of that, right? And is the government to help kind of, you know, bail out tenants or not? Right, that was definitely something top of mind. And, you know, that kind of segues to my second risk, which is cash is king, you know, and all these properties cash is king and, you know, we make sure we have significant reserves, right. And even at the company level, I mean, we’ve been doubling down and just, you know, investing back in the company, right, we’re in growth mode and doubling down and reinvesting reinvesting, but just again, making sure there’s enough cash for everything. Right. So, I’d say those are my two biggest risks and some things I’m you know, just kind of very conscious of and, you know, continue to think about so.

J Darrin Gross 27:13

Yeah, I think it’s, you know, for all of the the COVID relief that’s been granted, there’s been a fair amount of challenges presented to landlords as far as you know, the no evictions and, and all that so yeah, it’ll be definitely interesting. See out all plays out and hopefully, there’s a soft landing and we all drive any major crash. But with that, Feras, Where can the listeners go? If they’d like to learn more connect with you?

Feras Moussa 27:47

Yeah, wwwt.disruptequity.com or they can send me an email at feras feras@disruptequity.com or you can find me on LinkedIn or Facebook. So

J Darrin Gross 27:58

Got it. Alright, I’ll list that in the show notes. And with that, Feras I want to say thanks, I’ve enjoyed our time and learned a lot, and I look forward to doing it again soon.

Unknown Speaker 28:14

Sounds good, Darrin. Thanks for having me. Appreciate it.

J Darrin Gross 28:17

All right. For our listeners, if you liked this episode, don’t forget to like, share and subscribe. Remember, the more you know, the more you grow? That’s all we’ve got this week. Until next time, thanks for listening to Commercial Real Estate Pro Networks. CRE PN Radio.

Property Investor Mindset with Tracy Cousineau – CREPN #282

Tracy Cousineau 0:00

I think it all has to do with mindset. You know, I know where my mindset was during 911. And I know where my mindset was during the Great Recession. I know where my mindset is now. So I didn’t feel anything during 911. I had a bad, bad negative mindset during the Great Recession because I allowed noise to interfere with that. And then when we hit COVID, my goal was how do I serve others? How do I show up? How do I keep helping the community, buy and sell real estate? That’s what my goal is. And so I showed up in a different way that I did during the Great Recession and it it was huge.

Announcer 0:36

Welcome to CRE PN Radio for influential commercial real estate professionals who work with investors, buyers and sellers of commercial real estate coast to coast whether you’re an investor, broker, lender, property manager, attorney or accountant We are here to learn from the experts.

J Darrin Gross 0:55

Today, my guest is Tracy Cousineau. Tracy is a powerhouse real estate entrepreneur, and business coach. She is a co founder of the number one real estate team in the Atlanta metro area. Ranked number 12 is the fastest growing company in Georgia by Inc magazine, and a real estate agent coach. And in just a minute, we’re going to speak with Tracy about creating wealth through real estate, and how to avoid certain mindset pitfalls.

But first, a quick reminder, if you like our show, CRE PN Radio, there are a couple of things you can do to help. You can like, share and subscribe. And as always, please because please consider leaving a comment. We’d love to hear from our listeners. Also, if you’d like to see how attractive our guests are, be sure to check out our YouTube channel. And you can find us on youtube at Commercial Real Estate Pro Network. While you’re there, please consider subscribing. With that, I want to welcome my guest. Tracy, welcome to CRE PN Radio.

Tracy Cousineau 2:31

Hey, thanks for having me today.

J Darrin Gross 2:34

Well, hey to you, and so glad you are able to join us. Before we get going if you could share with listeners, just a little bit about your background.

Tracy Cousineau 2:45

Yes, so I started in property management in 1989. And 10 years later, in 1999. I got my real estate license and full force to get my $12,000 in my 401k and hit the pavement running full time in real estate. I’m young in my mid 20s and didn’t know what I didn’t know at the time. But I’ve learned a lot along the way in the last 21 years. So I figured at the time. If I could lease apartments I sure could sell some houses.

J Darrin Gross 3:22

Okay. And are you a native from Atlanta or is that your your home?

Tracy Cousineau 3:27

This is home? I was born in upstate New York.

J Darrin Gross 3:31

Okay. Okay. In in Atlanta. You’ve been doing your as your real estate career been been based in Atlanta?

Tracy Cousineau 3:42

Yes. So I moved to the Atlanta area in 1980.

J Darrin Gross 3:44

Okay, gotcha. And tell me a little bit about just the marketplace. In Atlanta. Are you mean I? I’ve heard it just on fire, lots of growth. Can you speak to a little bit of that? Yeah, it’s

Tracy Cousineau 4:02

We’re definitely busy. Right now our production is at 42% from last year, even during the pandemic, you know, we were we’ve pivoted where we need to, we’ve shown up in the community where we need to our team, we cover 12 counties in metro Atlanta, so we have a very wide range, hours from one section to the next. to get from point A to point z would be hours worth of drives. So we cover a lot of ground in metro Atlanta, we feel that if we don’t get to, then maybe they might not have the best experience that they need to in the industry. So the more people that we can serve. We know that we provide a great client experience and have the certifications have negotiations and can get them the most money for their investment. So we always try to get to as many people in our community that we can.

J Darrin Gross 5:00

Yatra in, in specific to the just the the Atlanta area in the time that you’ve been working in real estate, has the growth been steady? Or is it a more recent phenomena?

Tracy Cousineau 5:15

No. So this is my third recession, if you want to call it since I’ve been in the business and the market is down about 35%, for the most part, metro Atlanta, we just again showed up to serve our community and where we needed to to provide for sellers and for buyers on, you know, the American dream. So, um, you know, the market is declining here, and they’re in different parts of Metro Atlanta, but things are selling, if you know how to make the best first impression to get the property sold for them.

J Darrin Gross 5:46

When you say down 35% of your referring to sales listing price or whatever, yeah, well, the

Tracy Cousineau 5:51

MLS is down by the amount of listings, a number of listings.

J Darrin Gross 5:56

Okay. Gotcha. Are the prices holding firm year over year, month over month kind of thing?

Tracy Cousineau 6:06

Yeah, I mean, there’s been a, you know, in some areas, you might see a little decline, but I haven’t seen anything major. And, you know, the homes that have what everybody’s looking for right now, you know, the pools, the extra home office, The finished basement, the resort style, style, backyards, those homes are selling really, really fast, because it’s supply and demand, people are working from home, kids are digital learning. So people are looking for specifics and properties. So those homes are going to sell a lot faster. And they’re going to have multiple offers, which are going to raise the price for the seller. You know, homes that are older that are not updated. People don’t want projects right now. So those might stagger a little bit longer, or they might have more of a reduction, depending on the price point.

J Darrin Gross 6:49

Gotcha. And that the the home buyer versus the investor? Is there? Do you see a lot of investors trying to get into the single family? Or is it more end user can the homeowner?

Tracy Cousineau 7:08

Well, I think we’ve got both right now, especially with some some on we’re going to territory right now that we just don’t know what’s going to happen, you know, you hear some talk about oh, we’re about to hit something, it might, you know, people think November December and then you have people Oh, by February, you’re going to start to see something but for me I’m looking more at I’m starting to get more calls on short sales, or people not being able to make their payments, because they’ve, they’ve lost their jobs or in COVID or they’ve deferred payments as far as they can with a mortgage company. And they you know, a lot of mortgage companies want that defer deferred payment back, you know, in a balloon payment after the different periods over so, you know, you’ve got some people just depending on their financial situation right now, because of the pandemic for this year. But, um, you know, loan modifications are coming due to a lot of people did an IOU at the end of a 10 year loan modification. So you’re starting to see a lot of that hit also that they’ve got a balloon payment due or they need to refinance. And maybe now they don’t have a job because of COVID, or, you know, something. So there’s a lot of different stuff going on, unfortunately COVID’s caused a lot of divorce situations that we’ve seen as well. And so it really depends on the situation, if it’s a great deal for an investor, I think the times are starting to come, that there’ll be some investor deals that that, you know, investors will want to start keeping their their eyes and ears open.

J Darrin Gross 8:40

No, I appreciate you sharing that, because I think that, you know, depending on what you’re watching, or however the The news is painting it or whatever the winds of blow, it can be kind of a foggy, kind of a sense of what’s going on. But I think there’s there’s been a kind of a sense that these things are coming. But, you know, I don’t know that I’ve talked to too many people that have seen them actually materialize.

Tracy Cousineau 9:11

Now. And it’s I think it all has to do with mindset. You know, I know where my mindset was during 911. And I know where my mindset was during the Great Recession. I know where my mindset is now. So I didn’t feel anything during 911. I had a bad, bad negative mindset during the Great Recession because I allowed noise to interfere with that. And then when we hit COVID, my goal was how do I serve others? How do I show up? How do I keep helping the community, buy and sell real estate? That’s what my goal is. And so I showed up in a different way that I did during the Great Recession in it. It was huge.

J Darrin Gross 9:49

Sure. No, I was kind of curious to know more about just the you mentioned that there are some of the you’re starting to see the the people asking about short sales. Kind of The cumulative effect of having taken a deferral and now the money’s due and, and perhaps the job isn’t there anymore, is that anything you feel like growing or is that just kind of random calls right now?

Tracy Cousineau 10:18

Honestly, I hate to say either way, but my opinion, if that counts, the amount of calls that we are getting our, we’re hoping that they have enough equity right now. And we’re just educating them the best that we can, you know, this is what we can sell it for. Now, you know, in six months, we don’t know. So this is what you know, if you want to make a decision today, this is what we know, we can sell your property for, but we can’t, we don’t know where it’s going to be in six months. If right now you’re not in a short sales, short sales status. And I suggest that if this is your financial, financial situation, that we go ahead and make that move now, so that you can pull out the equity that you need to before you’re completely upside down. And so each house is going to be different. And each situation I find is different with every house that we go to, to sell. And it’s really just educating the consumer and really giving them their options. My goal is to always put more equity in somebody’s pocket and take it from them. So you know, I want to bring everything that I can

J Darrin Gross 11:18

I appreciate that. Tracy, I was looking on Google before or preparing for this call. And so and I was just gonna ask you, it looks like you’re into a lot of things. beyond just being a real estate broker. Are you did I see, you’re also a host of a TV show. And own a retail store, you looks like you’re quite the entrepreneur there.

Tracy Cousineau 11:46

Yeah. So I, I’m on a TV show called The American Dream. I’m also working on a production of my own TV show called For Sale In The City. And so, you know, just hosting a TV show for Atlanta real estate, and, you know, and the community. So that’s in the works, launching a new book, and then have a cobook with my my partner that we’re putting together for real estate, I have a clothing store, it’s a women’s clothing store, I have a women’s group called Women’s Elevation that I help female entrepreneurs grow their businesses. Um, I have a, we have a call center. So we have an inside sales department as well. And I’m trying to think what else we my mind doesn’t shut up. So I just keep going.

J Darrin Gross 12:38

No, I saw it and it looked like a quite a prolific list of accomplishments and, and, you know, investments, or at least look like you’re you’re you had multiple, you know, pots on the stove there. So to say. So, that’s good.

Tracy Cousineau 12:56

Don’t always put your eggs in one basket is what I learned during the Great Recession.

J Darrin Gross 13:01

That’s, that’s good. That’s good. Let me ask you mentioned a little bit about the the changing times, and this is your third recession. As a real estate broker, you kind of have your finger on the pulse of what’s happening in the marketplace. And and I would assume have a much better feel for when something is priced. More competitively than not. One of the things that I I’ve kind of been amused by sometimes and it’s not right or wrong, it was kind of curious, as a real estate investor myself. I’m always kind of curious about real estate brokers, and whether or not they invest. And just if you can speak to that a little bit, do you do any investing.

Tracy Cousineau 13:52

So I did prior I did during the beginning of the 2000s. I am just now getting into looking at portfolios because we, you know, we have ran in the past and guaranteed sales program. And we have found great rentals for other people. So now is just looking at the opportunity. Our goal was also to look, you know, in the Florida area as well and see now would be the time to pick up those kind of condos and stuff. So I see that since we do get so many calls and we are on radio and TV, then I just see that come fall and winter, there might be more options. And so I haven’t been coming out of the Great Recession because the market just kept going like this. I lost everything during the Great Recession. So I didn’t have any income or credit to be able to do any investing and pick up what I needed to do during that time. So for now I look at it is if I can make investments and I can purchase other properties. I can use those for rental properties for people that may have to sell their property now. And need a place to go to. And so for me to find other properties at a discount would make sense because I’m going to help other people that need to move into the rental market.

J Darrin Gross 15:13

Right no, I think that sometimes it’s thought of is that the investor is, you know, stealing something or something like that. But the reality is there’s usually two, two parties to the deal. Yeah. You know, and it’s try make it a win win.

Tracy Cousineau 15:28

Yeah, I just, you know, I would hate for anybody to lose, not only do they lose their house when you when it’s in a foreclosure, but they also really hurt their credit by doing it that way. So if you can find a way to work it out, without them hurting their credit, and not having to sell their property on the courthouse steps is always a great investment for all parties.

J Darrin Gross 15:47

Right? So let’s talk a little bit about creating wealth in real estate. What are what are some of your thoughts on on how one can create wealth in real estate?

Tracy Cousineau 16:01

Well, definitely right now, the rental market is huge. And so you know, having if you’ve got a property that you are considering selling, but you don’t need to sell it to purchase another property, I would always, you know, take a look at what is the rental market look like in that in that district? You know, what is my return on that? Do I, you know, can I maintain that house, you know, what is the size of the house and maintain my house. So when you start in that investment cycle, those are the first questions that I always ask, especially when as a seller that’s never had anything to do with rental property, investment property is hidden, let me look at this. Or if you want to flip a property, I prefer to flip property, I think versus renting property, because you can fix it to how it needs to be fixed, pull the equity that you need to when you sell it, as long as you’re making it a trend. You know, during the Great Recession, those you know, people were there were hiding mold, and they were hiding all sorts of problems inside houses. And for me, I don’t like that type of investment. If you’re going to pick up a property, in my opinion, fix it to the way that it needs to be fixed. And don’t leave the buyer behind with stuff that needs to be fixed later. Because I walk into that all the time as a real estate broker, because now they need to sell it because now they hate the house because they bought it from an investor who, you know, took a lot of shortcuts just to put money in their own pocket. So I always say if you’re going to invest into real estate, and you’re doing it for a flip reason, please do it the right way. Because at the end of the day, it just your character shows from that. So that’s really huge, because I see it all the time. And it really stinks to see that I’ve got some buyer their first house right now. And two weeks after they moved into their first house in their early 20s. There’s about $200,000 worth of water damage, because an investor fixed a pipe in the wall, but failed to crimp it. And so water just exploded everywhere in the house while they’re at work. And so it ran water throughout their house and did $200,000 worth of damage to their property. And so they don’t like their house so much anymore. You know, this was their first house and this is where they’re going to begin to make their memories and now they’re left with a watering mess that they have to fix. So, you know, I’m just putting that out there. Because, you know, when we look at investment, if it’s not something that you that you do on a daily basis, always educate yourself on how to be the best investor.

J Darrin Gross 18:30

Sure, with that, you talked about the the investor that’s not doing the thorough job and I mean, water, water mess is a mess.

Tracy Cousineau 18:40

Yeah, water will rot your world is what I say.

J Darrin Gross 18:42

Yeah, that’s good. What what are some steps or some ideas to help avoid that and also even just kind of mindset, pitfalls.

Tracy Cousineau 18:56

Yeah, you know, go into it with what your what is the end goal, you know, if you’re doing it for a rental, I think that’s great people need rentals, long term, just make sure that it’s something that you can maintain when things fall apart, etc. And that you have a Rolodex of vendors that are going to show up when they need to show up because that’s huge in the rental market. If you’re using it for a flip you know work well if it’s not something that you’re you have a trade for and you don’t really know how to to fix whatever needs to be fixed, electrical, you know, plumbing or whatever, you hire the professional to do it the right way so that you’re not left being, you know, sued later for something that wasn’t done right or disclosed. So I always say full disclosure on stuff, um, and to make sure that you find the right contractors that you’re working with.

J Darrin Gross 19:45

Gotcha. I’m looking down my list of things here. Can you describe some of the typical issues you’re you’re run into right now in this marketplace.

Tracy Cousineau 20:02

really is just educating again, sellers that you can’t just wake up and say, that’s what I want to sell my house for. And it’s really, you know, showing them what the true what an appraisal is going to come back out for the value of their home and making sure that they understand. And I won’t over list a property because it’s my job not to over list a property, it’s to get maximize their, their price for them. But if it doesn’t make sense, it doesn’t make sense, and to be a a bold enough person to say, Hey, I’m not gonna set you up for failure and list your home at 800, when I know that it’s only gonna sell for 750, you know, and then help educate on a lot of people have the mindset that if I listed 800, I’ll take 750, well, that 800 buyer is probably looking from 800 to 850. So you already lost them at that 750 mark. But then when you have to reduce it to the right price that it should have been at, you’ve already lost basically, so much traffic, because your best traffic comes in the first few weeks of listing your property. And now people are gonna wonder what they have been on the market this long. And they’ve already had to reduce what’s wrong with the property. So you set yourself up for failure, if you don’t list your property at reasonably, what it needs to be listed somewhere around. So that’s always a risk, especially now, right now, you know, it’s, we don’t know what’s going to happen, I’m going with the mindset that we’re just going to keep killing it like we are, and the markets just gonna keep going. And that’s just the positivity that we just keep going with. And we’re I mean, are selling homes or sell multiple homes every single day. So we just keep going with that mindset, and we’ll keep the economy going as much as we can in metro Atlanta.

J Darrin Gross 21:51

No, that’s, that’s good. What are the kind of the range of prices that you’re seeing right now? And what’s Uh, what’s the median price?

Tracy Cousineau 22:00

Yeah, you know, our average sales price in our office is around that 325 350 mark. And I believe that for metro Atlanta is probably that 285 300 Mark, anything under 300 sells overnight still. And that’s just that first time homebuyer and that downsize price point for now, in this area, but you know, we’re closing million and $2 million sales. So, you know, we’re not, we’re not feeling anything. So I’m going to, you know, keep going with that positivity. I’m working on a case study today and tomorrow. So have to get back with you on this one. But I want to pull the last 30 to 60 days worth of appraisals that we have from our listings and buys. And look and see because I noticed that on an appraisal I was looking at yesterday morning, the appraiser put in this particular area that he’s beginning to see and decline decline decline was three areas on the appraisal that he had seen of the market in this one area in this area is a pretty happening area in Marietta. And the price point was, was only like low to hundreds. And I’m thinking, hmm, where did he get that data from? I need to go find this because I can’t imagine that that area has a declining market. That doesn’t make sense to me. So I’m like, What if they’re, how many appraisals are they doing? And what are they saying? So I need to go back and research that and look and see what where he pulled his numbers from. But then I’m like, ooh, let me go look at a bunch of appraisals so that I can see is this a trend? Or is it just this one appraisal?

J Darrin Gross 23:37

Right. Now, I think the thing always in residential real estate is, you know, whatever the neighbors or the homes around you are selling for is kind of a benchmark. I mean, that’s a reference point, right? When Yep, when they’re doing the comparisons,

Tracy Cousineau 23:55

You know, it’s apples to apples, and then you take off the oranges.

J Darrin Gross 24:03

Got it? Hey Tracy, if we could, I’d like to shift gears here for a second. By day, I’m an insurance broker and as such work with my clients to do some risk management. And there’s three different strategies we typically look at. The first is can we avoid the risk? If we can’t avoid it, then we look to see if we can minimize the risk. And when we can’t avoid or minimize, we look to transfer the risk. And that’s what an insurance policy is. And I like to ask my guests if they can take a look at their situation their their business, their clients. You know, however you want to frame this. And I like to ask them to consider what or identify what they consider to be the biggest risk. And for clarity I’m not looking for an insurance related answer. But if you’re willing, I’d like to ask you, Tracy, Cousineau, what is the biggest risk?

Tracy Cousineau 25:13

You know, I’m gonna go for the our client sakes and customers are, you know, buyers and sellers is if you’re a buyer, and you need to have a hunt, you need to have an inspection, you need to know, if there are any issues with the property, you need to make sure that you hire a home inspector that has all the credentials, that they’re that they are checking everything for you and that they’re not missing stuff. radon is a huge thing in Georgia, because there’s lots of rock. And so you know, if you always have a radon test, and then always check for termites, homes in metro Atlanta, they’ve either had them or they will have them. So those are always three things. Because all three of those things could cause a risk to your insurance. Radon, there’s lots of issues that could cause it, but in my opinion, if somebody comes to your house all the time, and they’re stuck in an in an area of your home that has radon, this could cause a health issue for them, which will then go back to your insurance, possibly, or if you move into a buyer moves into a house, and they didn’t have a home inspection, and let’s say that it flooded or it caught on fire, because something was missed, there was some electrical issues in the panel box or whatever, you know, those are all risk and when they close, that’s their risk. And they’re you know, and their insurance that have to go back and find out where the problem came from and where it was from. And, you know, vacant homes as well. So with sellers with vacant homes, it’s you better make sure you add on that protection that you let your insurance company, you know, know that your policy needs to stay that your property is now vacant. Because there are many things that can happen we had a vacant property and we got a call in the middle of the night that it was on fire, and the house was burnt down. So or you can have an intruder you know, mess with it. You know, there’s just so many different things that you always you know, personally for me, and my personal situation is we’re putting in a pool. So it’s like, Okay, I need to make sure that I’m adding the pool that I’m adding the fence and you know, we are always looking at what could go wrong in this situation and then figure out okay, how can I make it? How am I less liable for it if I if I take the right steps to clear it. So I always think about what’s the end goal and make sure that anything in between the end goal doesn’t you know, I didn’t miss

J Darrin Gross 27:49

Well, it’s good. I appreciate all the the insurance reference because that’s I mean you speak the truth A lot of people don’t always think of those things and those are definitely some issues especially the vacancy and the change in exposure. Appreciate that. Tracy Where can the listeners go if they would like to learn more or connect?

Tracy Cousineau 28:11

You can find me on Facebook at Tracy Cousineau Connect, and you can find me on Instagram at Tracy.Cousineau or you can find me on LinkedIn at Tracy Cousineau.

J Darrin Gross 28:23

Got it. Tracy, I can’t say thanks enough for taking the time to talk. I’ve enjoyed it. learned a lot. And I look forward to doing it again soon.

Tracy Cousineau 28:33

Yeah, I would love that. Thanks for having me today.

J Darrin Gross 28:36

All right. For our listeners. If you liked this episode, don’t forget to like, share and subscribe. Remember, the more you know, the more you grow? That’s all we’ve got this week. Until next time, thanks for listening to Commercial Real Estate Pro Networks. CRE PN Radio.

Announcer 28:56

You’re listening to CRE PN Radio for influential commercial real estate professionals. For more information on this or any of our guests like us on Facebook CRE PN Radio.

Make Setbacks Your Rocket Fuel with Mike C-Roc – CRE PN # 281

Mike C-Roc 0:00

Your life will never be the same because every time you come into one of these setbacks, matter of fact, you’ll look for setbacks and problems. You get into these situations. You understand, man, this is a training session or this is fuel for me. This is rocket fuel for me. And the reason I say rocket fuel is because I’m trying to get into orbit. What I mean by that is there’s suppressors in life. Bad things happen to good people. You can call that gravity. And when gravity’s action, it’s trying to pull you back down. Well, I want to get to orbit where the gravitational pull is pretty much gone. And you need the only way to get into orbit is rocket fuel.

Announcer 0:35

Welcome to CRE PN Radio for influential commercial real estate professionals who work with investors buyers and sellers of commercial real estate coast to coast. Whether you’re an investor, broker, lender, property manager, attorney or accountant We are here to learn from the experts.

J Darrin Gross 0:55

Welcome to commercial real estate pro networks CRE PN Radio. Thanks for joining us. My name is J. Darrin Gross. This is a podcast focused on commercial real estate investment and risk management strategies. Weekly we have conversations with commercial real estate investors and professionals who provide their experience and insight to help you grow your real estate portfolio.

Today my guest is Mike Ciorrocco. Mike is the CEO of People Building Inc. He is a performance coach, author, dynamic public speaker, visionary and thought leader. He has been featured by Yahoo Finance as one of the top business leaders to follow in 2020 and is on a mission to build people. At his core. He’s obsessed with success and helping others achieve greatness. C-Roc is a guy who had a fire lit in him at an early age that fires led him to inspire others to see greatness inside themselves using past life events to fuel their fire. In just a minute, we’re going to speak with Mike about how you can turn setbacks into rocket fuel.

But first a quick reminder, if you like our show, CRE PN Radio, there are a couple things you can do to help. You can like, share and subscribe. And as always, we would love to hear from you, please consider leaving a comment. Also, if you’d like to see how handsome our guests are, be sure to check out our YouTube channel. And you can find us on youtube at Commercial Real Estate Pro Network. And while you’re there, please subscribe. With that I want to welcome my guest, Mike, welcome to CRE PN Radio.

Mike C-Roc 2:45

Thank you for having me. It’s an honor to be here. Anytime I have the opportunity to share my story and my content with others audiences. Man, I’m honored. And I just want to express gratitude for you, to you for having me here.

J Darrin Gross 3:00

No, my pleasure, I’m looking forward to our talk. Hey, before we get rolling here, if you could take just a second and share with the listeners a little bit about your background.

Mike C-Roc 3:12

Yeah, so I run a mortgage division for a large company called Nation’s Lending. And it’s throughout the 50 states mortgage lending. We have 40 employees and I get to work with three of my best friends I grew up with since I was 10 years old. We all went to high school college. And now we’ll get to work together. And my younger brother Casey is one of our sales managers as well. So when I wake up in the morning, despite thanking my Creator for being alive, and being able to impact people every single day, I also am very thankful for the opportunity that I have to come and work with such a great team along with best friends and my brother. So we’ve been doing a mortgages for since 2006. And we had our own company as far as our division since 2011. So for the last nine years, we’ve been learning growing, without much guidance, without much mentorship, kind of figuring out things on our own. And understanding that, you know, we had a lot of setbacks, just like anybody in business that you’re, you know, you’re going on, we could have the best guidance, mentorship or what have you, and still finding out that we need help. and not being afraid to ask for help, being able to go to somebody and be vulnerable. And so we’ve learned that in the last nine years, and now we’re actually seeing, finally, exponential growth over the last two years. And we’re finding things that work. And then we get so excited about it. We want to share it with people. So that’s what I do. I also have a coaching business called People Building and the podcast called What Are You Made Of?, and we’re just firing on all cylinders. And, you know, I just want to try to jam as much as I can in the number of years I have left on this planet to make the biggest impact that I possibly can.

J Darrin Gross 4:57

That’s awesome. I love the way working with your buddies from 10 years of age. That’s, that’s pretty cool. And was everybody like minded? Or who was the, the the lead on getting in the mortgage business?

Mike C-Roc 5:14

Well, there’s one gentleman, Chris Short, one of my best friends he got in first, I was in real estate. And two of us were in real estate as realtors doing well. And another one was in banking, not necessarily mortgages. So Chris was in it first, we all jumped in. And then as far as the building and scaling and all that they’re all on board, all like minded, but I lead the charge within the inspiration and the culture building. And then they jump on and help and they have their own strengths that they’re that we use them for. So

J Darrin Gross 5:48

Oh, that’s awesome. And are all of you guys still located in the same area? Or have you spread out?

Mike C-Roc 5:54

No. So we’re spread out. The cool thing about technology nowadays is we have seven, six or seven branches, I can’t even keep up anymore. But we have 40 employees spread out through Maryland, Delaware, and Miami, actually. So we use zoom, we use Microsoft Teams a lot to interact with each other every day in the morning, we meet with the whole team for 15 minutes. And we do a lot of video calls rather than we rarely use the phone anymore. It’s mostly video calls. So we have that interpersonal communication and contact with that. So but occasionally, we’ll be together at certain offices just depending on the day. So

J Darrin Gross 6:33

No, that’s awesome. It is kind of a funny thing to think how technology has shaped our world. And in brought us closer and accelerated. So through this whole COVID experience. I think the just like what we’re doing right now, the video phone is kind of a ubiquitous experience, and, and all the different platforms and all the challenges that brings, but it’s all good.

Mike C-Roc 6:58

Yeah, and you know, Darrin thing we talked about before we got online here is, you know, COVID has put us in situation where we can adapt more. And I just want to preface this because you may hear some noise in the background. And we’re overcoming a challenge right now You and I, that we had talked about and I like to bring things I’m transparent kind of guy because I any lesson that I can learn through everyday life, I like to bring it to people’s attention so that they can benefit from it. And you know, I’ve construction going on downstairs in my house two levels below me. And we said to ourselves, do we want to do this or not. And I’m not in my podcast studio, I’m usually in a nice studio. And you know, in life, man, I learned a lot of things with this. And COVID has bring that brought this to the forefront, that you have to be able to adapt to things, you have to be able to use setbacks as fuel for yourself, not just fuel, but rocket fuel, which we’ll get into later. But I just wanted to bring that up in case people hear a little bit of noises in the background. Nowadays, we’re in the COVID environment, the COVID, uh, you know, things are, you know, changing and happening out of our control right now and just kind of have to adapt and make the best of it.

J Darrin Gross 8:02

No, that’s so true. I think it’s, it’s really kind of opened up a whole new range of possibilities, I think, you know, a lot of the the rigid kind of place to work and how work was to be done as getting exposed for, for what it is, I think the reality is if, if there’s work to that needs to be done, and people can do it. Let’s get it done. Right.

Mike C-Roc 8:30

I love that. Yeah, I mean, nothing, nothing, you know, we can use all the excuses we want in the world for things not getting done. And that that’s a great example of COVID a lot of people used COVID for an excuse not to be successful. And when it happened for our team in the mortgage industry, as soon as it started to happen, getting to acceptance and acknowledging the issue that was going on as fast as possible was key for me and my group. And we met with our team and say, Hey, guys, this is what happened. And right now, things are gonna change. I don’t know how bad it’s going to get. But let’s just shoot and think that ourselves that we’re going to work absolutely the hardest we’ve ever worked in our lives. We’re going to be the most wore out at the end of this. However, this is the reason we’re going to make it a reason why we’re successful while everyone else makes excuses. And so 100% Man, I mean, I’m in a T shirt right now, I work most of the time and a T shirt. I wear a hat, I don’t have hair, I wear a hat, but we’re doing more business we’re more successful than we’ve ever been. And at the end of the day, like you said it’s about getting the job done.

J Darrin Gross 9:32

Right right. So let’s let’s talk a little bit about your your driving, you know your your focus of taking you know, a setback and turn it into rocket fuel. The in the intro there read a little bit about something early in life. He had something is there a is there an episode that you can share with us that that kind of made that crystal crystalize?

Mike C-Roc 10:02

So, I came from a broken home there. And I don’t remember my parents together. And when I tell you the story, it’s not because I’m trying to play a victim role. I use this as strictly as rocket fuel. And I’ll explain to you why rocket fuel in a second, but no, my parents never know them together would do the other weekend thing, like a lot of your listeners may have dealt with the custody battles, the child support battles, all that jazz as a kid. Now, as a kid, I didn’t know any different, I thought it was normal. And you know, then I moved with my dad from eight to 11. And during that time, again, I didn’t know this was not normal. But I dealt with a lot of emotional and psychological abuse. My parents had conflicts, the step parents were, you know, had conflicts. And I was in in this environment and trenched in it and felt like it was all me it was my fault. And so, you know, I didn’t think it was anything of it. Until one day, I was coming home from my mom’s house after a weekend at her house. And we would go to these hills in southeastern Pennsylvania. And my stomach would be in knots before I would go back to my dad’s house, I would have anxiety. I just wasn’t right. And I thought it was normal. I thought it was like this is just the way it is. And my mom told me, she said, You know what, this isn’t normal. You shouldn’t be doing this, you shouldn’t feel this way. This is not normal. So at the end of the day, when I basically had the conversation with her, I opened up to her and said, Hey, this is what’s going on. I’m not happy, I’m being treated this way. She said, Listen, I’m gonna, I’m gonna follow court papers. And I’m going to, you know, get you out of there, if that’s okay with you, if that’s what you want. But if I do this, you need to stick to your guns, you need no matter what, because they’re going to try to talk you out of it. So one day, I came home from school, my dad had court papers in his hand, and I knew darn Right, well, what was in that, that envelope. And, you know, he said, Go Go back to your room. And I sat in my room for about five minutes, which felt like five hours. And he came in and he said, You know what’s in this envelope, you really want to move back with your mom, they don’t have it that great. They’re, you know, they don’t have money like we do. Now, my dad was my hero, he had a masonry business, very successful, I looked up to him, he’s a hard worker laying concrete, pour concrete laying block. And the end of the day, I looked that up to him for and he always had this wad of hundred dollar bills in his pocket with a rubber band around it. And that, for me, as a kid, that was like, cool, you know, I, I just knew that we got trips that we went to dinner a lot, we went places and had a nice house. And, you know, when it all came down to it, though, that none of that stuff really matters. And I became understanding of this. Now when he said that you really want to leave here. I said, Yeah. So he takes the $100, bills out peels one off, crumples it up and throws it at me, it says, well, you’re going to need this when you’re living on the streets with your mother one day.

Now imagine 11 year old kid, his hero, basically throws in the towel, like a trainer would throw in the towel on his boxer. That’s the way I fell inside. But I’m very stubborn Darrin. And that could be a strength and a weakness. But I said to myself, I’m not going to let him win, I’m not going to need that money. And also, I knew remember, I thought this was an ordinary scenario, I thought that everybody’s going through this, I can’t be the only one going through this. There’s somebody else out there that’s given given up on and they’re going to need somebody to look up to, to see the experience where somebody rises from this, this this situation. Now I didn’t have it that bad, I don’t think because there’s people that had it worse than me. But at the end of the day, that’s considered to me a setback. Let down somebody given up on me. And so at that moment, I just decided that I was going to help other people by being a role model. I didn’t know that I was going to be able to help people as far as coaching them or being an inspiration as far as a mentor or what have you. But I do didn’t know that I could be the best I could be at everything I tried. You know, it got into sports, work, school, what have you.

So that’s the moment I look back at this 30 some years ago, it’s clear as day that’s the moment that I can point to that really understood what setbacks are for in our lives. And that obviously, through my life, I’ve had many more as we progress forward. But the thing is, is that at that that’s the one that that the pivotal moment when I was a young kid. And what happens is, is that when you have a setback, a lot of people get thrown back. First, they don’t acknowledge it right away. They don’t accept it. They try to go through a denial phase, they go through a victim phase. Meanwhile, all this time is passing there. They’re not in the right frame of mind. They’re wasting time energy,

productivity, lagging, family life might be lagging. And if they could just understand this one concept to turn all setbacks, let downs negativity into rocket fuel for your future. Your life will never be the same because every time you come into one of these setbacks, matter of fact, you’ll look for setbacks and problems. You get into these situations. You understand, man, this is a training session or this is fuel for me. This is rocket fuel for me. And the reason I say rocket fuel is because I’m trying to get into orbit. What I mean by That is there’s suppressors in life. Bad things happen to good people, you can call that gravity. And when gravity’s action, it’s trying to pull you back down. Well, I want to get to orbit where the gravitational pull is pretty much gone. And you need, the only way to get into orbit is rocket fuel. So this is the things that go through my mind. And not a lot of people can relate to this, it might be too much for some people, but it works for me, and it works so well. And I feel like I got to share it and coach people about it.

J Darrin Gross 15:30

I love the story and how you did take that and kind of galvanize and you’re you said, You’re stubborn. I’m sure that that that helped a little bit that you didn’t want to, you know, let it in there. But I’m curious, you know, you mentioned a couple things I’m familiar with, you know, acknowledging what’s what, what the issue is first, having some acceptance over that, and then kind of, you know, some sort of a plan to move forward kind of thing. What, what do you find? Is there a daily routine, because I think it’s one thing to have an issue on one day, like a big event, whether it be you know, you know, whatever it might be, but throughout our lives throughout the days, there’s always little things. And some we may just kind of deal with and move through, but, but just maintaining that, that high level, high energy, high positive, and we’re gonna get through this, we’re gonna get past this, this is not going to keep us back. What is it? I mean, are you are you a Red Bull guy, you drink lots of coffee? What are you doing? What’s your what is it that keeps you, you know, focused and driven? And tell us a little bit about your you have a routine? Or how do you how do you stay that fired up?

Mike C-Roc 16:46

Well, first of all, yeah, I like coffee. But that’s not what you know, I don’t drink it every single day. So I like to like coffee, and I work out a lot. But really, what it comes down to there is when you have a purpose that you believe in, and you’re so passionate about it and you’re obsessed about it. Really you don’t burn out. It the people burn out when they don’t set big enough goals and targets for their life and don’t have a big enough purpose. So I think people need to start First of all there, before I get into the routine thing, people need to start First of all, by thinking about being in the desert somewhere, finding a lamp that has a genie in it, and rubbing that lamp, Genie comes out and gives you three to five things that you could have no matter what it is not putting a limit on it. Don’t worry about if you think it’s impossible, what is it? and 95% of people don’t know the answer to that question for themselves. So it’s always starting right there. Because when you start there, and you don’t put any limitations on what you want in life, and then it’s a really big grand vision or goal. Once you do that, things start to open up afterwards. And so that’s where I start. And so when I you know, have a goal, I have a goal to create a, you know, a half a billion dollar company, I say half a billion because that’s where I want to start with with people building and helping people build themselves and helping companies build their people. So that’s a goal there. I have a goal right now I’m writing a best selling book. How do I know it’s best selling because I’m going to make it a best selling book. I’m doing whatever it takes to make it a best selling book and an impactful book. I have this in my head. I’m excited about it. I’m fired up about it. And so I’m just giving you some goals that I’m having. I have right now. My mortgage group we’re doing we started out doing 4 million a month, we have a goal to go to 100 million a month. That’s an unheard of amount of loan volume for group our size. Now we’re going to grow a little bit but at the end of the day, we can do it with just adding a few people. So that’s a big goal that we have and I continue to talk and preach that to my team so they’re constantly striving and not getting complacent and comfortable. kryptonite for me is comfortability and complacent complacency.

So I’m constantly aware of that and so that’s what keeps my energy up because I’m not going to settle and sit back and and be okay with things happening to me. And and me giving control to something else and playing a victim. And I work out so morning routine man I get up I’m gratitude right away. Thank thankful that I open my eyes thankful for my legs and feet, my hands, my ears, my mind, my everything. It sounds corny, but I go through this list every morning, because I’m thankful for it. And what it’s done for me is it removes and eliminates and makes everything that I could complain about disappear. It’s a magic trick, if you so to speak, but you got to be patient with it because it doesn’t happen overnight. Now, I’d recommend people do it for 30 days, and then give me the feedback. Let me know how it works for you. I know it’ll change your life. So I start with that I start with the goals writing goals down, drink water every morning to stay hydrated. I read 10 pages every morning, and then I’m off to the gym, working out our workout at least. And then I have a team meeting with my team after that. Get everybody’s head straight and ready to go. That’s what fires me up. That’s where I have energy. I don’t listen, I don’t get tired or burnt out. I do However, sleep very good. And I get seven to eight hours of sleep every day. Because when I hit the pillow, I can’t lay there and watch anything with my wife, I fall asleep right away.

J Darrin Gross 20:10

No, that’s awesome. So you’ve got you explained kind of two things there. One is the the importance of having a purpose. And you also explain your, your kind of routine. And then I want to ask you about team building your you have your own team that you’re selling here, the the responsible party for kind of motivating and getting them keeping them driven. It’s one thing to motivate oneself, it’s an entirely different thing to translate that and get others fired up and keep them focused and, you know, moving and have that energy in that. And it I think there is something to that the the positivity kind of feeds off of, you know, the, what’s that the the five people you’re closest to that, you know, you kind of absorb what they’re around. So, I wonder if you can speak a little bit about how you go about motivating others.

Mike C-Roc 21:12

Yeah, so you have to, first of all, share your your vision and your big goal of your company with your team, your company, your employees, once you share that with them, then you have to find out what their personal professional financial goals are. I learned that from a mentor of mine, Branden Dawson, where he got it, I don’t know if he made it up or whatever, he created it, but I got it from him. I’ve done it in the past, but I didn’t realize I was doing it. And that he may be aware of it. And being more intentional about it, but getting with the team and having a one on one meeting with them and understanding where they want to go with their lives. Very important, because you cannot hold people accountable if you don’t know what they want out of life. And you’ve got to make sure that it aligns with your company’s vision and goals. Because if it doesn’t, there’s no alignment, you’re gonna have conflict, and then that can rupture the team. So that’s number one.

Number two, is gratitude. Gratitude is very important. So we practice gratitude exercises, once a week in our team. In a sales meeting, we start the meeting with everybody going through one at a time saying the name of a person the week before they did something above and beyond for them, that has changed our culture. We’ve been doing that for over a couple years. Now. Secondly, I’m sorry, third is unlimited income potential, we create an environment for everyone to bring revenue into our company, even people that aren’t salespeople. So when they bring revenue into the company, they’re rewarded, but it obviously takes care of the company as well. And they can never complain about the money they’re making to leadership, unless we’re not helping them sell or teaching them how to do something. So that eliminates any animosity. And then also we do a we accountability, where we have a team that holds each other accountable. Rather than just the leadership down accountability, we have the team feeding off each other, and you get an actual lift, like a hot air balloon, when the team is holding each other accountable, and lifting each other up, celebrating wins together, etc. So those are the things that we really focus on. And that has lifted, our team has gel our team, it’s a constant work in progress, it’s not something that you put in place once and then you leave it if you do that you’re just as good as not doing it at all. It’s a constant work, I have to constantly talk to my leadership team about Hey, guys, we need to speak the same language, we need to be constantly on this hundred million a month, we need to be constantly holding each other accountable. And it’s, it’s, it’s, it’s hard work, it really is hard work to do. And it’s persistence, and you just got to be relentless with it. But if you’re committed to your goal and your purpose, then you will make it happen. And that’s that’s what we do.

J Darrin Gross 23:50

Yeah, I am guilty on on having, you know, read something and been all fired up, you know, and in, you know, you head off for a couple days or whatever. And then life starts happening distractions kind of take over and, and, you know, it can be a little bit of a challenge there. So in those instances, how, I mean, there’s the personal side of thing, but then also try and keep the team motivated. Are you are you constantly taking the temperature of how the team is reacting and then trying to, to, you know, point them in the right direction or is that a daily assessment? How do you how do you deal with that?

Mike C-Roc 24:34

Yeah, so with that, first of all, we do training every single day. Our whole team is on we call Cardone University. I’m not sure if you’ve heard of it or not. Grant Cardone is a mentor of mine. So we do Cardone University every day at 10am. I get a report to see if everybody did their four videos that they’re expected to do based on sales, training, motivational training, financial literacy, communication, etc, etc. by me doing that and getting that report I can see who’s engaged for the day. If they’re not doing their videos, then I’ll reach out to them say, hey, everything, okay? Anything I can help you with. So that’s number one. Number two, is every day of the week, my leadership team is assigned a day of the week that will reach out to each employee for five minutes, and just touch base with them and see if they need anything. Especially because we’re not in the same building. It’s important for us to make sure that we maintain a open door policy, so to speak, and also an engagement with our employees. So we do that every single day, there’s five people on the leadership team, my day is Friday, and we just call around real quick, even if the people don’t answer and shoot them a message if they don’t answer and let them know that we were checking in on them to see if they need anything. So that’s how we do it. And then we can gauge the temperature. You know, when you’re in an environment of we accountability, you’ll get like, there’s a problem with one of our employees. I’ll hear about it from one of the other employees because they care. And they’ll say, Hey, listen, john was a john was talking to me today. And he’s not real tickled about this, where he’s having issues with this, don’t tell him I told you. Now, that’s a trick in itself, because you got to figure a way around that without throwing that person under the bus. They’re not tattling. They’re just concerned with the team and they’re concerned with that person. So then we just reach out nonchalant and say, Hey, you know, hey, I was just thinking about everything, right? Anything I can help you with today. And you and you aim to attack things in a good way, not not like aggressively but attack things. To assist people, instead of running from problems. Like I’m always looking for challenges, I’m looking for problems. I want to solve things. Successful people do that they’re unsuccessful people, what they’ll do is they’ll look how can I get out of problems? not solve them, but how can I avoid problems? How can I avoid challenges? I look for them, and I want to solve them. And that is that has taken us to new heights.

J Darrin Gross 26:51

I love that. No, solving other people’s problems or saw solving your problems, problems. I mean, that’s that there’s always need for that. That’s, that’s good stuff. So you work with your own team, you also then mentor or coach others?

Mike C-Roc 27:10

Yes. So first of all, real estate agents are a source for us for business. But we don’t like to just go to them and say, Hey, you have anybody that needs to be pre approved. And just ask for a cake, right? We want to go to them and say, Hey, listen, we know how to get business, we know how to teach you how to get business, how to make more money. Let’s do that. Let’s work together. Are you interested in making more money? Are you interested in making your business more stable, and then we go do that first. After that, then we ask for reciprocity. So that’s, that’s the route we take, we invest in people first, we give, give, give, give, of course you give without expecting return, we do that. I mean, there’s plenty of agents, we help and they, you know, they don’t send anything our way. But at the end of the day, if you do that, they end up giving you business back. And so we do that. And then also outside of the mortgage industry, I coach people from all walks of life, life coaching, leadership, communication, you name it, anything that has to do with building people I work with, I do one on one coaching, I have a group coaching that we do. And you know, we’re gonna get into some workshops and some digital courses along with the book that I’m writing.

Unknown Speaker 28:25

Awesome.

J Darrin Gross 28:26

Hey Mike, if we could, I’d like to shift gears here for a second. By day, I’m an insurance broker and I work with clients to assess risk, and determine what to do with the risk. And there’s typically there’s there’s three different strategies that we we look to. The first is we ask, can we avoid the risk. And if that’s not an option, then we look to see if we can minimize the risk. And when neither avoiding nor minimizing the risk or options, we look to see how if we can transfer the risk. And that’s what an insurance policy is. And I like to ask my guests, if they can take a look at their situation, their their, their work their clients, their, you know, employees, however you want to frame it. But if you can identify what you consider to be the biggest risk? And again, for clarity, I’m not necessarily looking for an insurance related answer. But with that, yeah, if you’re willing, I’d like to ask you, Mike’s Ciorrocco, What is the biggest risk?

Mike C-Roc 29:37

By the way, my friends called me C-Roc, Darrin, and so you’re more than welcome to call me C-Roc. But the biggest risk for me is I’ve been through business before where I’ve relied on people, I relied on their production what and even if they didn’t buy into the culture that we were trying to establish, I would just put up with it and there were they’re producing a little bit. And so the biggest risk for me nowadays is One, you know, I don’t ever want to have to do this. But I’m always thinking to myself, if I have to do something myself, I will. And I don’t want to ever risk my independence and ability to. So go back to zero and build a team by allowing people that do not buy into our culture to stick around our team. So in other words, have you heard of the term being held over a barrel? Oh, yeah. So I’ve been in this situation before, where I let that happen. And things fell apart in the company that we were in because I let the culture slide. And I was basically allowing the production to rule the roost, instead of people that are buying into the system that I know works. And so I was risking at that moment, our whole group, our whole team, everything that we built, based on production, rather than attitude and buying into a culture. So right now what as far as the biggest risk for me, to me is it’s constant. It’s I’m always looking at this, I deal with this right now, I have a few individuals in our company, I’m very open about it, that I’m not sure we’re going to last here, even though they’re doing business, because they think that that’s the most important thing, rather than being a part of the team, and buying into what we expect. So it’s very risky when you do this, because to me, you have to think to yourself, if I leave these people around the risk is that other people are going to see their complacency, the fact that they’re not bought in, and they’re going to start to buy into there, the people always start to buy into the band and the cancer, and that that risk is always present. And I have to weigh that and balance it, whether it’s worth keeping the production on, and taking that risk that other other people are going to see these people not buying in. So that that’s that’s what I would answer that question with right now. And that’s constantly on my mind.

J Darrin Gross 31:54

Now, that’s, that’s really important, especially if you’re trying to create a culture and maintain a culture. It just occurred to me as you were, you’re saying that I’m kind of curious if you have any sense of this, but maybe you do, maybe don’t, if you’re looking around, and you see, and I’d say probably small businesses, what percentage of businesses that you run into, do you think have some sort of a culture that they’re trying to maintain, as opposed to more of just a, you know, more or create and maintain, as opposed to just something that’s kind of going through the motions?

Mike C-Roc 32:38

Just from my experience, I’d have to take a guess, an educated guess. But I would guess that I would guess that 20% of companies, I think it’s a large problem, I think 20% of them might be too high there, have great cultures, and are trying to maintain a great culture, and very few, most people start a business, and they’re just so hung up on trying to produce and bring revenue in and not focused on how to do that. And they’re just basically go through the motions every day, and try to be in survival mode, rather than trying to excel and be great. And that’s the issue and when you wake up in the morning, are gonna go to where, you know, oh, I’m gonna go deal with these employees. And again, remember, I said that they’re trying to get out of problems, get out of challenges, rather than going and hammer them, attack them and solve them. I think that’s a big problem. And that’s why there’s such a big need for what I do, and people building. So very, very low, probably 20, maybe even under that Darrin.

J Darrin Gross 33:35

Yeah, I would concur. I’m, you know, unless you’re some sort of a larger corporate structure that has, you know, levels of management, and there’s, there’s people certain roles to maintain morale, or however you want to, you know, phrase that I would guess that it’s, it’s fairly low. So, but, and, you know, I appreciate you sharing just about the challenge of maintaining it, and actually, you know, maybe having a prune, you know, a few, a few players, rather than, like said be be, you know, put over a barrel, because those are the kind of those tough decisions, but I’m assuming, just like, we’ve been talking all along, that that making those tough decisions and, and solving those problems kind of gives you that, that fuel to to go further. When you go through that. So,

Mike C-Roc 34:32

Yeah, a lot of times when you want to do more, you want to accomplish more, it’s not about doing more. It’s not about doing more work, adding things. It’s about taking things away, removing things out of your schedule, removing things out of your life removing things, and then then that allows you to maybe replace it with something more productive, and then you can accomplish more.

J Darrin Gross 34:57

No, I love it. Hey Mike, where can listeners go if they would like to connect with you or learn more?

Mike C-Roc 35:04

So first of all my books coming out at the end of this year and if they go to the mike c roc.com. With no k themikecroc.com. They can subscribe there get a copy of the new book. It’s called Rocket Fuel. Man I’m excited to get this out to people to share my story, how I’ve developed the culture how how I’ve gotten to where I am today, and also where I’m going. And if they go to there, they can do that. And also on Instagram, I’m big on Instagram and LinkedIn as well. But Instagram is at Mikey C Roc and m i k e y c r o c. MikeyCRoc, and I like to engage with people a lot on Instagram.

J Darrin Gross 35:40

Awesome. Mike, I can’t say thanks enough for taking the time to talk. I’ve enjoyed it and learned a lot. And I hope we can do it again soon.

Mike C-Roc 35:49

I appreciate you Darrin, and thanks again, man. appreciate you having me.

J Darrin Gross 35:52

You bet. For our listeners. If you liked this episode, don’t forget to like, share and subscribe. Remember, the more you know, the more you grow. That’s all we’ve got this week. Until next time, thanks for listening to Commercial Real Estate Pro Networks. CRE PN Radio.

Announcer 36:12

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Data Drives Opportunity Zone Projects in Nashville with Meg Epstein – CREPN # 280

Meg Epstein 0:00

Look at the vacancy of certain asset classes. I’m also pretty dialed in the community here, which is why I decided to focus on Nashville at least until we get to over a billion under management because I think it’s, you know, the most the one of the best markets in the country. So hard to leave when you have sort of boots on the ground Intel and relationships, right. So I’ve focused on different asset classes and how we chose those were just based on you know, pretty or pretty unbiased, just able to look at data as opposed to being focused on one asset class and only doing that one thing.

Announcer 0:42

Welcome to CRE PN Radio for influential commercial real estate professionals who work with investors, buyers and sellers of commercial real estate, coast to coast. Whether you’re an investor, broker, lender, property manager, attorney or accountant We’re here to learn from the experts.

J Darrin Gross 1:01

Today, my guest is Meg Epstein. She’s the founder of CA South. Originally born in California, she calls Nashville, Tennessee home now. She’s a real estate developer, and has over a decade of experience creating efficient, modern lifestyles for people where it matters most, their homes and their neighborhoods. And just a minute, we’re going to speak with Meg about it Opportunity Zones, and commercial real estate in Nashville, Tennessee.

But first a quick reminder, if you like our show, CRE PN Radio, there are a couple of things you can do. You can subscribe, you can like and share. And as always, we would love to hear from you please consider leaving a comment. Also, if you’d like to see how attractive our guests are, be sure to check out our YouTube channel. And you can find us on youtube at Commercial Real Estate Pro Network. And is there, while you’re there, If you would, please subscribe. With that I want to welcome my guest, Meg, welcome to CRE PN Radio.

Meg Epstein 2:35

Thank you very much for having me.

J Darrin Gross 2:38

Well, I’m so looking forward to our conversation today about all things you’re doing down there in Nashville. But before we get started, if you could take just a minute, and share with the listeners a little bit about your background.

Meg Epstein 2:54

Sure, I moved to Nashville from California, as you mentioned about five years ago, and I thought my background was in residential construction, actually, in Los Angeles. And when I moved here, I saw, you know, a big gap in the commercial real estate space, there was a lot of development happening. But it was mainly from in hospitality and larger re apartment building. So I started in the condo class, I started a condo platform, essentially, and started with my first condo building back in 2016. And basically just scaled up from there and continue to similar strategy of being data driven. And we do industrial flex office now larger multifamily and opportunity zones, as well as you know, more opportunistic office and residential projects.

J Darrin Gross 3:52

Gotcha. And so you came from California, and you were primarily building in California. Is that right?

Meg Epstein 4:00

Yeah, when I first I graduated in 2008. So there wasn’t a lot of I always wanted to be a real estate developer, but there wasn’t any jobs. And so I went into general, you know, general contracting, essentially, and very high end homes in Los Angeles for a general contractor. So I learned building and, you know, some job sites for for a long time and got into development when the market started to turn around.

J Darrin Gross 4:26

Gotcha. So if I understand, right, you’re from California originally. So what if you’re from there and if you’re not from there, I know growing up in Kansas, that’s all we thought about was, you know, California. What know what was the impetus or the What made you look elsewhere.

Meg Epstein 4:54

I actually met my husband and he was living here. So he was from San Francisco originallyevery day. But just like a lot of people in Nashville that come to visit and decide they want to move, and you know, he said, Hey, give it six months and 2012. And here we are. But I, I’m very happy for it because I, you know, having lived in, basically between San Francisco and Los Angeles in New York my whole life, I was pleasantly surprised getting urine, and I don’t think we’ll ever leave now. So I’m very bullish on the Nashville market and the southeast in general.

J Darrin Gross 5:30

Well, and let’s talk a little bit about some of the attributes that that make it attractive down there. Can you speak a little too?

Meg Epstein 5:39

Sure. I mean, I think now, you know, given given COVID, even having more space and not being in such a dense environment is is nice, of course, but just that economically, I think it’s still going to come Nashville, will still come out ahead, because I’ve seen even more people moving here since then. So from real estate perspective, there’s a, there’s just a lot of opportunity. It’s still a relatively unsophisticated market. So, you know, coming in with outside capital or being, like I said, one data driven, I think, I think is allowed me to scale up very quickly, having started, you know, basically zero when I moved here. And but other than that, just on a personal level, you know, the chat, I hear people complain about traffic at five o’clock came in for 20 minutes of traffic, and, you know, coming from LA, it’s sort of laughable, and people are very friendly. And you know, there’s proper seasons, and it’s accessible to so many things, because you’re so you know, you’re an hour and a half from New York, Boston, Miami, Austin, Chicago. So it’s just it’s a very nice, just overall, I think, place to live. And then I think of why Nashville themes such as a assurgence is the meaning of strong academia, you have a lot of entertainment. And obviously, the healthcare industry is one of the big factors.

J Darrin Gross 7:08

Gottcha. Yeah. And you just barely touched on entertainment, I guess. You know, historically, I’ve always thought of Nashville as being the country music is still the capital. I don’t know if that’s the case, but it’s in the Grand Ole Opry down there.

Meg Epstein 7:24

Oh, yeah. And the music. Definitely. Yeah, definitely. Music City. That’s a big part of the personality, you can listen to live music a lot. I mean, not obviously, not as much now. But you know, last summer, there were concerts in the park every weekend and that type of thing. So it’s definitely add to the cultural, you know, richness of the city for sure.

J Darrin Gross 7:45

All right. You mentioned the opportunities in real estate, and that the the market wasn’t necessarily as sophisticated. Are you seeing? Well, I guess there’s a couple things. One, you mentioned demand sounds like a lot of people are being attracted to the area. Do you have any sense it also you mentioned about data? Is there any numbers you can point to just as far as the Is it the growth rate or the number of people migrating inward?

Meg Epstein 8:15

Yeah, I mean, it fluctuates from what I hear, but I think it’s around it hovers around 100, on average a day, 100 people moving here, and then you have some big relocation, like Alliance Bernstein headquarters. So there’s a lot of high paying jobs, I think they I think they’re 3000 jobs or something to that extent, moving into downtown, right. And then Amazon, of course, is estimated at 7000 jobs. Moving to Nashville, and then Accenture, I think, moved to a headquarter here added about 100 or 1000 jobs. So the data is tend to fluctuate, but I think it stays pretty consistent around 100 people a day moving. And I think with these larger companies moving I mean, there’s rumors of Oracle and, you know, Facebook and things like that, but as these bigger companies come, I think the, you know, the average salaries are, are pushing up the demand for real estate.

J Darrin Gross 9:17

That’s, that’s, uh, you know, always helpful if you have large employers that are wanting to locate in your your area and have their employees locate there. As far as the current or is prior, as you’ve been there since 15. Did you say 16?

Meg Epstein 9:38

Um, yeah, I was still moving from California and they sort of transition but 2016 more permanently.

J Darrin Gross 9:47

Okay. And pretty steady growth since then.

Meg Epstein 9:51

Mm hmm. Yeah. It’s been a lot of Yeah, a lot of growth, a lot of construction.

J Darrin Gross 9:57

Alright. It as far as like, the The cost of real estate, can you make any comparisons like project you would have worked on and an LA as opposed to Nashville just on a side by side comparison from cost, and then also the eventual sale price for rents or can you can provide any,

Meg Epstein 10:22

it is tough because I was only really working in residential in Los Angeles. So, you know, very high end residential, so I can’t really speak too much to that. I mean, the definitely the cost of land since I’ve started developing here has increased, you know, significantly. And I think even before I started, you know, we’re very seem to have doubled or tripled, and a lot of cases, especially in the downtown area, but I can’t really compare it. I know building costs are more affordable here. And obviously, the cost of living is, you know, a third of warming two thirds or so of what it would be in California, I don’t

J Darrin Gross 11:08

No, and I would think that that unless wages are substantially less there would be more disposable income from people to you know, enjoy joy all the area has to offer. Let’s talk about some of the projects you have done in the last few years here. What what’s the Can you describe I guess the first project let’s talk about that.

Meg Epstein 11:37

The first project I did was a 77 unit and condo building. So I chose condos because I was looking for a condo when I first came with my husband’s and a lot of the inventory was you know 10 years old not there really just wasn’t enough condo buildings being built after I think after 2008 the financing options really really you know were less available so apartments in you know family in the institutional markets which tend to focus only on apartments so so I focused on condos and I wanted to do sort of a boutique size project that was 77 unit and it was almost adjacent to downtown but kind of in a residential feeling neighborhood like a urban walkable neighborhood. And we actually ended up converting it or allowing with the HOA and I learned a lot through this experience but allowing it to be owners of Airbnb out there unit so we see a lot of people that split their time in Nashville or they want to invest in Nashville and Airbnb very popular here because the hospitality market isn’t, is under supplied. I don’t think it’s going to be now but with all the construction and obviously the last you know, pandemic but we saw a lot of people and investors wanting to Airbnb so we allowed for that into the documents. So they sold very quickly it was 80% sold by the time we finished for higher than we proformaed it and I think we only have one unit left now. So that was a that was a great successful project. And our sell out was around 36 million or so. And you know, IRR’s were over almost 80% or something crazy but and so it was a good that was a good strong first first project it was a bit of an anomaly but that was the first one I did

J Darrin Gross 13:43

I’m sure that that you know success on a project like that helps you with future projects and and be investors or lenders or or contractors, etc. And you said 80% by the time you were done with the construction

Meg Epstein 14:06

yes

J Darrin Gross 14:06

That’s fantastic.

Meg Epstein 14:08

Yeah it was crazy i think you know they’re just again was in the supply of condo buildings that you could Airbnb in and it really adds a lot of flexibility for people especially if they’re splitting their time or you know a lot of people there’s no state income taxes here. So a lot of people do split their time especially in the entertainment industry. Maybe they go back and forth between LA or you can Airbnb at your condo while you’re gone and let it sort of pay for itself. We had to set up a hold management company on that. To manage you know, give people the option to use a management company to account for bookings and cleanings and things like that, but but it was a that was a whole an odyssey figuring that all out but once we did, it was great. We have a great team and partner. So

J Darrin Gross 15:02

You mentioned its location being close to downtown. Can you speak to the the area? I mean, is there? Is there a transformation going on? Or is there? Are there pockets that are? You know, there’s, you know, the reinvestments going on is that I guess I’m looking also at the Opportunity Zone, kind of a question is are, Are there areas there that you’ve identified that you can? You know, I guess, create a, a neighborhood feel, or there’s, there’s appeal for the location?

Meg Epstein 15:40

Sure. And I’m interested to see how this will change in COVID, if it will, but you know, I haven’t noticed a huge significant shift yet, but you know, people would, or there’s going to be resurgence of the suburbs or something. But what I was seeing, if you look at the Opportunity’ Zone map of Nashville, I mean, it’s really favorable for for our city. I mean, I know some cities like Austin, and it’s much further outside the city, but ours is, you know, pretty much a mile of where the Amazon downtown campus is just about a mile circumference around that is all opportunity them. So actually, my first the first project I mentioned, even though I did it as condos, while I was building it, the opportunities on legislation came out. And and, you know, we looked at possibly selling it was already under construction, but not not far enough along where it would prevent someone but it was pretty new at that time, the whole the whole opportunity zone legislation. So there’s some neighborhoods, you know, we’re Nashville has grown so fast, where it’s been an opportunity down, but there’s million dollar homes in the neighborhood. So it’s a little it’s obviously favorable to real estate investor, I don’t know if it accomplishes the intent of the legislation. But in the neighborhood, I first focused on the edge Hill neighborhood, which is the one I mentioned adjacent to downtown. I’m on my, I’ll be starting my fourth project here. And that’s all an opportunity down to the later one, we’ve taken advantage of the legislation.

But to answer your question, I think that in Nashville, and I’m sure this is the case in other cities is that people don’t, you know, younger people or people in general don’t want to be out in the suburbs in an isolated house, but want to be, you know, in in the urban core, and we’ve seen the revitalization of urbanism and people wanting to be in downtown. But I think the the walkable neighborhoods that are accessible, where you still have some space, and maybe you’re not in a downtown high rise, is are very desirable in Nashville, and those neighborhoods have appreciated, you know, significantly in the last 10 years old neighborhoods like East Nashville, German Town Twelve South, for example, these areas were not not nice at all, and crime ridden and you know, people start flipping houses and becomes a lot more desirable. And I tend to put my buildings in those type of neighborhoods that are walkable and kind of are connecting a gap between the suburbs and high rise downtown living.

J Darrin Gross 18:22

And you mentioned, kind of the the turn of the the the neighborhood. Are there a lot? Is there a character of the older buildings that has been maintained in a lot of those situations? Or is it pretty much where they are they tearing down and building new or?

Meg Epstein 18:41

No, I think as much as people can, I mean, we don’t have a strong historical overlay program here. But with what kind of define some of the architecture Nashville is these old warehouses and a lot of people like that kind of loft feeling or, or old brick, you know, it’s very conducive to Nashville, you know, the music industry and the industrial aspect of it. And the train tracks and things so people do me know, several big, larger projects now where people keep, you know, try to keep the bones of something and either build on top of it or incorporate it somehow. I do for sure, especially if it’s the cool old brick building or something like that. But a lot of times, you know, I’m thinking of the projects I have, they’re pretty dilapidated old retail or warehouses and things like that. and you just demo it.

J Darrin Gross 19:35

Right. And I need some pretty good bones on some of that stuff to make it worthwhile. What you mentioned that your projects aren’t high rises, or are they like, garden style, or how how many stories are you building in some of your projects?

Meg Epstein 19:55

It’s turned out I mean, I’m not opposed to doing a high rise eventually, but would have been you No six, the successful most successful model for me has been, you know, a four or two of podium parking above ground, because nationals all rock, and then four to five and a half stories of framing, stick framing. So it’s not garden style. But it is a, you know, more economical type of construction than high rise. But I think, you know, I also won’t build something that looks like everything else. And I tend to bring, you know, my architectural partner on the first project I mentioned came from San Diego, and you check out the website, I mean, it just looks a lot different than anything here in Nashville kind of, is that for, you know, bringing the California to the south type? aesthetic. So I’ve done that several times and intend to work with architects from California, or at least have them be a design architect and get a more unique, modern, you know, architecture style that appeals to people moving here from bigger cities.

J Darrin Gross 21:08

I love it, you got a kind of your own? Look, I mean, they’re easy, but can people identify your properties from? That’s a CA South property isn’t?

Meg Epstein 21:19

Yeah, I think I think so. I think we’re getting there, especially as we complete more, but I just, you know, and I don’t, there’s definitely a place for it. But I just think that the monolithic institutional apartment is, is probably profitable and work, obviously, they wouldn’t keep building them by the thousands of units, but it just, I don’t think a whole city of that, you know, it’s gonna really shape the built environment in a way that I think is important. You know, I don’t want to just do something just because it makes proforma’s out

J Darrin Gross 21:58

Got it. Now you mentioned, your, your current projects are in the Opportunity Zones is that right?

Meg Epstein 22:06

Some of them. Yeah, I have four projects now. Six projects in Opportunity Zones. And, you know, always counting always adding more, but we will probably structure three of those as Opportunity Zone funds, or four of them as Opportunity Zone funds. So sometimes, you know, it just depends on what capital is available. It doesn’t is the development sponsor, it’s nice to diversify and not get away from a merchant build, model and hold the assets for 10 years, like we typically do. But it just depends on the type of project when you know, it’s 100 million dollars, it’s probably a lot easier to get Opportunity Zone institutional capital that doesn’t have a lot of places to put it right now. Then, you know, a $30 million project.

J Darrin Gross 22:55

Right? And in the different types of projects you’ve got going right now. What are ya?

Meg Epstein 23:03

industrial flex office, and larger tilt up industrial is one. Condo project, mixed use opportunity zone projects, and office.

J Darrin Gross 23:23

All right. And guess where I’m going with it? determining what what to build her? Meaning? What are you? What are you sifting through? How are you determining what, what, what to build? Is there a just a broad recognition of need? or How are you?

Meg Epstein 23:45

Yeah, mainly, they can see I look at the vacancy of certain asset classes. I’m also pretty dialed in to the community here, which is why I decided to focus on Nashville, at least until we get to over a billion under management because I think it’s, you know, the most the, one of the best markets in the country so hard to leave when you have sort of boots on the ground and intel and relationships, right. So I’ve focused on different asset classes and how we chose those were just based on, you know, pretty or pretty unbiased, just able to look at data as opposed to being focused on one asset class and only doing that one thing for decades. There’s something so we tend to be very opportunistic, but in industrial, for example, I think of my husband had a company. He was private equity, but he had a company he had an office where he was renting an industrial flex space and his rent doubled over the course of a couple years from in 2013 to 2016. And we’re going what’s going on and started looking at the vacancy, looking at these old buildings that are 30 or 40 years older. doubling their rents and there’s no vacancy, literally none. And so it started just looking at the market and talking to the brokers. And that’s kind of where we formed that that strategy. And the same thing with condos. And the same thing with opportunity zones. So this is basically, market data. Our office project is a condo project, same thing I looked, looked at the market saw a lot of the older inventory, that’s 10 plus years old trading for what I could sell a class a brand new building for, and, you know, not seeing anything in the pipeline.

J Darrin Gross 25:37

Gotcha. You the condo type projects you build and you sell the units, do you retain any ownership of any of those projects?

Meg Epstein 25:48

Sometimes on one, the one I mentioned, I’ll keep, I’ll keep a unit for myself and rent it out, you know, it’s better for taxes that way, because condo income and ordinary income. But I’ll hold that as an investment property for a few years. I often thought of one of the projects where there was enough equity for me to just keep the office and not pay rent, you know, things like that. So I tried to it just depends on how the sales go and what’s available. But I try to hold on to, you know, some asset

J Darrin Gross 26:22

Gotcha, and try and enter you doing any projects that are more of a long term hold in these Opportunity Zones, is that

Meg Epstein 26:31

All the Opportunity Zone projects we hold for 10 years, the ones that are set up as opportunity zone fund`. So I have one project, two smaller mixed use projects, but it’s in an area that is gentrifying that we’re very excited about and that’ll be a 10 year hold as well as is two others. And then first neighborhood I mentioned. So yeah, we always told opportunity fund, opportunity zone projects, ten years.

J Darrin Gross 26:58

Attracting capital right now. You’ve mentioned a couple times, is it. People saying what do you build next? Are they they? I mean, is there plenty of capital for you to go go go? Or is it been any kind of Have there been any challenges raising capital?

Meg Epstein 27:19

I don’t think I think there’s still a lot of money on the sidelines. And as I said, Nashville is sort of a darling market especially. It’s only it’s obviously been a lot more popular in the last couple years. But with COVID I think a lot of people, you know, in Amazon’s presence here, and I think a lot of people have felt comfortable continuing to place dollars here. And so I haven’t had a problem or, you know, raising capital have raised I don’t know, maybe 50 or 60 million since March. So but it has to be I also focus on that, that classes that are sort of coming out of the pandemic’s shining, which are, you know, not luxury apartments. So the more middle market apartment as well as industrial,

J Darrin Gross 28:10

Not doing the hospitality and the retail there?

Meg Epstein 28:14

Right, no. Right. And there’s a little bit of retail and some of the projects, but just you know, more like, forward facing just as part of an excuse.

J Darrin Gross 28:26

Right? No, I think that mixed use asset classes pretty desirable right now, I would think, based on people’s limited ability or just access to certain things and

Meg Epstein 28:41

Yeah, definitely. Yeah.

J Darrin Gross 28:46

If you were starting today, I mean, you’re not that far. But you’ve learned a lot of lessons. What’s a big lesson that you’ve learned? Just with respect to, you know, development in coming to a new city?

Meg Epstein 29:09

A big lesson I have learned, I think it’s really your team definitely defines you and who you work with. And very important, you know, and I’ve learned a lot of lessons about that as well. as, you know, I feel as though I have a very strong grasp on construction and development, but it’s, you know, running an organization and hiring 10 people in a short timeframe has been a learning experience for me for sure. I didn’t have a form but you know, a lot of formal training when I started, I came in through the construction way. So managing a private equity fund. Raising all the capital I have I didn’t you know, have an MBA or anything, so I just kind of had to learn that by experience. And talking to a lot of investors and a lot of people and, you know, learning the best way to structure deals and say, and now we have a great working framework, but there was definitely a lot of there was a big learning learning. I mean, I don’t know if there’s a huge learning curve, it’s been, it’s been going very well. But definitely, you know, taking on a lot, we started a property management division. When when we started opening the project, because we wanted to manage them. So it’s been a lot of high growth in a short amount of time. So yeah, I guess we just kind of adapt quickly.

J Darrin Gross 30:38

That’s great. Meg, if we could, I’d like to shift gears reverse second. By day, I’m an insurance broker. And I work with my clients to assess risk and determine what to do with the risk. And there’s typically there’s three strategies we consider. The first we look to see is he can we avoid the risk? If we can avoid the risk? And there’s no more risk? If we can’t avoid it, and we look to see, okay, can we minimize the risk, and if we’re not able to avoid nor minimize the risk, then we look to see if we can transfer the risk. And that’s what an insurance policy is. And I like to ask my guest, if they can identify what they consider to be the biggest risk. And this is looking at your clients, the market your business, I’ll let you frame it however you want. But just for for clarity, I’m not looking for a an insurance answer. And with that, if you’re willing, I’d like to ask you, Meg Epstein, what is the biggest risk?

Meg Epstein 31:51

I think in Nashville, I think being only centered on one market. I think I’m you know, I need to closely monitor supply. And it is always unnerving when I drive downtown, and they see 15 tower cranes in the air, right, because we have been able to absorb that supply. But I think it’s a metric we need to watch very closely, especially with the pandemic and how quickly the market changing in ways we haven’t seen. So I think supply as is always going to be a fundamental risk for me. And in which case, you know, I need to change strategies. And hopefully we’re nimble enough to.

J Darrin Gross 32:35

No, that’s a supply and demand is kind of the equation there. Right? With real estate?

Meg Epstein 32:42

Yen, I mean, it’s a simple, simple answer. But sometimes, it’s really just as simple as that is just making sure that you’re monitoring it closely enough before you you know, go start a project because especially with the timeframe of real estate, it can take, you know, two to three years to stabilize something and by the time you get it entitled. So it’s important to look at look at that market data. And I don’t think a lot of people do surprisingly, but you’d be surprised. You’d be shocked.

J Darrin Gross 33:14

Yeah, no, the data doesn’t lie, right? The few books I’ve read recently, just talking about how the bias we all bring to them. The situation. And the data is usually telling you the story there. But depending on how your what your past is, if you’re, if you’re shading that data in any way, you may not see it for what it is so, right. We want to pay attention to the data. That’s good. Meg, Where can the listeners go? If they would like to connect or learn more?

Meg Epstein 33:50

Definitely our website CASouthDevelopment.com. And there’s some contact information there, you can get ahold of my assistant or LinkedIn and we’re pretty, you know, we try to make sure to check messages and whatnot. post updates there.

J Darrin Gross 34:06

All right. Well, Meg, I can’t say thanks enough for taking the time to talk. I’ve enjoyed our talk, learned a lot. And I hope we can do it again soon.

Meg Epstein 34:18

Great. Thanks so much for having me. Have a good day.

J Darrin Gross 34:21

All right, for our listeners. If you liked this episode, don’t forget to like, share and subscribe. Remember, the more you know, the more you grow? That’s all we’ve got this week. Until next time, thanks for listening to Commercial Real Estate Pro Networks CRE PN Radio.

Announcer 34:41

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Portland Industrial Commercial Real Estate with Industrial Gurus NW – CREPN #279

Mark Childs 0:01

It’s It’s It’s probably similar to apartments, um, although syndications less, probably more the REITS that are formed to accumulate money in, there’s a lot of money on the sidelines and they go down to LA and look and they’re getting sub four caps and they go up to Seattle and they’re getting just over four caps and they show up here and then get a five cap. And so they jump in.

Announcer 0:36

Welcome to CREPN Radio for influential commercial real estate professionals who work with investors, buyers and sellers of commercial real estate coast to coast. Whether you’re an investor, broker, lender, property manager, attorney or accountant, we’re here to learn from the experts.

J Darrin Gross 0:55

Welcome to Commercial Real Estate Pro Networks, CREPN Radio. Thanks for joining us. My name is J. Darrin Gross. This is the podcast focused on commercial real estate investment and risk management strategies. Weekly we have conversations with commercial real estate investors and professionals who provide their experience and insight to help you grow your real estate portfolio. Today my guests are Mark Childs, Principal at Capacity Commercial Real Estate, where he specializes in Industrial and High Tech real estate brokerage services. And joining mark our two members of his team, Daniel Sayles, and Daniel Helm. And in just a minute, we’re going to speak with them about the industrial real estate market and what to look for in a broker. But first, a quick reminder, if you like the show, CREPN Radio, there are a couple things you can do. You can like, share and subscribe. And as always, we hope you’ll leave a comment. We’d love to hear from our listeners. Also, if you’d like to see how handsome our guests are, be sure to check out our YouTube channel. And you can find this at Commercial Real Estate Pro Network. And as always, we encourage you to subscribe without on Welcome my guest, Mark, Daniel and Daniel. Welcome to CREPN Radio.

Mark Childs 2:22

Thanks, Darrin.

Daniel Sayles 2:23

Thanks for having us.

Daniel Helm 2:24

Thanks. Glad to be here.

J Darrin Gross 2:26

I’m looking forward to our talk today. But before we get going on the industrial real estate conversation, if each of you could share just a little bit about your background.

Mark, you want to start

Mark Childs 2:43

Sure I’m Portland native. Ran down I graduated Marshall high school they closed it because of folks like me, Oregon State. IE degree, Portland State MBA and did the PE thing and was actually a partner at an architectural engineering firm up the Seattle area. We specialized in the design and construction of mechanized automated manufacturing and distribution facilities started having kids I traveled too much. And so I moved back to Portland, where I could still play with warehouses, but actually sell a warehouse that someone could touch rather than the design services. That’s kind of it.

J Darrin Gross 3:33

Got it. Daniel, which one we’re gonna go first?

Daniel Helm 3:36

I’ll go first Daniel Helm of born and raised here in Portland, Oregon, had the opportunity to go down south to Louisiana State University to get my degree at a scholarship. I was a part of the swimming and diving team there. And you know, doing jumping off high things making it look nice in the way down was my forte made my way back to Portland back in 17 2017. And been in commercial real estate ever since. And been working with Mark and Capacity for about two years now specializing in industrial warehouse and manufacturing spaces.

Daniel Sayles 4:15

Daniel Sayles, collegiate athlete as well, I grew up in the great state, the Dairyland of Wisconsin kind of moved around but made my way here with my fiance. Work with Mark for about a year now and Daniel for about a year not just loving industrial life.

J Darrin Gross 4:33

Alright, so let’s talk about industrial real estate. I guess the first thing that I’d like to do just to try and set the parameters. What How do you guys define industrial real estate?

Any one of you?

Mark Childs 4:56

Well, it kind of comes down to You know, is it a warehouse or a manufacturing facility. And so you, you get into subcategories. There’s, you know, medium distribution, some amount of office, maybe out front dock doors out back. And, you know, it’s it’s semi friendly, but you can tell it’s a warehouse, there’s a heavy distribution gets up to 100,000 plus square feet, we’re getting into some 500,000 square foot product here. And that’s just a wall of dock doors on one side, probably a wall, a doctor’s on another with a little bit office in the middle, and then there’s flex space, which has got more office, maybe dock high, maybe not tends to be think of when you’re driving around out in Hillsboro. You know, they’re concrete till but they’re not that high. So that’s a bit of definition.

J Darrin Gross 6:00

And you mentioned square footage as much as 500,000 square feet. Is that one of the larger? I mean, that seems pretty big is it?

Mark Childs 6:08

For the Portland area, it is for LA Inland Empire, it’d be a small one, they usually build among million at a time, but five hundreds pretty ballsy around here.

J Darrin Gross 6:19

All right. And if I guess, looking at the current landscape with the the economic cycle, you know, I don’t even know how you describe the cycle right now other than this is like, there’s an interruption in what’s been going on based on you know, you had a strong economy meets a, a virus in response to the virus kind of thing. Can you describe what you guys are seeing as far as the, the the marketplace today? And then maybe take us back, like pre COVID? And is there been any significant change in the marketplace as far as demand usage?

Daniel Helm 7:07

Yeah, so I’ll take a swing at that and Mark in Salyes, feel free to chime in when you see fit. You know, when COVID first happened, there is definitely a hold in a standstill, I would say for a solid month or so where people are really putting on the brakes. And then the national groups, the institutional guys were starting to resurface groups over 100,000 square feet, we’re starting to get reengaged and things still need to happen. leases still need to go and people are still looking for space. I would say in the past month and a half or so recently, anyone under 50,000 square feet kind of more than local people here in the Portland metro market are really engaged and back on and people are out there looking for space. Leases are still expiring, things still need to happen whether they’re renewing or looking for additional space. It’s it’s hot right now.

J Darrin Gross 8:03

And and with that, you know, there’s been depending on the asset class, I haven’t heard so much about industrial having any issues but I know like retail is one of the ones that there tends to be kind of a siren or office just based on the the position of people or the inability to operate a business in some of these these asset classes. Has there been any effect positively or negatively on industrial given the the COVID?

Mark Childs 8:40

You know, so far I’d say no. It historically we’ve been running about 3 million square feet of net absorption a year. And as Helm mentioned, coming into first quarter this COVID thing starting to hit folks kind of took a pause we scored minus 200,000 net absorption first quarter, second quarter we hit 1.2 million positive net absorption so that’s a million first half we do a million second half or two thirds of what we’ve been running at and and you know part of that strength is quite simply a lot of it is as you’re referring to retail isn’t looking good. What the virus has done is it’s accelerated trends and and kind of implemented others. The the bricks to clicks trend has been accelerated. Folks used to go and to stores with bricks now they shop from their house that takes warehouses it takes transportation equipment, transportation equipment needs industrial land to park on. We came to realize that with China providing everything of a product that’s not good. Folks are reshoring, we’re doing more manufacturing here. Supply chains running just in time are realizing, oh, we can’t be that just in time, we need some buffer in the system, that’s more warehouse. And oh, by the way, if you want to compete with Amazon, you just can’t have two warehouses, one in the LA basin and one in Atlanta anymore, you probably need eight of them, which means you need a warehouse even clear up here in the far northwest. So no, the cap rates on good institutional products have been at or below 5% and have every reason to believe they’re going to stay there.

J Darrin Gross 10:45

You mentioned kind of the some of the demand, you know, change as far as like comparing the retail to just, you know, the shifting of business and then and, and the demand for additional warehouse or, you know, industrial space. Is that that 3 million square feet of net absorption? Has that been a historical standard? I mean, just, I mean, the Portland metro for a number of years, or is it?

Mark Childs 11:19

Ccoincidentally 2019 18 17 16 we came plus or minus practically 10% of about 3 million. I think it’s the result of a just a steady two to 3% growth in GDP, a steady growth in people three 4% coming into Oregon, and you know, what was previously already a bricks to clicks transition, but just maybe shifting at a slower rate.

J Darrin Gross 11:55

Got it. And and with the the steady increase for demand, is there. What’s a market vacancy rate right now?

Daniel Helm 12:04

I think we’re at 4.2%. Market wide.

J Darrin Gross 12:08

Has that historically, how does that measure?

Daniel Helm 12:13

It’s still really low comparison. Obviously, some sub markets like Clark County is

Daniel Sayles 12:18

Clark County’s 1.6.

Daniel Helm 12:22

So it’s just it’s vary depending on where you’re at and what sub market you’re trying to look at whether you’re Westside, Beaverton, Hillsboro area, or if you’re trying to go up to Clark County, Vancouver area, out east side ECC, which is the East Columbia Corridor, which is going to be a little bit higher, a lot more speculative developments being built out there. So there’s some more warehouse buildings, and then kind of down the Clackamas Milwaukee area, it’s a little bit lower down there. But as a total of 4.2% is still very low and landlord favor.

J Darrin Gross 12:54

Got it. And he mentioned Clark County. You know I know there’s there’s all sorts of tax issues, and I know like in multifamily is all sorts of, you know, tenant friendly issues. Is there a move? Or is there a reason for investors to look in a particular sector of the market more so, I mean, is there more incentives to be in a particular market right now? Or is it more just about where you need a space?

Daniel Sayles 13:32

Yeah, I’m what I’m seeing in Clark County, mostly it’s people are a little fed up with the permitting process and just the the business points of doing business in Multnomah County it’s just a collective feeling that, you know, they’re kind of getting pushed out. They’re making lower margin, or as you know, you move move across the river, your employees automatically get a 10% raise just based on you know, income taxes if they were to relocate over there. So, when I’m talking to small business owners and people running warehouses is typically that they’re fed up with, you know, paying different fees. If you know, they’re by the river, they have to pay a fee because they you know, they’re close to a sewer that drains to the river. Just different environmental reasons. That’s what I’m seeing, at least, I know Mark and elaborate a little bit further.

Mark Childs 14:30

I guess the phrase I use, I’m a fifth generation Oregonian, but in 30 years, I’ve moved hundreds of jobs north of the river, none South if you’re an investor, um, I mean, we’re seeing it in the statistics set starting to show up San Francisco, New York. Other urban cores if you can work virtually, why do it in an expensive location. And Clark County Schools are heralded as being Great. It’s a tax friendly environment. I think folks are going to be moving up and populating apartments in Clark County and shopping. And I think retail in Clark County is going to be much more vibrant than, you know, Portland’s urban core and even the surrounding Multnomah County area.

J Darrin Gross 15:25

Yeah, it’s interesting, just how that, you know, the policy shifts. You know, I just say, so I scratch my head, how the policymakers don’t seem to understand, you know, the supply and demand thing, and that it’s not, it’s not forever, it’s not automatic, you know, you’ve got to make it in an incentive or enticing for people to want to be there, as opposed to just because you know, that you can collect more because they’re making more kind of thing. You know, it’ll be interesting to see how that shakes out with all of these new rules and, and no taxes and that.

Mark Childs 16:04

Kind of a catch point for me, my son. I just sent him down to Santa Clara. So he wouldn’t go down to Eugene. I don’t want to get political here. But so he ended up staying down there a starts a high tech company, virtual 20 30 employees, eight runs it out of his extra bedroom in San Francisco, it’s a cool place to be. In six years, his rent goes up 25% per year, year after year after year, he moved twice. He only rent only goes up when you move. But a year ago, pre virus, he’s now married, he’s got a kid, guess what, he moves back up where he grew up into the suburbs. And so I think that transition in the millennials that are now having kids, what’s going to happen anyway, I think this is accelerated it. And lo and behold, this weekend, I’m looking in the weekend Wall Street Journal, in San Francisco. There’s twice as many listings now than a year ago, Apartments for Rent rents, that now compared to a year ago, are down more than 10%. And study says that about 50% of the respondents said that as someone who can work from anywhere, I probably will not live in a town where I have to pay 5000 bucks a month for a two bedroom apartment.

J Darrin Gross 17:30

Hard argue, I mean? Yeah, it is interesting. And I know, I would assume that the the job climate historically based on the the pay, you know, and the want to be there, and the need to be there somehow supported all that. But it is an interesting, kind of a Rubik’s Cube as you undo that, you know, how the how all the pieces, you know, change and the repricing of the assets based on demand, and it will be an interesting thing to watch. And industrial space. I mean, you know, in Portland, you guys consider is Portland a tertiary market or secondary market? How do you how do you?

Daniel Helm 18:20

I would say tier two.

J Darrin Gross 18:22

Tier two?

Daniel Helm 18:22

Yeah.

J Darrin Gross 18:24

And do you see more and more? You know, we’ve talked about growth, and I took that to mean more of just kind of a net migration of, of, you know, households that then correspond to the demand. But are you seeing is there any, like Seattle moved to Portland or San Francisco moved to Portland, based on companies are they they relocating in the Portland metro?

Mark Childs 19:00

Well, um, it’s for us, it’s, it’s probably more the, oh, by the way, we now need a warehouse in the northwest so we can at least deliver next day. And we’re looking in Seattle, Kent Valley, or the Portland area and now the Kent alleys pretty well built out. They’re almost down to and through Tacoma to support the Seattle area and, and so they they end up here because we’re less expensive and at least you can locate in one of the urban areas and drive to the other one. So but office certainly for as crazy as it is in Portland. We often joke that we’re still the cheapest place on the west coast and we are in office. The backup back office of choice. So when Amazon decides that they’re going to get into grocery stores, and they need 50,000 square feet of office to support grocery store operations, they just run down here and rent one of the new buildings that are constructed. Similarly, Salesforce, whatever, you know, they can’t find space, they’re looking, it’s 75 bucks a foot, they’ll go, Oh, well, here’s a splinter group that we know is growing. Let’s just run them up to Portland and we’ll lease 30,000 square feet. So Portland office is interesting in that there are very few vacancies greater than 20,000 square feet. But if you go out looking for 10,000 square feet, the urban center, you’ve probably got 30 alternatives.

J Darrin Gross 20:55

Gotcha. Let me ask you about ownership of the industrial assets. And I know a lot of people I talk with tend to be kind of multifamily oriented, just because it’s been kind of the the buzz as of late. And a lot of times you run into whether they be individuals that are buying an asset, or maybe they’ll partner or in some cases syndication kind of thing. Do you? Or is the ownership similarly structured? I mean, there are a lot of individuals that own the assets, or is it or do you find, especially the larger ones? Does it tend to be a REIT? Or is it tend to be syndication? Or can you speak a little bit to that?

Mark Childs 21:43

Ah, it’s, it’s, it’s probably similar to apartments. Although syndications less, probably more the REIT’s that are formed to accumulate money and, there’s a lot of money on the sidelines, and they go down to LA and look, and they’re getting sub four caps, and they go up to Seattle, and they’re getting just over four caps. And they show up here and then get a five cap. And so they jump in probably 10 million and above, very likely that size I don’t know, maybe they do this in apartments. Also, we’ve got folks that use the phrase, I run around and buy bottles of beer. And when I put them in a six pack, I can sell them for more than I paid, per beer. And so there’s an assemblage that, you know, the closer you can get to New York money, the further you are from having someone that really knows what they’re doing. And they just got inventory, they got a place somewhere called money. There are, you know, kind of in the million to 10 million range, there’s strong local investors that that play in that marketplace. And so it doesn’t take too long if you’ve got something like that to kind of figure out who you’re supposed to be talking to.

J Darrin Gross 23:20

Got it. And in, is there any kind of percentage guess, if you were if you were to guess, as to of the assets that are leased versus owner occupied? Do you have any sense of that?

Mark Childs 23:37

We, we tend to track leased. So that’s a tough one. We’ve got over 2 million square feet of warehouse that we track that’s leased. You know, you throw in an Intel a Precision Castparts. A Boeing and that gets pretty tough, but I suspect maybe a little over half is owner occupied. Maybe 60% 40% leased, but the owner occupied are usually the real heavy capital intensive industries that, you know, have been here for a long time probably will be here for a long time. Hopefully,

Daniel Helm 24:19

Yeah, I’d agree with Mark out of the 200 and 8 million square feet that we’re tracking I would say 40 45% owner occupied and the rest is institutional.

J Darrin Gross 24:30

Got it on on the ownership of the properties. Is there quite a bit of trades? I mean, are people buying and sell on regular basis? Are you guys are you do you? I mean, if let me ask you this way, percentage of your activity. If you if you could give us a percent. How much of your time is spent in the leasing versus the this sale of properties.

Daniel Helm 25:03

I would say for me, I’m probably 70% leasing, 30% sales, focused on tenant representation. Owner users looking for buildings potentially trying to get out of leases and looking for opportunities pretty hard right now in this market to find spaces that makes sense for them and their business. But there’s a lot of guys out there sitting on the sidelines with some cash that are looking for those opportunities. But I would definitely say I do a little bit more leasing than sales.

Daniel Sayles 25:32

I’d have to agree with them on right there and roughly the same percentage.

Mark Childs 25:38

Good breakout,

J Darrin Gross 25:40

That true for you to Mark the percentage there?

Mark Childs 25:43

Yeah, I have often joked and I think it holds to this day that I spent two thirds of my time leasing to make one third of my money, I make one third of my time on sales to make two thirds of my money. We tend to make more. The product, the challenge is that the product very rapidly gets up to where, you know, it’s institutional money. buying one z two Z’s, and when they go to sell, they sell a six pack, and there’s just no one around here that can afford that. And, and that’s just kind of goes through the capital markets. And, you know, the top 500 kind of know who each other are, and they tend to talk and, you know, they’re just doing transactions. The owner user, probably someone we deal with more. The challenges is when someone finds and buys a nice industrial investment, don’t want to exaggerate, but it’s basically they never sell it. Because it just becomes a coupon clipper rents go up, if their toilets plug, they fix it, they don’t want to talk to their landlord. Landlord doesn’t want to talk to them, they just send checks.

J Darrin Gross 26:58

No, I was gonna say, as a landlord, you know, relationship, that’s probably the most desirable I know, from an insurance standpoint. You know, commercial tends to be more uniform, and that you’ve got tenants that are operators that have insurance and triple net leases are fairly common. And, and, you know, I would think that as a landlord, that’s pretty, pretty good stuff. On just looking at some other some ideas I had wanted to ask you about looking at, like development of, you know, you mentioned the the 3 million square feet cut around number. What, is there a specific kind of an area? Or is it a specific land requirement? Or what what would somebody if they’re looking to develop a property? What are we? What are we looking for? would be I mean, access land? Is it pre zoned this way? I mean, is there all of the above or

Mark Childs 28:04

Give it a shot?

Daniel Helm 28:05

Yeah, so I would say, you know, obviously, for industrial needs to be zoned a certain way. You could be light industrial, potentially business park or heavy industrial, a lot of the users we play around with that are the manufacturing slash distribution, guys, heavy industrials, a win win for us. So those kind of vacant lots of land, which they’re not many, not many tier ones left, there’s some tier twos and a lot of tier threes, where there’s a lot more work, whether that’s wetlands mitigation, or things of that nature. But I would say a good gauges, five acres, hundred thousand square feet, plus or minus a little bit coverage ratio about 33%. Minimum plus or minus there, too.

Daniel Sayles 28:47

Yeah, and as far as you know, you touched on it about access, a lot of the groups that are hot right now they’re developing, they’re looking for distribution users, you know, the Amazons, you know, etc, but they want access to the freeway. They want to be able to get on and off, they want their truck drivers to not have trouble finding it, and just making it as easy as possible for them to get on the road and get to the next destination.

J Darrin Gross 29:13

Yeah, you know, let me ask you this too. I know with development kind of lead time. What kind of lead time if somebody identifies a property and closes on raw land before you know, you get a usable leasable space? Any kind of an idea on that

Daniel Helm 29:34

Before COVID or post COVID? Or both?

J Darrin Gross 29:38

Yeah, give me both.

Daniel Helm 29:39

Yeah, you know, Mark, correct me if I’m wrong here, but I would say minimum, you’re going to be anywhere from nine to 12 months depending on when you start but realistically, more in the 12 to 14 month range from when you locate a property and actually having a something built and the tenant or user being able to occupy that A space.

J Darrin Gross 30:02

That seems pretty fast I mean I’m I that as opposed I was just knowing the the the political machine and all of the permitting and stuff I I’m always amazed at how just the the wheels of progress turn kind of slow it seems like and that you think like a 50,000 square foot building you could get that up and you know a little over a year. That’s a

Mark Childs 30:28

That’s, that’s not the City of Portland Probably not. I can’t say Multnomah County because you can’t get a permit through Multnomah County any more annexed by someone else. We tend to work in the smaller burbs around, you know, Richfield, Troutdale. Hardly anything left in Clackamas, but Canby, Sherwood, where they’re a little more friendly. And, you know, 18 months, by time you get into some delays, potentially City of Gresham has a fast track, if you’re building something big, that will bring a lot of jobs. But I’ll tell you this, that I just couldn’t comprehend to having the guts to do office wire, you know, it’s four years, you could go through two business cycles before your products done. But, you know, no, industrial is fun, because you can almost see the finish line when you start unlike a lot of other development.

J Darrin Gross 31:29

Yeah, I was gonna say it just from a standpoint of actually feeling like you could hit your numbers, like you mentioned, the, you know, two cycles before you even have a product there. That’s, that seems a whole lot more risky than having, you know, a year or so invested in it that that seems a you know, pretty, I would think that a lot of investors would be attracted to that just that shortened time frame to have a product for lease. Let me ask you on as a broker, can you describe some of the issues that you guys deal with? Maybe one of you talked about from a landlord side, maybe one from a tenant side, and then maybe another from the transaction, kind of a purchase sale?

Daniel Helm 32:21

Yeah, I’ll talk about the user side. So you know firsthand what I’m going through now, with a couple of my buyers that are out in the market, they’re looking for certain sites that unfortunately don’t exist. And as things do, the numbers that some of these sellers want for the property is just unreasonable. So managing everyone’s expectations, and trying to get to a number that makes sense for both parties is always the challenge. But as long as you’re managing your clients expectations, helping them understand, hey, this is the reason why they think it’s This is why you think it’s that and try to meet somewhere in the middle, I think too being a tenant rep guy. And working with leases, lease rates are starting to become so high that the smaller groups that have such low margin, are having a hard time penciling that and making it make sense to even move out of their current location. Even if they’re jam packed and they need extra space. It just doesn’t make sense. So just depending on what market you’re at, and where you are in the Portland area, the lease rates are continuing to rise. And we’re kind of starting to see them steady a little bit. But they’re still very high for industrial space, just shell rates right now.

Daniel Sayles 33:35

And I think that leads back to the supply and demand, right? We went over, you know, the vacancy rates, I mean, these landlords can pretty much ask what they want, knowing that someone will pay that price. And that’s what I’m seeing over in the Vancouver market in Clark County is that, you know, it might be a high lease rate, but they’re the only game in town and they know it and they hold strong to it. So from that standpoint, you know, from the tenant rep side, it can be difficult in communicating that to your clients without hurting their feelings, you got to give them some love, make them feel the love and know that you’re on their side, but there’s only so much you can negotiate and you can try to get free rent for him. You can try to get other concessions, but at the end of the day, that landlord is gonna you know, they’re gonna they’re gonna hold their cards in tight and they can.

Daniel Helm 34:21

They know that someone’s gonna be right behind you knocking on the door.

Daniel Sayles 34:24

Ditto.

J Darrin Gross 34:26

Let me ask you real quick just on that that issue there about tenant landlord thing. With lease rates been one one issue, our landlords being a lot more picky about whether it be creditworthiness or you know, are there some issues that they look to when they’re when they’re considering prospective tenant?

Daniel Helm 34:49

Yeah, I would say that’s always a question especially, especially recently as everything’s going on with a pandemic, you know, due to the risk factor of having a new tenant come into space and if they’re gonna do a certain amount of tenant improvements in the space and invest long term, they want to make sure this tenant is viable and able to one pay the rent to a long term user, someone that’s going to stick around. And I think the credit of that users is very important, not the only deal point, but one of a few that they definitely look at through the process.

Daniel Sayles 35:22

And there are ways to get around, you know, not having bulletproof credit, you know, you can offer more security deposit, you can offer a personal guarantee, but there’s creative solutions there. It’s just if the landlord is willing to work with you on those, it depends if it’s a institutional landlord or a local owner, or it just depends on the situation.

J Darrin Gross 35:44

Let me ask you this, just based on the current situation with COVID. I haven’t heard much about any industrial issues with with rent. I know, it seems like there’s been a moratorium on anyone paying any bills for most of the governor’s I know, between multifamily or residential office commercial, I’m under the impression that, you know, I don’t think a landlord can evict anybody unless I think that’s supposed to change, you’re pretty quick. Has there been any issues in the industrial space?

Daniel Helm 36:22

I think originally when COVID first said everyone was, you know, arms up, like what’s going to happen? What’s what’s going to be done about this. And there was ideas where you could give some abated rent, and then just add that on to the end of the lease term. And that was one of the options that my client actually worked out with his landlord, but it definitely depended on case by case basis. And it was ultimately the landlord, if a tenant needed help. During this time, there needed to be some vulnerability there at the tenant sharing a, this is what we’ve lost due to COVID not saying hey, this is what happened. It’s a show me your cards, I’ll show you mine kind of thing. So that transparency factor was huge, I think during this time as well.

J Darrin Gross 37:07

No, makes sense. Um, Mark, do you have anything to add on the kind of any issues with buy sell?

Mark Childs 37:16

Ah, I, two things kind of came to mind one word that point in the Greater Portland metro area where the easy sites are gone. And now they’re the tougher ones and those as concept industrial called shovel ready. Where streets, sewers, sidewalks, everything’s in. And when you sell that property, it’s worth x. And then you start working with someone who’s decided to sell their land. And they know that property selling for x, and they’re like, Yeah, well, my property’s worth x. But then you go, Well, no, hang on, to create a flat site, and to put in, bring a sewer in from a quarter a mile away and do roadways. You know, you’re looking at four bucks. And so really your property’s worth that, you know, x minus four bucks, that can be a hard education. Wetlands are always a challenge that can take a year to four years, I closed one early this year that we battled for four and a half years. Here’s another interesting challenge and Helm kind of dwelled on it a little bit, folks think they’d like to grow, and they want to move because it could and they could get bigger, when they start looking around and realize that it’s going to be a lot more expensive, especially for the local local folks, which I love that make up the heart of our business, but also because they can’t find employees. I mean, I’ve got a client, what 200 employees that I happen to meet with weekly in a business association group. And every week he’s looking for 20 to 30 more employees. In part because fully loaded, the folks are getting about $50,000 a year off the old unemployment with the feds chipping in 600 bucks a week. And right now that number has dropped to about 35 but you know, I don’t like the term minimum wage. I call them beginning wage jobs that you know, at 15 bucks an hour you’re looking at 30 grand and folks are still staying home so I mean, that’s a real challenge in the industrial sector right now.

J Darrin Gross 39:39

Yeah, no, I the wage and all that that’s that’s a tough thing. I mean, the probably another whole nother episode here.

Mark Childs 39:50

Yeah. Yeah.

J Darrin Gross 39:53

On I guess, let me ask it this way. So A lot of the listeners, I know that I’ve talked to one on one, I don’t know that everybody’s always looking industry, I’d say the majority of people, I’ve just thought more of how to get into real estate as an investor and thought more of multifamily or something like that. If if there was a piece of advice you could recommend somebody consider if they if they’re wanting to get into industrial Is there a starting point that you would recommend?

Daniel Sayles 40:32

Call us

J Darrin Gross 40:34

Why that’s a good one.

Mark Childs 40:38

Here’s your here’s the challenge of industrial. You know, again, you get 100,000 square feet and up. And, you know, you’re, you’re dealing with a pure cap rate game, what happens is, even with, um, let’s say we’re talking 50,000 square feet, and that’s going to get you 60 cent rents 720 if you want any kind of a cap rate, you can maybe pay 110 hundred 20 bucks a foot and come out, maybe at a five 6% cap. The problem is users are walking around going, let’s see, I could buy this 50,000 square foot warehouse, which is pretty vanilla shell for maybe 150 bucks a foot, or I could build one. And right now those things are trading warm dark shells, at about 150 bucks a foot. So the users are bidding up everything less than 100,000 square feet, and it makes it tough for investors to get involved. And quite simply about the only way to get involved is is they’re going to need to suck it up and they’re probably going to have to lease an empty warehouse. And what can I say trust that they can get it leased up, which fortunately, they are commodities that have given rate not unlike apartments, not quite as commoditized. But you know, that’s that’s probably where they’re going to end up and the risks they’re going to have to swallow

J Darrin Gross 42:28

No, that definitely supplying and demand and and you know, just the concept of the tennts actually being a competitor you know, based on their their growing needs. That’s good. Is there a typical or ideal client that you can describe?

Daniel Helm 42:49

The guy that actually has a problem so there’s a lot of people out there that are looking for opportunities, but there’s a guy that you want that’s looking for additional space that has the opportunity and the end game to grow into that space and you know, there’s no down the fairway opportunity by any means but a guy that knows what he wants and either you know makes the decision or fails fast to get to the no. So you want to be able to juggle opportunities because things come on the market and they go off just as quick so when you present an opportunity you want someone either tell you no or yes and not play around in the middle.

J Darrin Gross 43:30

No, sign me up for those, right?

Daniel Helm 43:33

Right?

Mark Childs 43:36

Yeah, probably for me because of my background you know, you can you can sell 100,000 square foot warehouse it’s sitting there pretty simple I’m I’m kind of codependent have a need for pain brain and agony. What is our part of the team as we complement each other? I’m pretty good at is helping people with the complex, usually manufacturers often requiring a Greenfield build to suit in as much as most of the product out there is plain Jane warehouse without any electrical, with minimal gas speed, with no water distribution, with no floor drains. And so what looks like a cheap solution to begin with by the time you get done modifying a building for a complex manufacturer ends up being the most expensive alternative

J Darrin Gross 44:40

I you know I appreciate you sharing that because I think that’s something that it kind of goes back to what you were talking about before about the the guy who knows the one property that was shovel ready sold for x and he thinks is it’s unimproved is ready for you know with that as well and he said that perception and it but having something somebody that knows the difference and can can explain it can save them a lot of, you know, time and pain and money that they had been, you know, expected to spend, I always hated when I don’t hate it, but it’s just, it’s something I try and talk with clients about that are new to any kind of construction, just the, you know, it’s gonna be a while before you actually know what you’re doing kind of thing or, you know, just the whole how it all works, and the time it takes and the money it takes and all the the second one will look a lot different than the first one. And the third will look different. And you’ll you’ll see things differently, and then recognize the those things you didn’t before. So appreciate.

Mark Childs 45:40

I know, I mean, you’re in the risk business, risk mitigation, one of the way you do that is with insurance. But sometimes the lowest cost insurance isn’t the best way, for a total systems lowest cost to mitigate risk. And so we, you know, we we don’t make the decisions. We don’t sell anyone anything, we just do the best to educate our client on what’s out there, because they’re the best judge of what they need to do to solve their problem at hand.

J Darrin Gross 46:11

Oh, no. And on that note, good time to segue into my question, I like to ask all my guests about risk. As we’ve stated, by day, I’m an insurance broker and trying to work with clients and assess risk, you know, what to do with the risk. And there’s there’s three basic strategies we typically look at. And the first that we asked him, we avoid the risk. That’s not an option, and we look to see if we can minimize the risk. And when that’s not option, then we look to see if we can transfer the risk. And that’s what an insurance policy is. I like to ask my guests, if they can take a look at their situation, whether it be you know, the way they work with clients, their their clients, or just the market the industry and identify what they consider to be the biggest risk. And for clarity, I’m not looking for an insurance related answer. But if you guys are willing, I’d like to ask you, Mark Childs, Daniel Sayles, and Daniel Helm, if you could identify what is the biggest risk?

Daniel Helm 47:29

I can go first on that, I would say the biggest risk would be not making that last call. One more call that potential opportunity, at the end of the day, at last dial the day, the easy dial to just say, Hey, we’re not going to do it. potential opportunity to help a client prospective client, someone that you know, has an opportunity, but all you need to do is pick up that phone. So to not make that last dial is huge. And one thing we preach here at Capacity is one more call.

Daniel Sayles 48:07

Yeah, mine kind of ties into that as well. For me, the biggest risk for me is always being uncomfortable. I feel like in this job, if you’re comfortable, and you think you know everything, there’s something you’re missing in the deal, there’s something that you’re not asking the landlord, there’s something that you’re not asking your client. So sometimes I just like getting uncomfortable and maybe asking the landlord for something I typically wouldn’t do or asking my client, you know, or a prospective client when I walk into their business and talk to them. Just having that conversation with them and letting them know that I care and it might seem awkward at the time but it’ll go far, you know, down the road if they start working with me.

Daniel Helm 48:47

Get comfortable being uncomfortable.

Daniel Sayles 48:49

Yeah.

Mark Childs 48:52

I would put it you know there’s lots of risk everywhere. But to keep it simple, you know, in the biz, when you’re out showing someone a property to start with the difficult questions. What What is the sprinkler rating here? You know, what is code? Will this use really fit here? Okay, it’s a multi tenant Park. That looks like a lot of space. Let’s go out and pace it off? Is that really enough room for your trucks to come in? You know, a conventional sleeper with a 53 footers 72 feet that takes a lot of room. Oh, by the way, you’re gonna have a lot of parking. It looks like there’s parking now, but we got to learn about the tenants nearby how much parking they’re going to need. The flip side on the biz, I think what I’ve learned through the years is don’t try to do something that you’re not good at. I’m blessed, I have a lot of people calling me through time for advice on their real estate problem. And more often than not, I’m, I let them know yes call me first but by the way, odds are I won’t be the one solving it but I’m going to know who to recommend for solving that. Not much anymore retail, restaurant or other food group category a problem.

J Darrin Gross 50:30

That’s that’s a good advice on all points or appreciate that. Let me ask you, Where can the listeners go? If they would like to connect or learn more?

Mark Childs 50:45

Industrial Gurus NW. Industrial Gurus NW? https://www.industrialgurusnw.com/

J Darrin Gross 50:54

Got it. And you guys still put out? Is it a monthly or quarterly newsletter? I can’t remember.

Mark Childs 51:02

It’s quarterly, and it just came out and it’s, you’ll find it just click on blog.

J Darrin Gross 51:09

Alright, well, I can recommend it to anybody that’s considering it. I’ve seen it. It’s good stuff. So with that, Mark, Daniel and Daniel, I want to say thanks again for taking the time to talk. I’ve enjoyed it. learned a lot and hope we can do it again soon.

Mark Childs 51:29

Thank you, Darrin, appreciate the opportunity and impressed with how you do and run your business.

Daniel Sayles 51:36

Thank you.

Daniel Helm 51:37

Thank you. Take care. Appreciate your time.

J Darrin Gross 51:40

All right. For our listeners. If you liked this episode, don’t forget to like, share and subscribe. Remember, the more you know, the more you grow. That’s all we’ve got this week. Until next time, thanks for listening to Commercial Real Estate Pro Networks. CREPN Radio.

Intro 51:59

You’re listening to undefined for influential commercial real estate professionals. For more information on this or any of our guests like us on Facebook CREPN Radio.

Partners Contracts and Due Diligence in Real Estate with Jeff Love – CREPN #278

Jeff Love 0:00

New entrepreneurs, new real estate investors they want to partner up. It’s it’s a conversation to have is what happens if that partner is gone. So for example, your partner, you start a real estate investment company, you buy a five unit building with a partner, that partner passes away. Well, does his interest, go to his his children? Does his interest go to his spouse? If it’s an operating company and you’re actually doing further projects and you’re actually working for the company rather than a passive investment, it becomes a really important question. Because that partner, spouse or children, they may not know about the business. They may not bring anything from an operational standpoint, and you may not get along.

Announcer 0:44

Welcome to CREPN Radio for influential commercial real estate professionals who work with investors, buyers and sellers of commercial real estate coast to coast whether you’re an investor, broker, lender, property manager, attorney or accountant We are here to learn from the experts.

J Darrin Gross 1:03

Welcome to Commercial Real Estate Pro Networks CREPN Radio. Thanks for joining us. My name is J. Darrin Gross. This is a podcast focused on commercial real estate investment and risk management strategies. Weekly, we have conversations with commercial real estate investors and professionals who provide their experience and insight to help you grow your real estate portfolio. Today, my guest is Jeff Love. Jeff is a partner at Gibbs Giden Attorneys at Law, and they focus on real estate transactions. Rather, Jeff does focus on real estate transactions. In just a minute, we’re going to speak with Jeff about how to negotiate a lease on your terms. As a real estate investor without being a jerk. We can also talk to them about what to look for in your purchase agreement in a commercial real estate transaction. And gone but not forgotten. What happens to a partner share in your business when they leave or die. But first, a quick reminder, if you like our show, CREPN Radio, there are a couple things you can do. You can like, share and subscribe. And as always, we encourage you to leave a comment, we love to hear from our listeners. Also, if you want to see how handsome our guests are, be sure to check out our YouTube channel. You can find us on youtube at Commercial Real Estate Pro Network. And also if you would please subscribe. The more more subscribers the more often people see us and helps the algorithm etc etc. With that, I want to welcome my guest. Jeff, welcome to CREPN Radio.

Jeff Love 2:51

Thank you for having me.

J Darrin Gross 2:53

Well, I’m looking forward to talking with you today. And but before we do if you could take just a minute and share with the listeners a little bit about your background.

Jeff Love 3:05

Absolutely. So I’m a I’m a real estate guy down to down to the bone, always wanted to be in commercial real estate. So I actually went to law school to learn more about the law. But really what goes into a transaction, what goes into a corporate deal a real estate deal with the intention that after law school is going to practice, be a lawyer for a couple years and go off and be you know, be a real estate developer. And after law school I graduated, you know, was another recession. Ended up going to work for two different companies, a scrap metal recycling company. And then I moved over to the real estate developer and knew I hit the right spot. I loved what I was doing. But I wanted to work with different types of clients, big ones, entrepreneurs, startups established companies doing leasing and purchase and sales and financing. And so I left my my job with the developer, I came to my current firm. And that’s what I do on a daily basis. We have clients that are just starting out in real estate to fortune 100 companies and we help them with purchases and sales, doing leasing, financing deals syndication, corporate structuring. So I really get to deal with all aspects of a real estate deal. And that has been really fun for me, because I get to see all parts of the deal. Rather than doing one transaction with one client, I get to help many different clients and different parts.

J Darrin Gross 4:38

Now, that’s great. I really appreciate that wide perspective. I think so often. You know, people get going in a particular angle a particular direction or specialize and they may not come in contact with somebody that that has a broader picture because they’re trying to get their one thing done and they may not I think to ask questions that could help them, you know, whether it be right now or in the future or, you know, a lot of times people don’t understand that the the exit plan is critical to getting started. So I’m assuming you have some insight on that.

Jeff Love 5:19

Absolutely.

J Darrin Gross 5:23

So, let me ask you, how long have you been practicing law?

Jeff Love 5:27

I have been practicing this is a 12 years solely in real estate and corporate transactions.

J Darrin Gross 5:36

So you mentioned the the range of clients you deal with, is there a typical client that you work with?

Jeff Love 6:46

There really isn’t, you know, it’s it’s fun. And that’s I think that’s part of the part that’s that’s fun to me is, you know, I’ll give you an example is we had a client that acquired a three unit triplex and they tore it down and built townhomes. And that was their first project, really young guys graduated from USC, and grad school. And now they’re, you know, years later, they’re a much bigger client doing, you know, developing 50 unit apartment buildings. So one of the nice things is, when we have smaller clients, a lot of times, they’ll grow into much bigger, bigger clients, and we’ll get into different deals with them. So we really do work with a range of clients. And that’s, that’s one of the things I like about my practice is it’s, you get to see issues from small and large and really past past the lessons on from those that have gone before you and then experienced on to those new clients starting out to try to guide them to make sure they’re not making the same mistakes.

J Darrin Gross 7:44

So let me ask you, I mean, cuz I love that as well about real estate is if you have somebody who starts off small, and before you know it there, they can grow and have a significant portfolio. And, and, you know, and I think one of the things that that I’ve seen over time, and I’d be curious, from your perspective, as an attorney, when when someone starts out is just kind of a smaller entity, maybe they start off as an LLC, solo, or single member entity and that, how am I moving from, you know, that operation to a larger operation? Is there a lot of strategy that you guys work through in the beginning to try and, you know, bob and weave as they grow, so you don’t get caught in any of the potential issues? If they, I mean, I think it’s more what I’ve seen is if you’re a C Corp, or something like that, where it can be more troublesome, but are there some deep dive strategies that you guys get into for that?

Jeff Love 8:48

We do. And I think it’s a lot of high level planning. When you start your first project, we’ve had clients that, you know, I hate to say it, but watch HGTV, and I’m going to go and I’m going to flip my first house, and they just jump into it. And, uh, you know, for the most part losing money, because you haven’t really evaluated underwritten the property, but getting a wild and crazy start like that. And then as you learn from that project, and you know, if you do it right, you’re going on to another one, a bigger one, multiple projects. It’s really evaluating many things. One is you have the right corporate structure, which you alluded to us C Corp often isn’t the right structure, because you’re, it’s inflexible, with real estate, you paying a second level of corporate tax, you really want something with paths to taxation that’s easy to bring partners in and out. If you have investors, maybe you want to especial waterfall with how you’re distributing cash flow and profits. So making sure you have that entity in place. And as you grow really thinking at a high level, where am I going with this company? Do I have a three year five year 10 year plan? Do I have a partner and if I do have a partner Do they have the same plan? Yeah, I have clients in the past where maybe one of one of the two partners is younger and one is older, and the younger one wants to keep pumping money back into the company and grow it, while the older partner is thinking more about retirement has exit planning, wanting to get that cash flow and you know, enjoy retirement. So it’s making sure that as you grow, and as you look at this company, from a high level, that everyone’s on the same page, with a strategic progression throughout the company’s lifecycle, or the investment properties lifecycle.

J Darrin Gross 10:33

Yeah, I remember years ago, I had a customer and, you know, as an insurance broker, you know, we, we get introduced to a lot of different topics, obviously, succession planning, and in the conversation of life insurance comes up in that, but one of the very few customers I can recall that actually had a plan. A, you know, in the beginning, and it was kind of the the reference point for any, anytime anything came up on it, it was about how do we undo this thing, that was basically the rule one in his eye was, you know, you start business with a very clear plan of how you’re going to get out of business. And it made it very clean When, when, you know, years later, the two partners decided to go their own way. And, you know, because they, they had instilled the plan, they had revered the plan, they updated the plan. And it was, it was a kind of a more of a living document, as opposed to something that was nobody could remember where it was or what it said kind of thing. So it’s good.

Jeff Love 11:39

That happens a lot. You know, I think it’s hard to plan out the next 20 years of a real estate investment at the outset. If that’s what your goal is, or if it’s value add. But it’s, it’s being able to have that flexibility to be fluid as things change, or maybe one investor partner wants to leave and you’re able to bring in another one. But it’s thinking through some of these issues at the outset say when it when it does come to fruition? If it does, you know how to handle it.

J Darrin Gross 12:08

Right. So on that note of partners, and one of the the topics here I’d written down, was the gone but not forgotten. What happens to your partner share in your business when they leave or die? Can you address that?

Jeff Love 12:29

Absolutely. It’s one of the topics, you know, it’s a hard topic to discuss with people, because what it means is, you know, what we’ve just been talking about, you know, say we’re partners, and we know one of us is older, and you know, God forbid, something happens, one of us passes away, we become disabled, we get divorced, how does that affect our partnership, you know, if we’re syndicators or developers, and we have a company together, especially if it’s just two partners, because you have that 5050, you know, inherent conflict, how does that get resolved? And a lot of times when we have new entrepreneurs, new real estate investors, they want to partner up, it’s, it’s a conversation to have is, what happens if that partner is gone. So for example, your partner, you start a real estate investment company, you buy a five unit building with a partner, that partner passes away. Well, this his interest, go to his his children. This is an interest go to his spouse. If it’s an operating company, and you’re actually doing further projects, and you’re actually working for the company, rather than a passive investment, it becomes a really important question. Because that partner, spouse or children, they may not know about the business, they may not bring anything from an operational standpoint. And you may not get along. I mean, you may be you love your partner, but she can’t stand his wife or his kid. So what we talked about is called a buy sell agreement. And it’s commonplace with a partnership or an operating agreement. And what it does is it It outlines that what’s going to happen, call it your business, your business prenup. And it says, if someone dies, does the company have to repurchase my shares? Does it have the option to do it? Can I can I use life insurance to defray some of that cost? Are the payments paid over time? And it really goes through set triggering events like a death a divorce disabled, someone wants to leave the company and you plan out ahead of time? What’s going to happen to that equity or those shares in that company and figure out how we’re going to value the company, how are we going to repay that. So there isn’t a big dispute in the life of the company in the you know, the fact that the company will continue is insured because we’ve dealt with these hard issues up front. And there’s not a fight when some unfortunate event occurs in the future.

J Darrin Gross 14:51

Yeah, I can tell you firsthand, I’ve seen it up close and personal. I question for you Would you? Well, I guess I’m trying to think of the ways. So, two partners, one’s a majority shareholder, the other one’s minority shareholder, you’ve got the majority shareholder is well capitalized, the minority shareholder is not so well capitalized. In my experience, I’ve seen the majority shareholder not be so concerned about the event, recognizing that if a minority passes away, or whatever drops out, a check could be written or something along those lines. But the minority shareholder, I would guess, is kind of more of the the vulnerable one in that. That situation, but I’m kind of curious, do you? Have you had any experience with just that the unequal I guess, ownership percentages is that is that anything you run into?

Jeff Love 15:56

It does, it happens a lot. And not just the unequal ownership of partners, relative capital positions. We had, we dealt with the similar situation last year, where it This was a 5050 partnership. But one partner was a billionaire. And the other partner was was not by a by a large margin. So it was much easier for one partner to write the check than the other one. And your example, yes, often the majority partner is less concerned. But in real estate, it’s important because they may not have that immediate liquidity to do it, if we’re partners, and we’re invested in, you know, $10 million for the buildings, but all of our money is tied up in these buildings, we may not have a check Director $3 million to write to our minority partner without refinancing or recapitalizing our property. So in that context, it still could pose a difficulty. And even more so for the minority partner, because they may not have the cash flow to buyout the bigger partner. So it’s, even if it’s majority versus minority, it’s something to think about, especially in the real estate context. And one of the ways to deal with with that, especially a death is in your neck of the woods, and is thinking about what you know, well, it’s not property insurance, but life insurance, can we buy that on a partner, or on each other, to help defray some of that cost. So we’re not going to have to sell one of our properties or liquidity at an opportune time, if something like this were to happen, so it’s thinking about all of these events ahead of time, and making sure that, hey, if I am the minority partner, do I have the money to buy you out. And if I don’t, am I able to structure that over a longer payment period, or use something like life insurance to help defer some of that initial down payment to redeem your equity stake in our partnership?

J Darrin Gross 17:51

Again, just to you know, that that issue of you love your partner, but have so much the, the family or you know, the other parties or whatever, I mean, you get your own family kind of thing. And it just from experience, I can tell you, it gets really messy and and if you don’t have it sorted out, it can be messy, expensive, long, protracted disruption to your life. So I would highly encourage you to sort that out front.

I want to ask you, so on on these other a couple of topics that I had written down here, lease purchase, or excuse me, let’s look at the purchase agreement. In commercial real estate, what what, what to look for in a purchase agreement or commercial real estate transaction? Can you point to some some key things that you would encourage the listeners to look for?

Jeff Love 18:48

Sure. You know, it’s with real estate investing, it’s hard, because you’re really focused as the investor or sponsor developer, you’re really focused on getting the deal done. And you may overlook things like the purchase agreement, this is a form document my broker gave to me are the seller proposal, what’s the big deal, but that’s where a lot of issues come up. You know, what one of the big issues is, is a limitation of liability in the commercial context. If sellers often want them, they want to be able to wipe their hands of the property when they’re done. They don’t want you coming after them suing them for a substantial portion of the purchase price a year later. And it’s a fair concern. But from the buyer standpoint, you also want to make sure you’re protected. You may have done a great job doing due diligence, but you weren’t able to discover some some side leads the the seller had or some environmental concern and it comes to light later. You want to make sure that you’re adequately protected, and that you can, you know, get justice from the seller and make sure that the value you paid is the value that that’s fair. So that’s one of the areas that’s really negotiated is is there A fair cap on seller liability, you know, we see anywhere from two to 5% on multi million dollar deals, but it really ranges. And is there a time period when we can make these claims, if I’m selling a property, I eventually want to be able to keep it in the past, you know, I don’t want to claim from a buyer to come three years in the future. So I’m really going to do have my attorney or broker really negotiate this and say, Can we cut off any claims after six months or 12 months, 18 months. And so I can draw that line in the sand and say, you know, that’s my period of exposure after that I’m done. And the same thing with the buyer side buyer, you got to get in there, you got to do your due diligence, know your property, if there is a claim, you have to bring it timely. So I think that’s one of the big contention issues that we see with purchase agreements. Another one is dealing with representations and warranties, which I think is, is really important. You know, in smaller deals, single family properties, you really don’t get into them as much. But as you start to grow in commercial, industrial, a large multifamily retail office, you’ll really see representations and warranties from the seller and to lesser extent the buyer that talk about what is as the seller operating the property in the ordinary course of business, does he does he know anything? Is what you’re really trying to get at? Is he aware of any environmental concerns with the property? Does he have the right to sell a property, he doesn’t know if any tenant is filed for bankruptcy, and going through certain important questions that what you may touch on them on your due diligence, this is your opportunity to really ask questions of the seller, and have it in writing where where he or she is standing behind it. So that’s probably another area in your purchase agreement, it’s really worth taking the time to understand and see what’s in there. Because this is what protects you post closing sellers made certain representations. And those are the ones that survived the closing for that time period, you’re able to make a claim after the fact if need be.

J Darrin Gross 22:10

Is there a you know, I’m assuming that each case is different, but is there a range of time for these types of matters to for the exposure to be still open, as far as if you’re the purchaser, if you’re if you’re the buyer, as far as you know, your window of discovery is or is or kind of a standard window for some of these things.

Jeff Love 22:39

You know, it really depends on the owner, because, you know, if you’re an absentee owner, or if you say you have an industrial property is leased, you may not really get in there and know your own property tenant may not bring certain things, your attention. versus if you’re buying you a duplex as a small real estate investment, you may you may really get in there, you may have vacant units, you may play around with your your sink, you may do a survey and really get in there. So it depends, I think on the asset class and the involvement of the buyer, but you so you really need a minimum of six months to get in there and get familiar with the property post closing, let it run under your books for a while. So when we negotiate representations and warranties on either side, we try to stay in that short window of six months for a seller, and then you push it out to 18 months for a buyer and negotiate somewhere in between. Because the real key with real estate and negotiating purchase agreements, you know, leases, even by cells is being reasonable and finding that compromise that works for both the buyer and the seller. That’s your best, that’s your best deal.

J Darrin Gross 23:53

Yeah, like I just sitting here thinking of some different transactions that I’ve been a part of, and I mean, the environmental thing you bring up is definitely one that’s tends to have kind of a longer seems like a longer due diligence based on just even the lenders are are pretty particular about you know, making certain that they’re not going to be lending on a problem becomes their problem. Down the road. Curious on the purchase agreement. You know, we’re talking essentially, about some of these due diligence things. I think so often due diligence is thought of by Real Estate Buyers is more of the physical asset due diligence, you know, the structure or the age and condition of of things that you know, repair items that may need to be taken care of or addressed. Is there a like a checklist or some things that you find that that you know are common that buyers don’t look for or should look for For or, you know, any, any kind of best practices with respect to more of the contracts on a due diligence kind of thing like said, I feel like most often I feel like people frame it in more of a, a structure that, you know, the physical aspect of the transaction as opposed to the written part of the transaction.

Jeff Love 25:23

You’re absolutely right. You know, a lot of especially newbies will look at, you know, I knew my physical inspection, and and did I do the financial underwriting? You know, what are my rents? What am I paying, what are my costs, but there’s a lot more to underwriting a property, especially for a due diligence standpoint, and from a legal standpoint, you know, one of them is that I look at environmental concerns, you know, clearly think if I’m buying a retail property, and there’s a, there’s a drycleaners, or a gas station, it comes to mind. But what happens if that gas station is behind your property or across the street? Has there been groundwater migration because your next door neighbor, dirty user, because it’s under your property, your tenants get sick, or there’s an issue it can fall on you. So you hear phase one a lot. And what that does is, you know, it’s an inspection, it takes time to work on your due diligence, but it’s meant to protect you and really understand the environmental aspects of it, you know, did you really look at the title and survey, or have your advisor look at it. Now, I’ve had a client buying a building now. And there’s a there’s a deed restriction on this industrial building, where it’s from 1924. And it says you can’t serve alcoholic beverages from the premises, and it’s actually still valid. So while it didn’t immediately affect him, if he wanted to open a tap room, or have a tenant there were serving alcohol, it’s forbidden. And if it’s got a pretty severe, you know, violation, if you violate that it’s there’s there’s a reverter, which means a property can technically revert to that owner from 1924. Or it’s theirs. Yeah, it that seems pretty wild. But there there are, there are cases like that, and we’ve run across them in different aspects. So if you’re not really looking at your title, commitment, or preliminary report, depending on the state you’re in, and just looking at the exceptions, the title that the title company is not going to protect you over. But print those underlying documents and see what they say, you know, you’ll be surprised with some of the restrictions that are in there. And it’s something that you would have no idea if he just looked at your physical inspection, you wouldn’t get it from an environmental report. So you really got to hit all of these different areas, and you do diligence, you do your physical, you do your financial, you do environmental, you do title, maybe you do a survey, depending on the property type, because you want to make sure there’s no encroachments, your neighbor’s not going to make you tear down. That expensive shed in this bill or this parking structure, because it encroached onto the onto their land. And then, as you said, really understanding any contracts are their contracts that I have to assume as the buyer, because it’s a larger building. What about the leases? Do I understand the leases, and that is my tenant, have I gotten an estoppel certificate? What what that is, is it such a certificate that says the tenant is telling you, the buyer, what’s in the lease, my lease is in full force. In fact, I paid read through so and so date, I’m not aware of any defaults. And it’s an important document to get because we’ve had situations where the buyer is under the understanding on a multifamily property with this sort in case there were three tenants. And one of them had us had a side letter agreement that wasn’t part of the lease the landlord, you know, there was a death. And it was the mother that did it. He wasn’t really aware of it. But there was a side letter that granted his tenant, the right to lease the property for five years, at probably 25% of fair market value

J Darrin Gross 29:01

25% of

Jeff Love 29:03

25% of fair market value at the time, and it wasn’t in the lease. And the seller wasn’t even aware of it because it was his mother mother that had the fortune to seize. So if he had had an estoppel certificate in attendance said, I have this probably wouldn’t have bought the property. And if you’d asked me to establish a certificate and a tenant hadn’t written that down, then the tenant wouldn’t be able to say they had it three years he’s bound within this document. So from a contract perspective, really understanding your contracts, and some of the legal means that you’re really able to use as the buyer or the seller, to benefit yourself in that transaction to make sure you really understand what you’re buying to avoid problems that can inherently come down the road.

J Darrin Gross 29:52

Let me ask you on the estoppel. Is it is it an estoppel agreement or what’s the proper word? What is estoppel we

Jeff Love 30:02

call them estoppel certificates sort of, and the main is what it sounds like. It’s called estoppel. It’s the legal language, but the tenants is stopped from, from denying what they put in this agreement. So if they write, this is my lease and they sign off on it, they can’t later claim that, oh, that’s not true landlord buyer, sorry, there’s other documents my lease, they’re stopped for changing what’s in here, because they’re making representations to you as the buyer, and oftentimes on a refinance, they’re making those representations to a lender.

J Darrin Gross 30:35

Gotcha. And is it? Is it ever the case that the seller will do this pre listing? Or is that that I feel like that may give rise to, you know, unsettled tenants if you if you do that is it more common when when there’s a purchase sale agreement between the buyer and the seller, the the certificates or the or the attempt to get the estoppel certificates is is handled?

Jeff Love 31:05

It’s usually during escrow for the one of the reasons you mentioned, if you don’t have an impending sale, you don’t necessarily want to alert your tenants get, you know, have them concerned that there’s a new landlord that may not be as friendly or accommodating as you are. And as the buyer, you also want it to be current. So if the seller got the six months ago, that doesn’t help me understand, they’re the current on rent, I want to know if I’m buying a building in August that they’ve paid through the month of August. So I want that to be probably within 30 days as the buyer, but it’s something to be aware of it takes you know, it takes time. You police may not require attended to give one commercial tenants, they may have 10, business days, 20 days to get it back to you. And with large multifamily properties, you just say you’re buying 100 unit apartment building, you just may not physically be able to get them from all all the tenants. So it’s something to consider when you’re even drafting a purchase agreement, or LOI a term sheet. When you’re talking about your due diligence time period, if I’m gonna have time for this, even more so in the current, you know, climate we’re in with the covid 19 pandemic, you may not be able to reach your meet, you might not go reach tenants set pennants may not be as willing to give you documents or exchange things, you may not have access to their units and due diligence. So it’s really thinking ahead in terms of timing, and the established certificate is one of the items that does have a lead time to be able to get it back and, and really read and decipher what’s in there.

J Darrin Gross 32:42

It’s been a little while since I’ve dealt with one of these, but I’m just trying to remember is that something that typically the buyer will stipulate in the purchase sale agreement.

Jeff Love 32:52

Yes, usually will negotiate as part of a negotiation. Is the seller going to obtain it from the tenant? If the tenant doesn’t give you one? What happens do either either terminate the deal? Can a seller Give me one and the tenant instead? And if it’s a large property? Do I have to get one from every tenant? Or is there a certain threshold? Can I get from 80% of the tenants? 90%. So that is something that is negotiated up front in the purchase and sale agreement?

Unknown Speaker 33:21

Got it?

J Darrin Gross 33:24

There’s a note here about negotiating a lease on your terms. I’m curious to see, you know, a lot of times, uh, well, let me ask you for it from an investor standpoint. As opposed to the tenant standpoint, what are your Do you have kind of a frame of reference, you know, for for a good guide on how to handle that.

Jeff Love 33:54

It depends on the typical lawyer responses depends. One of it depends, are we talking about our residential lease or commercial lease? But I think from an investor’s standpoint, if you’re acquiring a building, it’s your first job is to understand your lease. If it’s a residential lease, what constituted tenants default? How long is the lease? What’s the term look at your financial appointed, you know, financial parameters? Then take a look at the legal side. Is there an indemnification provision? What is the 10 and a half to repair and really understanding there’s material facts and when you’re negotiating a new residential lease is making sure that it protects you as the landlord, but it’s also you also want to be you know, I think kind of the overall game is be fair to the tenant. But making sure you really understand those default provisions because from a residential lease, tenants often they may not have the financial wherewithal of a large corporate tenant, and if something goes wrong, he may just want to be able to get them out of the property. So understanding the default with Commercial lease. Again, investor, you want to understand the deal and what’s in the lease. But also look at those bigger points, does the tenant they obligated to give me an estoppel? certificate? What what costs? Am I able to pass through to the tenant? is this? are they paying me a gross sum? Like a residential lease a fixed amount? That’s it? are they paying me a pass through? So understanding the financial parameters? Understanding? If is there an indemnity provision where they’re going to protect me? If something happens in their building? I’m not liable for that. Is there a limitation of liability? So looking at it, not just from a numbers standpoint, underwriting, but looking at it from? What’s my exposure? What’s my risk exposure? If, if a tenant is a I’ve got a big tenant, and a pipe breaks, and it floods their space? Can I? Am I liable for that anyway, as the landlord and investor? Or if insurance doesn’t cover it? Do I have exposure? And can the tenant come after me for what’s called consequential damages, which is, it’s the nasty type of damages, because what that means is it’s not just pipe breaks, I got to replace the clothing, so I got to replace their clothes. But the consequential damages, you want to make sure that way. Because that type of damages, it’s the unforeseen damages, the tenant had a shirt in the store was worth 50 bucks, but it was going to it was special, it was going to be worn by a movie star was going to get the tenant national exposure. So you cost them a million dollars in free advertising. Now they’re suing you landlord for a million dollars, going through the lease and understanding that. And if you’re negotiating a new lease, again, be fair meet in the middle, but negotiate those points that actually have a financial business legal impact to you, and don’t always sweat the small stuff, look at what’s actually going to have an impact on your pocketbook or actually expose you to risk.

J Darrin Gross 37:01

Let me ask you on the lease, as an insurance broker, we typically receive the lease and have to provide proof of insurance, you know, liability, naming the landlord is an additional insured if it’s a commercial lease for the tenant kind of thing. But I’m kind of curious, there’s always a clause in there. That seems like it’s a catch all. And, you know, if, if this doesn’t remedy it, and if that doesn’t remedy it, then we’re going to hold you responsible is that? Am I making something up? I’m not looking at least right now. But it seems like there’s always some sort of a, I can’t remember the phraseology, but I remember years ago, having a situation that was not covered by insurance. And it ended up being the tenants responsibility, you know, damage to a building kind of thing was a weird deal. But, I remember the the the landlord’s representative point to this, this section in the lease? Does any of that make any sense to you what I just said

Jeff Love 38:15

it does. And, again, another reason to understand the lease, a lot of times you will have the insurance provisions, you’ll often have a waiver of subrogation, which means you know better than I do, but insurance company is not gonna come after you if you’re covered. But what happens when there’s a gap in insurance or something was unique, you didn’t have insurance, a lot of times on the leases read, you know, beyond if insurance doesn’t cover it, landlord or tenant are ultimately going to be responsible, the burning bills did burns down, and there’s a million dollars in coverage. And it costs a million and a half to rebuild, someone’s going to come up with a half a million dollars. And that’s where shifting the risk and exposure comes to play in a lease. Is that the landlord’s responsibility or the tenants? And even then, if it is the tenants? Is it from any action that tenant takes? Or is it have to be some type of standard? Is it because the tenants name that was of course negligent or negligent or willful misconduct? So you’re absolutely correct. It’s in the lease. And it’s, it’s, it’s another area that’s negotiated, because it’s a shifting of risk. A lot of times with building damage, it is going to fall on the landlord as we try to represent tenants and vice versa, but if the tenant does something out of the norm and they were negligent, then that whole cost is going to get switched over back to the tenant.

J Darrin Gross 39:38

All right. Yeah, I think that’s kind of what this situation was. It was a little bit unique. But I think it’s the indemnity clause if I’m remembering right was kind of the where they kept pointing to was, hey, read this kind of thing. And, and so that’s, that’s how I got settled. Jeff, if we Could I’d like to shift gears a little bit here, kind of along the same line, we’ve been talking about risk and that as we’ve been talking by day, I’m a, I’m an insurance broker. And I work with my clients to assess risk, and determine what we can do with the risk. And there’s a couple of different strategies we consider. The first is we look to see as a way to avoid the risk. If that’s not possible, we look to see if there’s a way to minimize the risk. And when we can’t avoid it or minimize it, we look to transfer the risk. And that’s what an insurance policy is. And I like to ask my guests, if they can take a look at their situation with their business, their clients, you know, the real estate that they they interact in? And if you’re able to identify what you consider to be the biggest risk. And just for clarification, I’m not looking for necessarily an insurance related answer. But if you’re willing, I’d like to ask you, Jeff Love, what is the biggest risk?

Jeff Love 41:15

To me, it’s the same for me, because I’m a real estate investor myself, as well as advising real estate investors. And to me, the biggest risk with with real estate is exposing my non real estate assets to a real estate related risk. And what I mean by that is, if I own a two unit apartment building, and the tenant has a party, someone slips and falls. Now I’ve got, I’ve got, I’ve got a claim against me as the landlord. It may be a really bad fall, someone dies. And they may want to they when they want to sue me. It’s a $5 million claim. Now, I may have insurance, which I hopefully do, get it from someone like yourself, and that gives me protection. But what if that insurance isn’t enough? You know, my property insurance, my umbrella? That only gets me to 3 million? How do I protect myself because I don’t want my bank account. I don’t want my car, my kids college bonds my home, I don’t want that exposure for one particular investment, real estate, just one aspect of my portfolio. I want to try to keep it contained. And one of the ways we do that is through insurance. And that’s you know, that’s my, you know, first answer. But insurance may not may not always cover, there may be an exception. So how do we go one step further, and to our clients. That’s part of our corporate practice or entity structuring and what those limited liability companies give you our limited liability, whether depending on what the form, whether it’s a corporation, a limited partnership, and LLC, what that does is say, my exposure is only the company, I can’t unless I do something wrong, and it pierce the veil, myself as the owner of that company, you can’t come after my personal assets. So I take my two year apartment building, I put it into Jeff’s LLC. Now there’s that slip and fall, they may make a claim against me, they may get my $3 million insurance coverage. And they may take the property to cover the other $2 million of the claim. But that’s all I lose, I don’t lose my car, my bank accounts. That’s all safe. And to me, that’s the biggest risk is being able to really mitigate the risk of each property and segregate my assets to make sure that if one card falls, all of them don’t. And so what we do with clients is help them segregate those risks, maybe even have different properties in different companies. One has specific environmental risk. Maybe one is an apartment building with lots of tenants and other Amazon deliveries, we want to keep that separate from my industrial property that’s worth a lot more money or my personal assets. So I think that corporate structuring and understanding what an entity that grants limited liability protection, the benefits that that can really give you in mitigating risk and exposure.

J Darrin Gross 44:14

Now, that’s those are good points. years ago, I was had to testify in a lawsuit one of my clients was injured is not an automobile accident, but I remember the the party that was at fault, their policy was basically a minimum limit thing and the company wrote the check and said, you know, good luck, they’re out of the claim there. And literally it was after that, that the judge in, you know, the settlement was basically looking at all of the other assets, like you’re describing, and liquidating, or you know, the the at fault party, you know, could seek financing or loans against them or whatever but but you know, Beyond insurance, you are or can be held responsible, or at least the entity the responsible party can be held responsible. So it’s, I appreciate you making that point. So, Jeff, where can listeners go if they would like to learn more connect with you?

Jeff Love 45:20

I am on social media, please check out our website. www.gibbsgiden.com. Feel free to email me anytime. jlove@gibbsgiden.com also on LinkedIn. Give me a call. Always happy to answer questions.

J Darrin Gross 45:35

All right. Well, Jeff, I can’t say thanks enough for taking the time to talk. I’ve enjoyed it. learned a lot. And I hope we can do it again soon.

Jeff Love 45:45

Likewise, thanks so much.

J Darrin Gross 45:47

All right. For our listeners. If you liked this episode, don’t forget to like, share and subscribe. Remember, the more you know, the more you grow? That’s all we got this week. Until next time, thanks for listening to Commercial Real Estate Pro Networks. CREPN Radio.

Announcer 46:07

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New Rules of Real Estate Investing with Nick Prefontaine – CREPN #277

Nick Prefontaine 0:00

When I first started I was just handed a script and told our you go knock on the door and you read the script that kind of thing and then when I started doing that I just wasn’t seeing a lot of success I get a lot of doors slammed in my face and then shortly after them my cousin and I Mike, we flew out to San Diego to shadow the top top guy in the country was having success doing door knocking these pre foreclosure doors. Once I saw his approach and how it differed from mine and in how it was vastly different it was there were so many things there were there were like you wouldn’t go off knock on the door lightly like a like a friend was stopping by take a few steps back and then they come to the door. Look on either side. Hey, I’m not I’m not sure if I have the right address. Could you help me out and then you’d show them the list that notice sort of faultless news working off of in once they saw their name, they would light up.

Announcer 1:00

Welcome to CREPN Radio for influential commercial real estate professionals who work with investors, buyers and sellers of commercial real estate coast to coast whether you’re an investor, broker, lender, property manager, attorney or accountant We are here to learn from the experts.

J Darrin Gross 1:19

Welcome to commercial real estate pro networks CREPN Radio. Thanks for joining us. My name is J Darrin Gross. This is the podcast focused on commercial real estate investment and risk management strategies. Weekly we have conversations with commercial real estate investors and professionals who provide their experience and insight to help you grow your real estate portfolio.

Today, my guest is Nick Prefontaine. Nick is part of the Smart Real Estate Coach family located in Newport, Rhode Island. He recently co authored the best selling book, The New Rules of Real Estate Investing, 24 Leading Experts Reveal Their Real Estate Secrets. And in just a minute, we’re going to speak with Nick about overcoming adversity and breaking through your limiting beliefs. So you can build your real estate portfolio. But first, a quick reminder, if you like our show, CREPN Radio, there are a couple things you can do to help. You can like, share and subscribe. And we hope you would consider leaving a comment we’d love to hear from our listeners. Also, if you’d like to see our handsome our guest are, be sure to check out our YouTube channel. And you can find us on YouTube at Commercial Real Estate Pro Network. And if you would please subscribe. We’d love to have grow the subscription and attract more viewers as well. With that, I want to welcome my guest, Nick, welcome to CREPN Radio.

Nick Prefontaine 2:49

Hi, Darrin, I’m very happy to be here with you and your listeners.

J Darrin Gross 2:54

Well, I’m so glad we’re able to do this. I’m looking forward to our talk today. But before we get started, if you could take just a minute and share with listeners a little bit about your background.

Nick Prefontaine 3:06

Hmm, all right, I really I really think that some that’s really the part of Part of the reason why I’m I’m with you Darren and So talk a little bit about my background and kind of how I get into what I’m doing. So, um, I actually in 2003, I was in a snowboarding accident, went off a jump landed on my head and I was in a coma for three weeks. And I had to learn how to walk talk need to get so on that day, the February 5 2003 of my accident I remember the reason I was going to the mountain was I was with my ski club. I remember that my friends and I we were very proactive meaning that we brought all of our snowboarding gear onto the bus to get ready so as not to miss a precious moment once we got to the mountain. So getting ready on the bus I noticed that I had forgot one thing that I usually brought to ski club not all the time but usually and that was my helmet. I didn’t really down and really think anything of it because you know, I was just gonna be careful you know nothing ever happened I’d be fine.

So we got some own and because we already had a trade for the top. On the way to the top though, we noticed that it was very icy. Because it had been raining people are wiping out everywhere. Like but needless to say it wasn’t wasn’t my first year first time on a snowboard I I knew what I was doing on a snowboard so I got to Godzilla top and ballclub Ben and headed straight for the biggest chump with all my speed. All the while before that and part of the reason that drove me to want to go towards that jump was because all of my friends were saying anyone who hit that jump right now will be crazy, cuz it was the biggest jump in the train Park. Going up to the jump, I caught the edge of my snowboard which threw me off balance a little. I was too close to the top of that junk to stop and I was going way too fast to even think about being able to stop. So in the air I went off and I the the people can’t see me, I’m showing the motion of what my body did. And that was my my body inverting basically to landing right on my head. Now I was told that I landed on my head, and I wasn’t wearing a helmet. One of the things that happened when I later found this how one of the things that happen when I fell though I didn’t have a helmet on the goggles one of the things there, there’s two or three things that I can point to that saved my life in that moment. One of those was my goggles that I was wearing, even though wearing a helmet, obviously, but they were very thick goggles, they were they were called spies, they were very thick goggles, with water padding. I was told that with each impact, even after the initial impact, those goggles would rotate to where the next impact was going to be to cushion my fall a bit. It was much too windy for them to lifeflight me. UMass Medical Center and the paramedics wanted to lifeflight me like bring a helicopter in but it was much too windy for that. So they had to send a team of paramedics up to the Hill to get me and bring me down. And then because I had such a fall, I had to be intubated right on the spot. Watch. For those of you listeners who don’t know what that is, when you get a serious accident like that you that’s part of their procedure that they have to do to allow you to breathe at its basically to paralyze you. I found out later, Darrin that there’s only one or two of the paramedics, the staff of six that is abled that hasn’t know how to intubate right on the spot. Fortunate for me, that person was working that day. So as you can see a bunch of bunch of things were, you know, playing playing out in my favor, which I’m very, very fortunate because.

I got to the ICU, the intensive care unit at UMass and the doctors told by parents that well, we don’t know when he’s going to come out of a coma. But if if he does, we don’t really know if he’ll be able to walk, talk or eat on his own. That was that was very early on in my recovery that they shared their prognosis and I was actually very fortunate that my parents anytime that doctors would come into my, my roommate at the ICU to share newslite that they would start to tell my parents what was going on. And they My parents always said, No, no, not here, not in front of him because even though I was in a coma, I was still taking information in. So they made the doctor’s go with them outside the hospital room, whatever it was to share information about how grim the forecast was, especially in the beginning. After I was stabilized in and when I say in a coma I was it was a partially induced coma because they said that from the impact alone Darrin that I would have been out for 10 to 14 days just from the impacts alone. However, after that the swelling was such in my in my brain in with my head that if it increased any more Even a small bit, if it increased a little bit, I wouldn’t have died. So there’s those are those, those are the three things, I always have trouble. If I don’t go, if I don’t go slow during the beginning with telling the story correctly, I always have trouble like, wait, I thought there was three, like retracing my steps. So that’s the third thing.

So they had to induce me into a coma to allow the swelling in my brain to come down. Then after I was stabilized, approximately a month later, I don’t remember a month, basically, that month of my life is gone. I can’t recall that. I don’t remember that. And it’s really, it’s really interesting, because I’ve been back to the ICU to that unit at UMass. And I went back there a few a couple years after I recovered from my accident for a groundbreaking ceremony that I was a part of. And I went and that was my first time walking through the unit. When I walked to the unit, I was like, Oh, you look really familiar. Like you Oh, you look really familiar. I feel like I’ve been here before, like the whole layout. But I couldn’t really put my finger on and now that’s because like, unconscious way I I do recall being there, but just consciously wasn’t happening because I seen videos of myself when I was at UMass in the ICU. And my eyes are open. But I don’t remember any of that time because I was coming off of being induced in a coma. So it was like the lights are on but no one was home. kind of thing. And then after I was stabilized, like I was saying Darrin approximately a month later, I was moved to Franciscan Children’s Hospital in Boston, they were actually right in Brighton Mass. In that’s that’s where I started my journey. That’s where I had to learn how to walk, how to talk, how to eat on my own. And I remember I always tell this story because it sticks out in my mind as a big, big turning point. Whenever someone meets me today, and they learn about my story, there is Hey, oh, I’m glad you made it. I say Yeah, me too.

J Darrin Gross 12:35

Right.

Nick Prefontaine 12:36

But the thing that always takes out is there was Everyone knows that always asked me like you have such a you have such a, you know, a powerful story and you were so strong gone through it, you’re so much stronger because of it. But was there ever that moment of doubt. And we all have doubt. This is why this is why I like to share this, it was very early on in my recovery in between therapies because I would my days were just to give you a glimpse, I would have to get up, I needed help getting showered. Because I had to learn how to do that again, too. So I would take a shower with the physical like the physical therapist would would help me take a shower and you know, teach me the order of things that you have to do and everything like that. Then after that I would have sessions of physical, occupational and speech therapy. Then I would go to lunch and this moment came at that one I was in a break at lunch and I was still in a wheelchair, I still was only able to produce a whisper of of my voice of talking. And I remember looking just kind of looking at my situation. I don’t know what it was. And I looked at my legs in the wheelchair and I looked over my mom and I’m like, Mom, am I ever gonna be able to walk again? And she said, yeah, of course you are that like, Why? Why would you add that’s why we’re here so you can get everything back and then we can just go back to go back home and you know, go on go on with everything. And it was that it was that confidence and that she was so sure that Yeah, you’re that that’s what we’re doing here that you’re going to learn everything again and then we’re gonna go back so we can go home and everything in that moment always sticks out to me, because I’m not saying that there was never any doubt as to that but that was a big that was a big portion and everyone and I’m sure your listeners can and you could agree that everyone has doubts. Everyone Yeah, you set a goal and you’re working towards it but everything is rosy all the time. Everyone has their doubts So, I always like to share that with people so they understand that I’m a real person. And you know, I did at one point have doubt going through that experience.

Then kind of fast forward a few months and I ran out of the hospital. So April I believe the day was April 24 of 2003. I ran out of Franciscan Children’s Hospital. And we on the day that I ran out, we went down to the local pizza shop right down the street from the hospital and I realized a couple goals day I realized my food goal, I say my food goal because I couldn’t swallow. I had to be fed through a tube at the beginning to get all my nutrients and everything in. I so I always had that goal of a Coke and a grinder. Now a grinder for those non New Englanders out there is like a sub like, like a, like a big sub like a like a turkey or meatball or something like that. But uh, so that was always that was always a goal of mine. And actually while I’m, while I’m talking about this, and I haven’t even talked about this on an interview before the with the feeding tube. It was very early on in my recovery, but my mom who was in the every day said you don’t like you don’t really need that anymore, because I was starting to eat solid foods and everything. So she said you don’t need them anymore. And I at the time, I wasn’t able to talk I was only able to like mouth things. There was like no volume, and it was really kind of holding me back. So she started to pull it out. I was like yeah, I was like, go ahead. Like, that’s fine. That’s fine. I’m going to present so she took it out. And by the time she got like right here I my eyes started to get really wide. Because I I didn’t know it. I didn’t know went that far. I was as as it got farther, like my eyes got wider and wider. And then when the nurses later that day later that night came in to check on me. They said no, what happened your feeding tube. And remember I could I couldn’t talk. So I just went like this.

And we, we rehearsed that there’s the shoulder shrug that like I don’t, I don’t know, not sure what happened. So my goal was always a Coke and a grinder. So on the day that I ran out of the hospital, first we walk right next door to the local pizza shop, had my coke and the grinder. Then from there I ran. That’s where we filmed that video that I ran out of the hospital. Now I did have to go back inside to still got my stuff. But it was it was like it was a big it was a big moment. It was because I realized my goal that I was working for that whole time. So that was that was pretty cool.

J Darrin Gross 18:15

Oh, that’s awesome. I, you know, my wife. She’s not practicing now. But when we first met his physical therapist, and I can remember numerous times we’d be out in public. And somebody come up to her and give her the biggest hug. And it was about kind of like the story. I mean, she would tell me the story. And a lot of times it was about something very similar t to you. I mean, the fact that they normal day major, just a weird fluke of a thing happened and all of a sudden, whether they’re a TBI or a spinal cord injury or something and just the, you know, how much of life we take for granted. You know, and how old were you on the day that this happened in 2003?

Nick Prefontaine 18:59

I was 14.

J Darrin Gross 19:00

Okay, 14 year old, most 14 year olds, I’ve got a 15 and a 17 year old, they don’t have a concern in the world. I mean, there’s just it’s just not, you know, you know, there’s certain things you’re supposed to do, but to have any kind of concerns of like any of any of the things you take for granted could be taken from you, is just the farthest thing. And then from from that moment to where when you said you’re you have that conversation with your mom about am I gonna be able to do this again. That’s, that’s pretty enlightening. You know that that all of a sudden now as a 14 year old? You know, you do have some sort of a question or a doubt of, you know, what am I gonna be able to make it? So two months, over two months later, you run out of hospital. From that day when you’re asking your mom Am I gonna be able to walk? Was your was your progress with it. I mean, like minimal daily or I can you describe some of the progress because some people forget about.

Nick Prefontaine 20:09

Yeah, that’s Oh, that’s interesting. Interesting that you asked that because yeah, when I was when I was going through it, I was, oh my god, it was like yours. Like I spent years in the hospital. But in reality it was I got moved to Franciscan, I believe I was on March 4, or fifth. And then I ran out of all I ran out of Franciscan on April 24. So under two months, but going through that, it felt like two years, honestly, because it was it just it seemed it seemed like a lot because I had to I had to learn everything again, it just time move very slowly. Whenever, and I know that’s now that everything goes really fast, like things go faster as you get as you get older and get busy and everything. But that was a time in my life when everything just stopped, basically. And it it’s that time it might as well vent two years. actually going through that. So yeah, the progress, the progress was very quickly, I I progress very quickly, it didn’t feel like it at the time. But yeah. And then when I ran on the hospital, it wasn’t like the work was done, okay, you’re all set, I still had to I had to go back home. And my school where I was I was in eighth grade at the time said, don’t worry about it, you know you had a major injury, don’t worry about it. What you can do is come back next year and just take the eighth grade over. I didn’t, I really Darrin, I didn’t want to do that. I wanted to be able to graduate with my classmates. So what I did was I would go in in the mornings and I wasn’t able to sit in normal classes. Remember I had to get caught up and everything. So I would sit with the private tutor at the school. So get up. then I would go to school for a few hours, believe it was around the time of nine or 930 to 1130 or 12. And then I would get I would have private tutor sessions to get caught up. Now I was able to a few months later graduate with my walk at the ceremony with my eighth grade class. But the work wasn’t done for me. I had to have a different tutor come to my house five days a week for two or three hours a day, every day in order for me to pass the eighth grade. But I was able to do that and I was able to go on to fresh you know start freshman year with my class but when I got home the days looked like this I would get up go to school from that nine to 11 1130 window, I get get tutored for two hours, then I would I would get to have lunch with my classmates which was the most important the most important thing my day. I love that because I I wasn’t able to see them for months so I would go to lunch with them. And then after them my mom would would pick me up and we would go to outpatient therapy. My outpatient therapy was physical sessions of physical occupational and speech therapy so I didn’t have to do them double sessions like it was when I was an impatient but I did have to do them five days a week.

You know every day until six months later when I was 100% clear then still really the work wasn’t done after that I went privately and saw physical therapists to get additional exercises and additional things I was going to help me continue to strengthen and you know keep keep my body up and going in. So then I had freshman year at Shrewsbury the high school I had actually got into a private all boys school Catholic, private all Boys School St. John’s high school. I got in there prior to my accident but my parents weren’t sure if I could handle it after getting my accident. So I started at the at Shrewsbury High School and once I was there for six months or not six months, but once I was there like three or four months, I was like I don’t. Like I don’t, I don’t like like, I want to be challenged. So I arranged to transfer into St. John’s for my sophomore year and part of the reason why I went to Shrewsbury for that freshman year was to get my IEP set up Individual Education Plan, because if I just went to St. John’s, they wouldn’t have that. So I had to get that set up first transferred into there. And then only two years later, Darrin, I was actually I was starting to get the itch. I was reading a lot of books, a lot of real estate books, and the one that really caught my interest was a Cashflow Quadrant by Robert Kiyosaki. And I started asking my dad questions like how cuz he had a real estate investment company at the time. And I started to ask him questions like, how can I help? And what can I do? How can I get involved that kind of thing?

Right around that time, I started asking questions, I was about 16 years old. And he was starting to experiment with the idea of having several people door knocking pre foreclosure doors, like you would get a list of people that have received the notice of default letter from the bank, meaning they mess 123, or even up to 10 to 12. In those days, payments, and the bank still hadn’t foreclose. So I would get that list. And I would go to the areas where I could knock out the most amount of doors in a day. And that translated, I didn’t realize it at the time, but that translated are not the best areas. You know, like not good areas of cities by anyway. So I did that. And I was able I was able to when I first started I was just handed a script and told our you go knock on the door and you read the script, that kind of thing. And then when I started doing that, I just wasn’t seen a lot of success. I get a lot of doors slammed in my face. And then shortly after them my cousin and I Mike we flew out to San Diego to shadow the top top guy in the country was having success doing door knocking these pre foreclosure doors. Once I saw his approach and how it differed from mine and in how it was vastly different it was there were so many things there were there were like you wouldn’t go off knock on the door lightly like a, like a friend was stopping by take a few steps back and then they come to the door. Look on either side. Hey, I’m not I’m not sure if I have the right address, could you help me out and then he showed them the list that notice of default lists and who’s working off of in, um, once they saw their name, they would light up and tell him what they were doing to fix a problem what happened and why the bank was, you know, terrible sob and everything and as you can imagine, but the number the success rate that he was having was just like, wow, okay, I’m gonna change to do it that way. So once I got back, I started doing that. And I saw a lot of success of that.

I continue the rest of high school doing that. Then when I graduated high school after I graduated, I started certainly near my real estate license 2008 March 2008, I got my real estate license, I know settled down it was it was a great it was a great time to get your real estate license. There was kind of before the proverbial shit hit the fan though. It was it was still things are still buzzing. And so I was a realtor full bore really for about six years of that going full time realtor making a living, you know, doing the whole deal prospecting and, you know, door knocking, doing that whole thing. But I was able to, I was able to make a living, and I was able to support myself on just my activities. Bit. So to me, there was a lot of pride involved in that, like, I didn’t, I didn’t need any, any help or any, like, I took a lot of pride out of that. Then if you got I’m sorry.

J Darrin Gross 29:24

I was gonna ask you, you know, the, your your injury and recovery story. We talked a little bit about the just the amount of work. I mean, you talked about how not only to get from the ICU to the hospital, then from the hospital to get released from the hospital then from from home to just to catch up. I mean, all the work and just the the amount of work and the focus and all of the effort. I mean, I think a lot of times when, when people are, they’re not in that situation. They don’t understand all the work that goes into to get back to work. You know, your your base, yeah, but then it sounds like even in this door knocking thing, you know, you were, you’re going and knocking as many doors as you could, and initially not having the success that you, you know, eventually had after you saw somebody else did it, but I’m assuming that the repetition of it and just staying focused and staying committed to it, as opposed to going, this isn’t working this blows. You know, I mean, if you’ve done that, when you’re in the hospital, I mean, you, you know, likely wouldn’t be walking, you wouldn’t be able to live on your own kind of thing. I mean, if you if you, you know, if you’d stop there. If, if you hadn’t, you know, committed yourself in the school work cap up with your class, if you hadn’t, you know, gone and learn from this other person and really kind of honed your craft. I mean, I’m assuming there’s a there is a parallel in all of those as far as just the, you know, the focus and the work to get the results.

Nick Prefontaine 30:56

There’s a thread Yeah, that absolutely, there is a thread in all of that. And that even that even what we’re doing today, with real estate, like the associates that we work with, and all across the country, who are doing it, it’s it’s so funny, Darrin, because I say Actually, we say all the time, it’s not just me that someone new starts out or maybe not even so new it a few months, you know, goes by and their work and they’re doing the right things. And then they get it like good news, they got a deal. But then there’s so much more like follow up and more things that need to like, there’s so many layers to what they have to learn in order to be a successful real estate investor. And I’m just really, I don’t know, I’m really like, amazed that at the fact that people, people when they first started out, like, Alright, dude, I did the work like, what am I get my check, you know, kind of thing. And it’s like, no, it takes a lot of follow up on on every everything you get, you got to stay on everything. And that common thread is what you picked up on what I was talking about, through my recovery and everything, it’s just you have to keep going. And I say it, I say it’s a buyers all the time, let’s just, let’s just take this one step at a time, all you have to worry about right now is going to see the house, then if you’re interested, give me give me some forms back and then we can talk more detail. But if I told everyone and even our associates, if I told them or if any of us at smart real estate coach told them everything that’s involved, right at the beginning, there, there probably wouldn’t be as many people that we’re working with today because of that, but because we spoon feed people, the right amount of information. There, they’re able to realize their goals and to have success. Because all you have to worry about is is doing the next step in front of you. And for me those those next steps were it was all there was quite a few and there continues to be those next steps.

J Darrin Gross 33:24

Yeah, I always love that question. You know, how do you eat an elephant? in one bite at a time? Right? Yeah. The, in just I think, like you mentioned is that, you know, staying committed, staying focused and recognizing You have to do it over and over and over again and stay with it. It’s easy to get discouraged. What what are some of the things that you see when you’re when you’re talking with others or some of your students or your your associates? Is there a common limiting belief?

Nick Prefontaine 34:06

Um,

I would say something that that we come up against a lie is the fact that someone thinks, well, I have to have all the information before I take action. So I’ll have to I’ll have to gather all the information about the property, I’ll have to get the mortgage information, I’ll have to get everything before I before I take that first step and pick up the phone and make a call. And that really couldn’t be farther from the truth. They they just the limited information, just the name number and what the address is and give them a call and that comes down and that comes down to anything, any kind of any kind of tough conversation. It shows Taking action. I would say the lack of taking action, like not taking action thinking there are more important things than lead generation.

J Darrin Gross 35:13

Right? Not that is, you know, I think that’s true in my life, certainly, you know, it’s the, it’s easy to get overwhelmed thinking like, I can make a small problem, a really big problem, as opposed to, you know, doing that first first step, you know, and usually, it usually involves engaging somebody. So whether it be a property owner, or what have you, but but, you know, you know, engaging someone in, in laying it out, and I like the the example, like you were describing with the person at San Diego how they would, you know, they would ask I, you know, I don’t know, if I’m in the right place, you know, but having that kind of a sense of, I don’t know, everything, you know, is your is your, your first step, as opposed to trying to be the expert on everything. Because, you know, it’s tough to be an expert on everything, or, you know, even all the way through on anything. Yeah. But I think people are a lot more at ease. If you have some sort of a sense of, you don’t know, and you’re comfortable in that, as opposed to, I think you can, you can, you know, off put people when you’re, you know, when you when you’re trying to just to assert authority in a situation.

Nick Prefontaine 36:41

Yeah. And I mean, that that’s 100% accurate, because I think at the beginning, I was treating it, I was treating it exactly like you’re saying, like rushing out to the door, saying, I’m here to help you out of your unfortunate situation. But then just kind of once I learned Collins approach, it took a step back and kind of like, could you help me out? and somewhat, you know, the majority of people out there are, they’ll help someone if, you know, most of the people out there are good people, you know?

J Darrin Gross 37:14

Yeah, I do believe that. I think that most people are are inclined to do good.

Nick Prefontaine 37:19

Yeah.

J Darrin Gross 37:20

There’s always a few that recognize that and are willing to take advantage of that. But But I think that in the in the main you recognize that people and for the most part are are, you know, trying to do good, the most? Yeah. and willing to help? You know, I think that was kind of an interesting question. I, you know, can you help me here? That’s a pretty disarming question right there. So, your, your experience in working with your associates in that? Is there any kind of a, you mentioned, do the next right thing or just do that the next step? do you what do you what do you say to people, when they ask, how long is it going to take? You know, how long is it going to take to get to get where I want to go?

Nick Prefontaine 38:12

totally depends on totally depends on their, their goals, their level, their level of commitment, how much time there, they have available to throw at this throw at this venture. I mean, a lot of a lot of the people that that come into our fold are people that do have that court to have like a corporate job, but their end goal is they want they want to leave that once you know, once they have an income from the real estate business that’s able to support them. And we’ve actually been able to come up with a plan and have we just had another one of our associates Brian a few weeks ago, give his final notice to his company. And he’s it’s happening regularly now with our associates. So a lot of our associates are are realizing that dream that they had been able to give their final notice one of our one of our top associates and coach he actually would, he was in the produce business in the I forget I’m drawing a blank right now. But he had to, he had a busy season and he had to commute two hours to work. And that’s one way he would make calls. He would drive with his brother he would make calls on the way to work and on the way home from work. And then eventually he was able to walk away and do his real estate business full time. And he’s one of our one of our coaches now as well.

J Darrin Gross 39:50

That’s awesome. That’s awesome. But it sounds like you know even kind of like we talked about you two hours you put in the work and kind of the goal and stuck with it and yeah Now he’s, I’m assuming he learned a lot along the way. You know, as he continued to do it, you know, kind of fine tune like you were talking about door knocking and stuff, you know that repetition kind of helps you kind of recognize the errors or where you have success and you can fine tune it and stuff.

Nick Prefontaine 40:17

Oh, absolutely. And I found them with anything I found that with, with telemarketing or and like anything, if I’m calling five to call a bunch of people. I’m not, I’m not going to really get my legs under me until I’ve until I’ve had five to 10 calls. And then I’m going to say to myself, well, I want to keep going now I’m in I’m in a rhythm, I feel good. I feel good about this. So I actually ended up doing more than I set out to do. In the beginning, same thing was for me, when I was a realtor first learning how to how to brand new realtor how to cold call and everything i would i would do just fine. It’s just repetition. Just keep going and you get better with repetition.

J Darrin Gross 41:07

Right, right. No, I know that I know that. Well. The first couple are not my best. But you get going yeah, you kind of get a groove and keep going. No, hey, Nick, if we could, I’d like to shift gears here for a second. By day, I’m an insurance broker. And I work with clients to assess risk and determine what to do with the risk. And there’s three strategies we typically consider. The first is we look and see, can we avoid the risk. If that’s not an option, we look to see if we can minimize the risk. And when neither of those are an option, we look to see if we can transfer the risk. And that’s what an insurance policy is. And I like to ask my guests if they can take a look at their situation, whether it be their their own personal situation, or in your case, your associates or even your clients. And if you can assess or consider what you think is the biggest risk. And for clarity, I’m not necessarily looking for an insurance related answer. But if you’re willing, I’d like to ask you Nick Prefontaine, what is the BIGGEST RISK?

Nick Prefontaine 42:21

The BIGGEST RISK is analysis paralysis, so not taking action. Thinking that you have to learn you have to learn XYZ or you have to you have to do something else or get to a certain point before you’re ready to take action. I just think that that paralyzes people into not getting results if they’re not taking action. So one of the things that I always say is ready fire aim. Like just get started. And then once you’re started, you can course correct and that’s, that’s been my whole career. Door knocking, like I said, I get out there, I failed a bunch of times I didn’t, I had limited information about what to do. But then once I had something to go off of, and I was able to fine tune in and get better and better. Same thing with cold calling and prospecting as a realtor. You know, once I got started, I was I was able to adjust and get better. Then there was a time when I didn’t know I work primarily with the buyers in our business, the rent to own buyers and kind of out of the out of working with them I Distilled or developed a process that you have to put everyone through to ensure that they’re able to be successful and get to the end of their lease and be able to get their own loan and get across the finish line. But there was a time when I didn’t know any of that. I my dad listen to some of my first calls. I there was a time I didn’t know any of that. So I was I just start that. That’s my thing. Like take action.

J Darrin Gross 44:09

Yeah, there’s no teacher like failure, right? Mm hmm. So don’t be afraid to fail. Hey, Nick, Where can the listeners go if they would like to learn more connect with you?

Nick Prefontaine 44:21

Yeah, great. Um, they can go to our website, which is smartrealestatecoach.com. And we actually have a webinar on there that tells if anything, what I mentioned rings true with any of your listeners out there, they can go to that website smart real estate coach comm get registered for the webinar. It lays out everything of our business and if they’re interested, they’ll know how to take the next step at the end. What comes with that for registering because they register for the webinar is a free strategy call with one of our team members here. And that’s the best way to get in contact with us. And then if they want to pick up a free copy of our best selling book The New Rules of Real Estate Investing and when I say free Darrin I mean 100% free not say yes, and then we’ll charge it $10 for shipping or it’s 100% free, then go to newrulesforfree.com and submit their info there and get a free copy sent out to them. And I’ll just repeat that it’s newrulesforfree.com. Just you know, with the whole COVID and the Coronavirus calling on just you know, be Be patient. I’m not sure if it’s going to get right out to you The Day After you submit your info but we’ll we’ll definitely get it out to that’s the best way. The best way to get started, I would say.

J Darrin Gross 45:57

Awesome. All that will be listed in the show notes. Nick, I can’t say thanks enough for taking the time to talk today. I’ve enjoyed our our talk and learned a lot and I hope we can do it again soon.

Nick Prefontaine 46:14

Me too, Darrin. Thank you.

J Darrin Gross 46:16

All right. For our listeners. If you like this episode, don’t forget to like, share and subscribe. Remember, the more you know, the more you grow. That’s what we’ve got this week. Until next time, thanks for listening to Commercial Real Estate Pro Networks CREPN Radio.

Intro 46:36

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Real Estate Syndication to Financial Freedom with Linying Zou – CREPN #276

Linying Zou 0:00

It’s easy, right? It’s easy to get kind of stuck in the comfort because you just do the job. And then you know, our academic system trains us to find a job get better pay and you know, climb the corporate ladder, in a sense. And so it’s really easy to get stuck in a kafir we will do work every day, you know, go home to the gym, go to your family, and then look forward to the weekend and then dread the Mondays. Right? It’s so easy to to get comfortable. So, you know, I was at a point where I was really dreading that Monday morning for about two years, until I managed to leave the company. So that was a really valuable experience to be able to exit and see there’s so many other opportunities out there that can provide me the life that I want to live.

Announcer 0:51

Welcome to CREPN Radio for influential commercial real estate professionals who work with investors, buyers and sellers of commercial real estate coast to coast whether you’re an investor, broker, lender, property manager, attorney or accountant We are here to learn from the experts.

J Darrin Gross 1:11

Welcome to Commercial Real Estate Pro Networks CREPN Radio. Thanks for joining us. My name is J. Darrin Gross. This is the podcast focused on commercial real estate investment and risk management strategies. Weekly we have conversations with commercial real estate investors and professionals who provide their experience and insight to help you grow your real estate portfolio.

Today, my guest is Linying Zou, and two years ago, excuse me two years after graduating from Boston College, Business School Linying bought her first multifamily investment. She had a new job. But very soon after she started, she realized that the job was not going to provide her the financial freedom she wanted. So she set out on her own to achieve her goal. And she started Akras Capital. And in just a minute, we’re going to speak with Linying about how an immigrant used real estate syndication to achieve the new American dream, reach your financial freedom number, and travel the world.

But first, a quick reminder, if you like our show, CREPN Radio, there are a couple things you can do. You can like, share and subscribe. And as always, we hope you’ll leave a comment we’d love to hear from our listeners. Also, if you’d like to see how attractive our guests are, be sure to check out our YouTube channel. And you can find us on youtube at Commercial Real Estate Pro Network. And I also want to encourage you to subscribe there as well. more subscribers more reach tall good. With that I want to welcome my guest Linying Welcome to CREPN Radio.

Linying Zou 2:58

Thanks for having me.

J Darrin Gross 3:00

Well, I am so looking forward to our talk today. But before we get started, if you could take just a minute and share with the listeners a little bit about your background.

Linying Zou 3:12

Sure. Um, so like you said, I started investing in multifamily two years out of school, but I was actually a trader in fixed income for about 10 years. So you know, I, I worked for as asset manager for my work for insurance company. And, and so I kind of went from kind of the Wall Street path into kinda mainstreet path. And so that’s a really helping what we’re doing right now, because there is a really good segue, you know, from finance into real estate. So, you know, I at Akras, you know, my main, my primary role is acquisitions. So I do a lot of do analysis and in underwriting so you know, using my background finance and that, that that’s really helped. So, yeah, so you know, about three years ago, you know, we started Akras Capital, and and we focus on both buying small multi families for a direct acquisition strategy as well as syndication. So build a portfolio, that allows us to essentially travel the world and you’ll live our lives on our own terms.

J Darrin Gross 4:22

No, sounds pretty good. In that, I think you said it, but I didn’t quite catch it. How long were you at the Wall Street firm doing the E asset management or you said asset fixed assets is what you’re working on there. Right?

Linying Zou 4:35

Fixed income, so corporate bonds. Okay. Yeah. So corporate bonds and government bonds. I was trading those I was there about I was at various firms put together a career total about 10 years.

J Darrin Gross 4:48

Gotcha. Gotcha. And when you bought your first multifamily What was your first multifamily property,

Unknown Speaker 4:58

It was what it is still Actually, I still own it to this day. So it wasn’t a triplex. It was a house hacking strategy. I’m sure your listeners are aware of that strategy by, you know, essentially live in one unit, and then another two to cover the mortgage. So that was back in 2010. So the market was really supportive with that strategy at the time.

J Darrin Gross 5:19

No, it’s a beautiful thing when it works. Yeah. Somebody else pay your pay your way. So you were you were in the the Wall Street world? I mean, it’s, it seems pretty glamorous from the outside. What was it that you recognized? Being in it, that it wasn’t going to get you where you wanted to go?

Linying Zou 5:45

It’s a couple of things. You know, for one, yeah, it’s very glamorous, right? You see it on TV all the time. It’s a very high paced career, and you can make a lot of money doing it. But I think the problem is that it wasn’t just for me, there was just no greater purpose in that career. You essentially tried to make money with money, and there is not enough flexibility, or control on what I want to do. That, that really didn’t jive with me very well. So because of that, you know, I just, I mean, don’t get me wrong, I love the job itself. You know, it was challenging, you know, every day was different. I have so many gathering pitch, so many trade ideas, and you have all these ideas come to the door, and you had vet them. So that was always my favorite part of job was just really the culture, you know, and I realized that just because I didn’t like my job at this company doesn’t mean that I like my job, the next company is going to face the same issues, where, you know, I don’t get to live my life on my own terms. And, you know, I have to basically provide go in and have face time. And, essentially, you know, listen, have the culture be something that I have no control over.

J Darrin Gross 7:05

No, that’s pretty big insight. I think for a lot of people. I think there’s kind of an exception, or not an acceptance, that’s what I’m trying to say. Just that’s the way it is. And this is what you do. And you you go and you try and do more and earn more and keep, keep earning more, but not necessarily recognizing the quality of life. You know, unless you have a really rich life outside of that. And that’s your primary vehicle. But you think about it, how many hours a day you spend at work. And I’m assuming that Wall Street, you weren’t necessarily working just a 40 hour week.

Linying Zou 7:47

Yeah, me, me, I worked on the buy side. So that was a lot. The work life balance is there, but I still spend about 10 hours a day at work. And it’s easy, right? It’s easy to get kind of stuck in the comfort because you just do the job. And then you know, our academic system trains us to know find good job, get better pay and you know, climb the corporate ladder, in a sense. And so it’s really easy to get stuck in a kafir we will do work every day, you know, go home, will the gym, go to your family and then look forward to the weekend and then dread the Mondays? Right? It’s so easy to to get comfortable. So, you know, I was at a point where I was really dreading that Monday morning for about two years, until you know, until I managed to leave the company. So that was a really valuable experience to be able to exit and see there are so many other opportunities out there that can provide me the life that I want to live versus while I was living before.

J Darrin Gross 8:52

No, that’s good. So you you bought your first property, you’re still working your your wall street job was real estate kind of the the I guess I’m trying to figure out how did it fit in? Because it sounds like was that always a goal? Or was that just something that that happened based on the fact that you were having success house hacking?

Linying Zou 9:21

I think real estate really is the American dream, right? Like only property in the States. I’m a first generation immigrant. So it was really a buy the first property It was really a family decision. You know, my parents came here and they never owned real estate and they never owned the house. And you know, I was in a financial position to be able to do that. So that was like the American dream. The family dream of me only a real estate property. And then I after I bought that property, you know, I managed it myself. And it was until four years later I bought my second property And that was in the process by my third property when I left my job. So, so that you know that for a wrench in things when you don’t have a W2 income when you’re looking to buy residential properties, you know, that’s like four units and below. So um, so, you know, I put a pause on that I went travel the world came back. And then when I started to, you know, start Akras, my business partners, that’s when we started investing in real estate full time and start buying other commercial properties.

J Darrin Gross 10:28

Gotcha. And you mentioned, you bought your second and third property, what were those,

Linying Zou 10:34

I bought my second property, which is actually my primary residence right now. Um, so and then my third one we were, we’re in the process of buying a while I was in the process of buying off market property at the time. But they kind of fell through in the last minute, and then, you know, I left my job, so that just went didn’t go anywhere.

J Darrin Gross 10:51

Gotcha. Gotcha. So you traveled? How, how long did you give yourself to travel and we’re all good to go.

Linying Zou 10:59

I travel for six months, I’m on the road and, and my back patient backpacked across Europe, and Asia. So I was in, I basically went, you know, to Estonian, and UK and Iceland, and then kind of flew back into Russia. So I spent about a month in Russia, two weeks in Mongolia, eight weeks in China, and then South Korea, I was actually in South Korea when the Olympics was happening. And then, and I went to Japan, so

J Darrin Gross 11:35

Wow. Well, there’s no no substitute for travel, I love kind of the experience, and just kind of the education of meeting people in different places and all that. So that’s awesome.

Linying Zou 11:47

Yeah, traveling, I mean, traveling really changed my mindset and how I view you know, what, basically, happiness is, because as you travel through these, you know, more kind of developing countries, you get to meet people who are living very happily have very little. So it kind of creates, you know, it kind of quite brings into question like, why is money so important, right? Why is it making more money, you know, having a bigger house or having a really nice car important when having these can be so it can be, you know, just something completely different to someone else. So I think that kind of changed my mindset and how I want to pursue my next career. Because when I first started, my my idea was always that I’m going to go traveling and come back and find a job. And other than, you know, another finance investment firm, it is continued a career path. And then having that kind of experience just seeing, you know, meeting people on the road, encountering different cultures, that’s when you know, my business partners, and I kind of sat down and said, Hey, like, do we really want to go back to the corporate world? Is that really important to us is that end goal is that the end all be all. And we decided that it wasn’t that we want to create freedom for ourselves, and you know, help create that kind of freedom for other people, so they can pursue that passion on their own.

J Darrin Gross 13:10

Now, it sounds like you You’re what am I trying to say, you know, coming from that wall street culture and just kind of go, go Go fast, fast, fast, more, more, more. World travel, and all sudden, now you’ve got a different view of, you know, maybe what’s important. Sounds like? Once you had that change, I would think it’d be kind of hard to go back to Wall Street, or just in that kind of thing. I don’t know if there’s a lot of room for that. kind of more of a Zen kind of a mindset, or do you find or are there people in Wall Street you ever saw that had that kind of a view of things?

Linying Zou 13:53

I think very rarely, I think, you know, people do want, I think most people do know what’s important to them, but it takes I think it takes a lot of courage to kind of step outside your comfort zone. And you know, and I think when you when you’ve been doing the same job for 10, 20, 30 years, it’s hard to change into something else because it’s scary, right? It’s there’s so much uncertainty, you know, your skill set applies. So, you know, it’s easy to kind of stay with the comfort and stay with what you know. So I don’t want to say that people offering people finance, they’ll know you know, they’ll understand like, what’s important to them or you know, that you know what, how they value money, but it just see, you know, it just that you can get stuck so easily and it’s hard to get out. Yeah, and actually, personally, I know so many people like recently that have gotten out and gotten pursuing other careers where you know, they maybe start a restaurant or maybe they started start up. You know, so it’s so you do have definitely people that don’t leave the industry to do to pursue something else.

J Darrin Gross 14:54

Right, well, having that experience where you are able to untether from that pace, and that lifestyle in that culture for an extended amount of time, even six months, I think is, is a good you know, amount of time to actually kind of reset, or have the opportunity to adjust. And, and while you’re traveling and seeing different things, it’s kind of exciting, but at a different pace. That’s, that’s got to be great. So you, you came back? And was it right away that your partners, and you mentioned your partners? How many partners do you have?

Linying Zou 15:35

I have two other partners?

J Darrin Gross 15:36

Okay. And were they also in the same situation? Or what was their?

Linying Zou 15:42

Yeah, so, my, one of my business partners, Christina, where she worked together my last company, and we so now we’ve been working together for like, eight years. So she and her husband, Charlie, who’s our other business partner, were also traveling, and they traveled for 14 months. And we work together for about six weeks during our travels, you know, through Russia and Mongolia. And you know, we really have a chance to kind of sit down and we know how well we work with each other. And so it the timing just worked that when I came back, they also came back. And then, you know, we had an opportunity to kind of sit down have the just strategic meeting, I think in all in July of 2018. And then, you know, decided to kind of go adventure into real estate.

J Darrin Gross 16:33

And were they real estate investors as well?

Linying Zou 16:36

Yeah. So they were when they were trying on the road, they had a property in Boston, which they were renting out as well and the rental income from that were enough to pay for the mortgage and provide funding for them when do on the road as well. So

J Darrin Gross 16:52

know that that is definitely the foot loof, footloose and fancy free kind of, you know, when the worries are taken care of that’s the mortgage is paid and you’ve got money to live on. That’s pretty good.

Linying Zou 17:05

Exactly. It’s a lot cheaper to live overseas to sell. I mean, depends on the country, but most of the countries it’s a lot cheaper to live there than in the US.

J Darrin Gross 17:13

Right, right. So they were basically renting out their home. Did you rent out your home while you were gone as well?

Linying Zou 17:22

I did. So I have my triplex which is you know, always trying to and then I and then I did Airbnb my property for a couple four months to Boston is very seasonal on Airbnb. So, you know, in the winter, no one wants to visit the cold blizardly you know, City of Boston. So you don’t really get a lot Airbnb business, you know, during the winter, and I’ve been traveling during the winter, so but I did Yeah, I did start using Airbnb as an option to provide more cash flow during that time.

J Darrin Gross 17:54

Gotcha. All right. See you. You and your partners. Realize that you’re like mind, you work well together. And the decision is made, let’s go in. Let’s go do real estate. What were your What was your focus? And how did you go about? You know, achieving or acquiring additional properties?

Linying Zou 18:23

Yeah, so there were definitely many asset classes within real estate. And, you know, we were we knew from very early on that we want to do multifamily, because it is, you know, it is the the least cyclical of the asset classes. You know, everyone always needs shelter, right. So it doesn’t matter where the economy goes, so we decide, oh, so we wanted to go into the multifamily. And then we kind of decide to pick which market we want to bid. And, you know, we figure Boston I live in Boston, my business partner is living in Boulder, Colorado. So both the market is extremely expensive. And you know, there’s some cash flow. So we picked a market that’s familiar to my business partner, Charlie, because he grew up there, which is Spokane, Washington to kind of dip bar. Yeah, the bar feed in incense. And we start at acquiring multifamily there. And we started really small, you know, we did our first property was a five unit, and then we bought seven unit and nobody loving unit. So, you know, and, uh, and we mostly use the wholesalers to buy these properties. So all of them were off market listings. And so a lot of that with a lot of the initial efforts went to relationship building and building a team on the ground because it would be like this is the best thing. And then and then eventually, we got to syndication where, you know, we would partner with other operators to syndicate deals and you know, we did a 300 unit and like 111 unit in for the Dallas Because that’s where our partners have experience in.

J Darrin Gross 20:04

Gotcha. So the 5, 7, 11, were those buy and hold? Or were you repositioning selling those? or What were you doing?

Linying Zou 20:12

So we’re using the BRRR strategy. That was our goal. So the 5 ,7 ,11 actually, we’re currently in a process this positioning them and we actually sold the five unit already. And we’re on the contract on the seven unit. And lthe 11 unit is currently on market. So we actually tried to sell those properties and roll them into a larger asset. In different city. We don’t like Spokane anymore. So we were actually going to move into Phoenix, Arizona.

J Darrin Gross 20:42

Gotcha. And now, so you did the the BRRR strategy with the first three properties. You get some experience, how long did you how long between the acquisition, repositioning refinance operation, operating before you jumped into syndication?

Linying Zou 21:03

About ayear, so we spent about here acquiring our own assets? And then we jumped into syndication?

J Darrin Gross 21:12

Alright. And the 300 units? I mean, that seems like a pretty big jump from, you know, 20, what do we got 23 units, three properties to a 300 unit deal? Can you tell us a little bit about the 300 unit property?

Linying Zou 21:32

Yeah, so it is a syndication deal. So we are small GP and then deal and it is our first syndication deal. So we, you know, we actually were, we met some partners at a conference that we attend them, we establish a relationship there and where they brought us in the interview. Um, so that was a really a class B+ property it down in Orlando, Florida is actually really nice type is myself, and we visit all of our properties when we went through our diligence. But um, but you know, it’s essentially a cash more cash flow play. And, you know, we still, we still have equity stake in the right to this day. So it was definitely a learning experience for the first one, and we’re glad to have the experienced operators there with us that we can kind of learn from. And so it’s been, it’s been a very great experience. Yeah.

J Darrin Gross 22:27

No, I appreciate you sharing it. Because I think that a lot of times people recognize the smaller properties or something they can take on by themselves. They recognize the syndication as a model for taking down a larger property, but don’t always recognize how they can fit into the syndication model, you know, thinking that you have to be the general partner, or you can go in passively. Can you speak a little bit of how you came in, you mentioned that you met him at a at a conference, but just coming in as a general partner, what were your responsibilities.

Linying Zou 23:02

So the responsibilities will vary depending on deal itself. So for example, you know, there, you can come in and be an investor relations and capital raise, or you can come in and help with asset management. So for some of our, for some of the syndication properties, we do help out on the asset management side, the leasing side, and on the marketing side, and, you know, there’s interior interior renovations and things like that. So they’re diverse communities and get involved in. So as a GP, that’s really your role, right? Like the main GP brings deal and then other GPS come in to bring both the capital and experience and resources to get the deal done. And there could be someone there, too, that signs off on the loan, right, because for an agency loan, you do need to have that amount of net worth, that’s enough to guarantee guarantee is non recourse loan, but still had to provide your sign off on it. So that’s really the role of the GP. I mean, it’s it is a lot of work. I mean, it is a business, for syndication deal, you’re essentially running a business. So as you know, it’s very important to partner with other people who have kind of business mindset. And as an LP, I mean, it’s, you know, I think for a lot of new investors that want to get into real estate syndication, LP is a great route to go. Because, you know, you get to understand how the deal works. And then but you’re completely passive. So you can take you don’t really take any responsibility, but you can learn as much as you want to learn because all these GP’s are essentially very open and transparent. And then you know, you can take that experience and maybe if you want to be on GP side on the next deal, and you have a way to get in as an LP you can get cash flow, which is the best part right? The GP is typically though really good cash flow during the 10 deal. They get paid on acquisition fee and then at disposition. So as an LP your passive and you just get your monthly according distributions,

J Darrin Gross 24:57

Right, and where are you in the cycle? Have the 300 unit property,

Linying Zou 25:02

We’re in year two? So you know, it’s sure a five year hold. So we’re less than halfway through. But a lot of times, you know, it really depends on because we’re always continuous continuously, kind of reevaluating where word property is today, and you know what the value can be. So it’s not unusual to exit the property or as good deal earlier, and as long as we hit that IRR threshold for the for the investors.

J Darrin Gross 25:32

Right, right. What about the 111 unit property? Where’s it at? Tell us a little bit about that.

Linying Zou 25:41

It’s in Dallas. So that’s a more workforce housing. So compared to the first deal is is different. And this deal has, you know, it’s 111 units, it’s more class C asset in a sense. And we’re, you know, in the middle of it there, there were some issues in the beginning due to tornadoes, you know, there were a lot of tornadoes, the touched down in Dallas the month after we closed the deal. And so there was a whole insurance insurance claims process that happened, you know, we’re we’re in the path of the tornado, but obviously, there was some damages. So that kind of pushed off the the kind of renovation plan a little bit. And then you have the and then you have covid happen. So, so know what the eviction moratorium things to that. So it took a little bit more time for this property to get up to where we want to be. So it’s still in process of getting there. But it’s making good headway now.

J Darrin Gross 26:40

In the 111 property, are you on the general side? Or the limited? Or where are you?

Linying Zou 26:44

Well, the GP side, and we’re on various, you know, committees to help with the asset management as well.

J Darrin Gross 26:52

You know, on each of these, how many people are there on the GP side?

Linying Zou 26:58

It depends, I think for, you know, for larger property, because the capital raise is much greater they can be, you know, more groups involved before to smaller deals, you know, it could, it could just be like 4 to 5 GP groups. So it really depends on you know, what resources are needed to come in to help the deal close successfully?

J Darrin Gross 27:22

And what are you? Are you guys looking to possibly be the general or to be a sponsor yourself going forward?

Linying Zou 27:30

Oh, yeah. I mean, that’s really what we’ve been doing this whole whole year is that we’ve been looking to lead our own syndication deal. So we’re actually in the best and final round on the deal today. So I have to feel submit a best and final offer on a on a on a property in Arizona by tomorrow. So that’s what I’m going to do after this call.

J Darrin Gross 27:52

Oh, that’s exciting. Yeah. How large of a property is that?

Linying Zou 27:56

It’s a 63. Unit. And in Arizona, so well, $8 million deal.

J Darrin Gross 28:03

Oh, that’s great. That’s great news for the sponsor on that you found the deal.

Linying Zou 28:07

Yeah, well, we’ll be the lead sponsor on it if we get word deal. So I still early here, you know, five other groups and investment final rounds, very competitive. You know, I’m sure you know, but it’s just very competitive nowadays, you know, inventories very slim and they’re still all buyers out there despite COVID so hopefully, fingers crossed.

J Darrin Gross 28:31

Yeah, I wish you well, with that. I know, you know, the whole COVID realist estate, rubix cube has been kind of a, you know, an ongoing question people have been I think a lot of the conversations that I’ve listened to or been a part of have tried to match up the past market cycle to this market. And I think for a lot of reasons there is no way to compare the two based on just the different factors that fed into this situation you know that in the prior crash the most clearly there was a lot of loose financial dealings as far as your lending was pretty loose and that. And now you’ve got the economy is running pretty good up until the virus hit. You have much more conservative lending and kind of what I’m hearing from people that are in working on deals is that you know the the requirements to close are a little bit more stringent with the the banks wanting you to have higher reserves, etc. But market seems to be holding up I mean, rents are still being for the most part you know, paid collected. So, you know, especially with multifamily, it seems like it’s a still a pretty strong market and and, you know, I think people keep looking for that sign that thing’s going to take a dip. But I don’t know, I’m not not seeing it. I’m not. You know, I think there have been, like, certain markets or certain things like right after to happen, but as long as the the stimulus checks, the economy keeps improving, I think things look pretty good. So,

Linying Zou 30:25

Yeah, I think I think depends, right? I mean, when COVID first happened, everyone was expecting there to be higher delinquencies and low collections. And then, you know, you have the massive stimulus package that came in from the government that really helped. And that, you know, just the expanded employment benefit just ended, you know, and, and then July, so, it’s kind of too early to tell what’s really going to happen, especially if there’s no stimulus that comes again. So that is like one of our greatest concerns, right, is that there’s a extended kind of extended recession and extended high employment. And that’s really going to affect elections and a lot of cities, the eviction moratorium is still in place. So you can’t really evict your tenant if they’re not paying. So I think, you know, if this does go on, for a while, you might see that they were looking for, because you know, some property, some deals are going to be under stress, you know, due to the low collections, if they can meet the debt service ratio, then they’re in trouble. But that’s not going to be in the immediate current, right, there’s always some kind of cushion or reserve in place. But I think we just had to be really cautious about, you know, how we underwriting future deals, and we’re now using conservative assumptions. Because at the end of the day, if this, no one knows where this COVID is gonna go, and you can only make us conservatively can do to, you know, to kind of understand and say, offset the concerns, right,

J Darrin Gross 32:03

Right. No, yeah, I’m kind of curious. You mentioned two things there. One is you have to be conservative with your underwriting based on all the unknowns, but then you mentioned it’s very competitive. Are you finding that the, the competition is equally conservative? Or are there some that are willing to throw caution in the wind? And I guess you’re gonna find out later today or further on? But do you have any kind of sense and talking to the brokers? What your?

Linying Zou 32:33

I think, yeah, I think they’re, we are trying, it’s a delicate balance that you have to walk down the line, right? If you’re too conservative, you’re never gonna win any deals. But at the same time, you know, we definitely encountered deals where we’re like, Wait, how does this even make sense? It makes no sense to us, like, why how this was underwritten to justify this price. So there are definitely groups out there to still doing deals and using, you know, grass assumptions, I think it just, you know, the investors just to be cautious that they trust the GP and they trust the underwriting, because it’s so easy to kind of just go in and say, you know, hey, this, the numbers look really good. I want to invest in this field without understanding all the assumptions that went into it. because everything’s the pro formas is, you know, whatever GP comes up with, right, you can assume a 20% rent growth if you want, and, you know, this can make any deal work. But it just has to make sure that your GP is the way to doing and how the underwriting and they’ve had that kind of, you know, financial background to, to understand, you know, what’s going on and how to offset some of these risks.

J Darrin Gross 33:42

Let me ask you with syndication, I mean, one of the primary goals or the challenges you face is raising capital? How have you gone about building your investor network or creating a pool of investors?

Linying Zou 34:02

So we have various strategies. So I’m on acquisition side, my business partner, Charlie, he’s actually he’s focused on the capital raising. So we actually have various strategies targeting different peers, investors. So you know, obviously, their investors were, you know, basically our friends and family and our close networks. And then there’s tier two. And tier three are basically investors that we see from, you know, podcasts or from, you know, just what content so we have, so, you know, through different different channels, you know, we build a investor base, and then we provide a lot of educational content, through our, you know, monthly newsletter, through our white papers through our website, we have a lot of articles on website as educational. And, you know, we were essentially using both pull and push marketing in a sense, to to generate that kind of a kind of investor interest. I think it’s really important to continue to have to people to and just educate them that syndication is an option because I personally didn’t know syndication existed 10 years ago, and I probably would have gone into it a lot earlier, if I know that this opportunity even was working a second job, or I could have been cheap, I could just be an LP right on the deal. So I think, you know, the fact that not a lot people knew that this opportunity exists is something that we work really hard to bring to others is just this awareness that, you know, just education, if you want, you don’t want to be a landlord, a one to cash flow and somewhere to kind of put your money that’s away from stocks and bonds.

J Darrin Gross 35:37

Right. Now, I think there is a lack of recognition, almost by design, I think the little bit of the history that I’ve come to understand about the stock market and the 401 K’s and, and, you know, the structure that was was more about stocks and bonds, kind of thing, and I think people get trained in that. And that’s kind of you go to work 401k and you just kind of pick pick your fund. And the the, the ability to have it be liquid, you know, is something there’s I know, I’ve talked to some people, they’re like, Well, yeah, but you can’t get your money out as well. But it’s, you know, it is it is a longer term investment. But the returns I mean, the risk, there is risk, but the potential returns are fairly Can I guess it all depends on the operator. But a little bit more of a you can see the path to the the exit you know, and I say it is you got to be careful what you say because it’s always case by case and late the end where you really know but but it’s good. So you’ve got your property you’re in Arizona that you’re in last and final her best and final? And what do you guys feel like? Is the Arizona market you want to really plant a flag and and build? Or is it still just find the find the best asset wherever the best opportunity of?

Linying Zou 37:12

Yeah, I mean, we do have a focus in Arizona right now. I mean, our key strategies has always been inland pro cities, right. And I secondary cities, that’s getting the population income and growth from the coastal cities through the cost of living, better quality of life, etc, etc. So we do you know, so we actually went through a market criteria exercise and, you know, Phoenix, Arizona does fit most of the criterias that we come up with. And so yeah, so we do want to have a focus in Arizona at this time. We really not looking unless like our partners bring us in as like a coach up on a deal in another market? We will we won’t look at any other markets at this time.

J Darrin Gross 38:01

Okay, got it. And are you still in regular contact with the people you met at these conferences? Is that are you? Do you look to them? When you’re trying to raise capital for your? Your own sponsor deals?

Linying Zou 38:17

Yeah, absolutely. I mean, it’s important. I mean, in real estate, or any anything really, it’s important to have partnerships, right, because they compliment you. And, you know, for partners that we found at these conferences or meetups or, you know, people that we know, we actually, you know, have a regular scheduled calls with them to build that relationship, because we think it would look partnerships a long term thing, like we never just go to, like know, someone get to know someone at a conference. And then six months later, we have to say, hey, you want to come in on this deal with us? No, we want to know you. We want to know, if you’re ethically aligned, if you treat your investors like we do. How is your underwriting? Like? How do you, you know, how do you look at these business plans. So I want to make sure that all of our emails align first, and then you know, we start to say, hey, you want you do want to partner on a deeper level. So all of our relationship is, you know, is maintained through, you know, through years, and that’s what we want to do going forward to is just have these long term partnerships that we can, you know, tap into for resources, it’ll help them they need help, and that way we can kind of grow together.

J Darrin Gross 39:29

Oh, that makes a lot of sense, makes a lot of sense. Linying if we could, I’d like to shift gears here for a second. By day, I’m an insurance broker. And I work with clients to assess risk and determine what to do with the risk. And there are three different strategies we typically consider. The first is we look to see if we can avoid the risk. If that’s not an option, we look to see if we can minimize the risk and when neither the avoid normal Minimize strategies will work, we look to see if we can transfer the risk. And that’s what an insurance policy is. And I like to ask my my guests, if they can take a look at their situation and or their investors or clients situation and identify what they consider to be the biggest risk. And for clarity, I’m not necessarily looking for an insurance related answer. But if you’re willing, I’d like to ask you, Linying Zou I’m sorry, Linying Zou, is that right? .

Linying Zou 40:39

Zou,

J Darrin Gross 40:40

Zou.

Linying Zou, what is the biggest risk?

Linying Zou 40:48

Well, as owner operator of real estate right now, the biggest risk is a prolonged recession and sustain high unemployment. And if there are no more government stimulus, because that will really affect our collection and, and its collection numbers. So that is really the Biggest Risk.

J Darrin Gross 41:14

Yeah, I think there’s a lot of people that are, like we said, you know, kind of waiting to see what happens here. It does seem Well, I don’t know, election and all that stuff going on right now. It would I would hope that there’s some sort of a an effort to keep things afloat rather than just let it crash. But I guess time will tell. Linying, Where can the listeners go? If they would like to learn more connect with you?

Linying Zou 41:46

So yeah, your listeners can come visit our website at www.akrascapital.com. Akras Capital dot com and where you can just send me an email. at lzou, LZOU@akrascapital.com as well. So we have we have a lot of educational content on our website. And we have a monthly newsletter and well white paper called the new roadmap to financial freedom. If anyone downloaded it, you can find it on our website as well.

J Darrin Gross 42:15

Great Linying, I can’t say thanks enough for taking the time to talk today. I’ve enjoyed our talk and learned a lot. And I hope we can do it again soon.

Linying Zou 42:25

Yeah, thank you.

J Darrin Gross 42:27

All right. For our listeners. If you like this episode, don’t forget to like, share and subscribe. Remember, the more you know, the more you grow? That’s all we’ve got this week. Until next time, thanks for listening to Commercial Real Estate Pro Networks CREPN Radio.

Intro 42:46

You’re listening to CREPN Radio for influential commercial real estate professionals. For more information on this or any of our guests like us on Facebook, CREPN Radio

Investors Sponsors and Real Estate Deals with Trevor Crow – CREPN #275

Trevor Crow 0:00

You know, I often get a call, I get calls from people who say, Hey, we want to, we want to do real estate deals. And we want to, and maybe we’ve done a few in the past and been successful. But now we want to do it on a on a bigger scale. And so we want to, what we want to do is raise a fund, we want to raise, we want to get a bunch of capital in and we’re going to go chase deals, real estate deals, and a lot of times they say, you know, I say all right, do you have you know, properties lined up or in the pipeline or locked up in that with a purchase and sale agreement, or at least an option or a term sheet? And they say, No, you know, we just want to raise the money and then go look for him. And inevitably that that fails, unless you’re, you know, a big institutional real estate company that that has a long track record. It’s really hard to raise money unless you have a specific project because investors just say, hey, show me that what projects you want to invest you want to what project what the project is, and I’ll decide whether I want to invest or not.

Announcer 0:40

J Darrin Gross 1:00

Welcome to Commercial Real Estate Pro Networks CREPN Radio. Thanks for joining us. My name is J Darrin Gross. This is the podcast focused on commercial real estate investment and risk management strategies. Weekly we have conversations with commercial real estate investors and professionals who provide their experience and insight to help you grow your real estate portfolio. Today my guest is Trevor Crow, founder of Crow Legal LLC, Trevor founded Crow Legal LLC to deliver sophisticated and practical legal solutions for companies looking for an alternative to a large law firm. His focus in business transactions include complex joint ventures, and syndicated real estate deals. And in just a minute, we’re going to speak with Trevor about real estate joint ventures. And But first, a quick reminder, if you like our show, CREPN Radio, there are a couple of things you can do. You can like, share and subscribe. And as always, we would encourage you to leave a comment. We’d love to hear from our listeners. Also, if you want to see how handsome our guests are, be sure to check out our YouTube channel. And you can find us on You Tube at Commercial Real Estate Pro Network. And I’d like to encourage you to to subscribe there as well. With that, I want to welcome my guest, Trevor, welcome to CREPN Radio.

Trevor Crow 2:54

Hey, Darren, thanks for having me.

J Darrin Gross 2:56

You bet. I am looking forward to our conversation today. But before we get started, if you could take just a minute and share with listeners a little about your background.

Trevor Crow 3:07

Sure. So I grew up in the Denver area I’m still in Denver now it’s where I Crow Legal is based. And we I went to law school at DU Denver University and graduated in 2009, which was not a good year to graduate law school. There was a right in the downturn in the economy and and law firms weren’t hiring. And so, you know, I had to had to deal with that initially. And I think really think that’s a big part of my background. Actually, that’s why I mentioned it and came out then. And, you know, had to the firm I was supposed to go to kind of had to retract the offer that I had because the work was just so slow, especially in the transactional area.

But anyway, they ended up bringing me back there and long story short, I bounced around to three different law firms and Denver, mid sized law firms, you know, from 20 to 50 lawyers and made partner at one of them in 2017, and was a partner there for a year. And then I decided to, and that was mainly a real estate firm. And so that’s kind of where I got a lot of my real estate experience. And then ended up in February of 2018 jumping out on my own starting Crow Legal and did did that. And since then, you know, we’ve kind of took off and I’m kind of a boutique transactional firm in Denver. doing deals we I mean, we do deals all over the US but focusing on real estate joint ventures, syndicated real estate deals. We represent both investors and promoters and developers. And yeah, so I currently have two other attorneys that have I’ve hired since I started the firm and in our three attorney shop and just trying to make our way.

J Darrin Gross 4:57

Well, congrats on surviving the start in the market you’re in and and, you know, pulling the ripcord and going out on your own. I know that’s always a thought a lot of people have and to actually do it is a whole nother thing. So congrats on that.

Trevor Crow 5:14

Thank you.

J Darrin Gross 5:17

So, real estate. You mentioned your, your, your background, and what you learn there, the firm where you were made partner. Can you describe kind of the breadth of types of transactions and what you’re doing with real estate?

Trevor Crow 5:37

Yeah, so, you know, typically, again, we were representing either the investors or the developer or promoters in a real estate deals. And so, you know, really our, my our focus is not so much on the purchase and sale agreement and locking up the property. A lot of times what we’re drafting is all the entity documents and so we’re doing the operating agreements. And when I say syndicated real estate deals, I’m talking about ones where, you know, there’s a developer who’s gonna have to raise part of the equity. You know, usually a real estate transaction involves a bank loan, which covers part of it, then there’s going to be, you know, equity that they developers or investors are putting in. And so a lot of times, developers don’t want to put in all their money into the one project or either because they don’t have all the money or even if they did, they don’t want to sink it all into just one project. They want to do several projects. And so they go out and they find investors and so with that, they have to raise the money and comply with securities laws. And so we’ll draft all the securities documents will draft all the entity documents and we’ll help navigate all those. And you know, that the joint venture agreement or what I call it joint venture agreement, typically in the form of a operating agreement for an LLC, that is the buyer of the real estate, is is very complex document, depending on the parties involved, and that sort of thing. And so we’ve really carved out a niche and being able to draft those operating agreements and represent either that either the seller or I’m sorry, either the investors or the promoters on those deals.

J Darrin Gross 7:12

Gotcha. And you mentioned joint venture versus syndication kind of thing. Can you distinguish between the two structures or what the differences?

Trevor Crow 7:25

Yeah, you know, there’s there it’s kind of one in the same honestly, what what when I say joint venture is because, at least in my world, there’s attorneys who say they can draft operating agreements for, you know, draft an LLC operating agreement, so somebody forms it and an LLC and whatever state what governs that LLC is the LLC act as well as an operating agreement, which is what is put together to kind of govern the management, the how the economics, work distributions, allocations, all that is built into the operating agreement and You know, an operating room for an for a business say it’s an engineering company. And there’s three, three engineers who get together, they want to start an engineering company. And you could add, they could form an LLC. And there could be an operating agreement for that. But that operating agreement is going to be very different from what I’m calling a joint venture operating agreement, one where there’s somebody who’s managing the the deal, the real estate project, so again, probably a developer, or just a value add sort of real estate person. Somebody who’s going to go and lock down the property get it locked in and a purchase and sale agreement and is going to manage the property either develop it from ground up or is going to do some you know, value add renovations to it, and get at least up or whatever they’re going to do. And so there’s that party, but there also may have to go out and get equity from other people so other investors to come in and put money in so they can close on the on the real estate and, and so When I say syndicated deal, it’s any sort of deal where they’re going out and getting investors to invest in it.

J Darrin Gross 9:07

Okay, we’re like passive investors as opposed to active kind of thing.

Trevor Crow 9:12

Right? Exactly. So it’s gonna be, you know, the manager or the general partner who’s controlling all the operations, but there’s going to be limited partners or, you know, just passive members of the LLC that are investing money in the project and, and you know, want to get a return, they get usually some sort of preferred return and return to capital. And then there’s a, some sort of split after that where the developer gets all their money because they sell the project for a big profit, you know, five years from now.

J Darrin Gross 9:42

Right? Do you tend to deal and more of like, development projects or a lot of like, I think the common term is value add guys are buying an existing property, they’re going to go in and renovate some increased rent. To increase the NOI, value and then liquidate. Is there any? I mean, do you do one more than the other? Or is it kind of can you describe? Your your?

Trevor Crow 10:12

Yeah. Yeah, the allocation of practice there. So it really is probably 50/50 honestly, right now, at least. We’re doing several working on several ground up development deals. And so buying raw land and developing it, which adds a you know, a whole new element to it because you have the whole entitlement and permitting process and things like that and, and more agreements involved because you have general contractors that need to be hired, and, and that sort of thing. But we also do a lot of just the, the value add type projects where, you know, it’s could be in multifamily buying an apartment building, or it could be, you know, an industrial warehouse or it could be just, you know, retail, commercial properties and so we that are existing, and they’re just trying to you know, Like I said, either do some renovations and increase rent or get at least up and be better at marketing it or something like that, and then flipping it later.

J Darrin Gross 11:10

Gotcha. And for the, the, the key principle of the party that sponsoring the the deal. Can you walk through some of the, I guess the the risks and the benefits of working on a deal like this, as opposed to, you know, taking an all on themselves or, or maybe not going out and finding investors and I guess I’m trying to differentiate between, you know, the opportunity, the risk reward of the of the model of going into this with a joint venture syndication model.

Does that make sense?

Trevor Crow 11:49

Yeah, it’s so I think the risk reward from the developer side is, you know, if they put no one if they’re putting all their money into it, because typically Banks not going to provide 100% financing. So you know, then then they’ve kind of put all their eggs in one basket. And but on the back end, you know what, if you bring in investors, one, you have to deal with them. And so they may have certain rights and decision, major decision rights or things like that, that they’re negotiating. And they may have misaligned interest in that they they want to sell the property at a certain time versus when, you know, the developer wants to sell it, and things like that. So you certainly have some push pull there and potential risk with just having other in other people involved in the project. Now, the other thing from the economic standpoint is, you know, the, how the distribution waterfalls typically work, at least in the deals that we’re been involved in, is, you know, it’s gonna you have the property, let’s just say it’s a multifamily existing property and they’re going to be collecting rents, you know, at it. As soon as they buy it, they’re going to start collecting rents. And so they have money coming in and that that cash flow usually goes out first to pay the investors. And so, you know, maybe the, the sponsor of the project takes a management fee as part of it. And so that’s kind of how they stay afloat. But really, their their big payday comes at the end of the day when they sell it, because hopefully they’ve added value, they’ve leased up the property, and now they can sell it for a much higher price than they paid for it. And at that point, the money flows out first to the investors give them all their capital back 11% on on their money for the time period that they’ve owned it, and then the money usually split in some sort of 80/20 fashion or 70/30 fashion where, you know, 80% goes to all the investors or anybody who committed capital to the or made capital contributions to the entity and then the rest is coming out as a as a promote to the, to the developer of the sponsor, and so, you know that 20% or 30% they get on the back end is really their payday. And so they’ve kind of taken a risk that, you know, their big payday for all their work doesn’t come out until till the end of the day.

J Darrin Gross 14:19

Yeah, no I the, you know, the cycle of the deal. I appreciate you kind of going through that because I think a lot of people get kind of wound up in the, you know, the, the passive investor side of things, not really talking about the sponsor side of what, you know, what they stand to gain, but also that their their interests are aligned with their investors. I mean, if your investors aren’t, if you don’t, you know, satisfy your investors. I’m assuming you’re not going to make your money, right. I mean, the investors are in line ahead of you, as far as getting their return and you get your management fee along the way. Like I said, it’s kind of something to sustain you, but not necessarily that The big win that that everybody is looking for. And in your experience what’s been like a typical hold period for for some of these properties?

Trevor Crow 15:16

So the hold period has varied but usually I see where everybody is trying to have some sort of either five to 10 year period of when we’re going to try to turn the property round now different different sponsors have different thesis is on on the property and theories on when they’re going to do it. And so some think that it may happen earlier and try to push for that try to you know, do a quicker sale and in two to three years, but usually, I would say most investments are in the the five to 10 year timeframe.

J Darrin Gross 15:53

And as far as the size of deal, what can you give us a range of the purchase In the capital raise kind of range of, of size of deals that you you’ve worked with?

Trevor Crow 16:08

Yeah, so we we’ve kind of gone across the board on that. So we’ve, you know, done $90 million real estate fund and worked on that, which was obviously doing multiple properties. And we’ve also done we do have a lot of clients that are just kind of the the side side hustle mom and pop it real estate investors that are going out and but they have friends and family who contribute and invest money in these projects. And so they’re just buying, you know, an office building for, you know, a million dollars or something like that. But usually it’s in that range, I would say, I mean, just real estate prices have gone up. So real estate in general is expensive. But most of our deals are kind of in that, I would say a million to $10 million range.

J Darrin Gross 17:00

Got it.

Trevor Crow 17:02

and that’s total purchase price. So sometimes the raise the, the, you know, the investors that they’re getting, you know, are well, on the fund part, they were actually raising $90 million. And so that that was a big one for us, but the, you know, in a smaller one off project, it’s, you know, they could be raising anywhere from 250,000 to, you know, a million dollars.

J Darrin Gross 17:26

Gotcha. Gotcha. You know, talking about kind of the financial risk reward there that we were talking about. Have you had any issues or any stories where you’ve had kind of a mutiny or or where the investors have been so dissatisfied that they’ve, you know, sued the sponsor in any kind of tales like that, that are some cautionary tales that you can tell things you’ve seen? I mean, I’m sure that your documents are set to where, you know, if this happens, this is where this where you go to, but I know that that’s, that’s always the plan, but in reality can deviate from that and anything that you can share with us.

Trevor Crow 18:14

Yeah, certainly. So yeah, and it’s come up and in a lot of times, it’s the timeframe question where investors want to, to sell and, and get their money out and, and the promoters don’t want to sell at this time either because they think the market is going to turn and for the better or if they had a little bit more time, they could get a better rate. And, you know, the thing to consider there is, you know, from the investor standpoint, if if the project sells would sell for enough for them to get their capital returned and the preferred return, you know, some some percentage on their money that they’ve put in, they may be okay with the sale, but the promoter hasn’t, you know, they only get paid if it’s just enough. Return capital and the preferred return. And they don’t get that big payday at the end. And so their, their incentive is to keep it and hold it and hope to get a higher price because that’s where they make all their money. Whereas the investors may say, Well, you know, we don’t need to even get to that split yet. And we Let’s sell now and cash out. And so that’s come up. And, you know, often in these joint venture agreements, there’s a major decision rights and major decision rights usually require a these are the big items, you know, taking out more debt, selling the property entering into you know, affiliated in a contract, something like that. And so that can be that can be a point of contention down the road and so we always like to make clear, make it clear on who can make that decision and when in these joint venture agreements. The other the other thing I would point out is you know, you typically there’s ability to remove the promoter so if the promoter and take away their promote if they do Something bad. It could be usually included in that it’s, you know, fraud, gross negligence, things like that. And so obviously, if they commit that, and the investors can remove that person, as manager, take away their promote, and you know, theoretically at least hire somebody else to come in there and manage the project. And, you know, the issue with that sometimes is that we had a deal before where there was the principles of the developer or the promoter company, were really good people. Unfortunately, they hired somebody who was who was doing maintaining the books, who was skimming off the top, and so technically, the company had committed fraud. And so luckily, we had investors in there who were friendly enough not to remove you know, the us as manager or my clients as manager and take away their promote they we did have to reimburse the company for the amount that was stolen and obviously went after the the bookkeeper who was skimming off the top but there’s You know, technically that was a, that was fraud and they could have been removed. And so something to be aware of that, you know, if you’re running a larger operation and you have employees, you know, that can can lead you into a really bad situation. Luckily, you know, in all other respects, they’ve been managing the property very well. And and doing all the right things. And so, you know, the mistake, the hiring mistake didn’t lead to them actually losing it, but something something to be aware of there, too, which I’ve seen.

J Darrin Gross 21:30

Yeah, it’s, it’s always scary to some of the schemes that people cook up. I know, my dad was a banker, career banker, and occasionally when I didn’t have any funds to do something over spring break, he’d say you want to get a job in the bank because I go, okay. And, you know, it’d be a few months later and he’d go you remember so and so? Gosh darnit, I caught them stealing, you know, and, and, you know, be a dinner or something like that, you know, and it was always some elaborate little scheme. You know, how they met came out with it, but it’s, you know, it happens quite a bit.

So, you know, you mentioned the, the investors want to sell the sponsors not ready to sell. Is that kind of the the more of the focal point of issues you’ve seen? I mean, I know you mentioned the you know, if the operators not the operator commits fraud or whatever they can be taken out but, but as far as I’m just looking for, or I guess I’m asking about just anything friction that comes from the investor side. I know once you you know, if it’s, if it’s you and me, we can probably agree on a lot of things. We’re bringing somebody else and all sudden now we got a third person and and then you just continue to multiply that Rubik’s cube to where it’s not always easy to get everybody on the same page or you think they are because they signed all the documents that you know, to enroll in the deal. I’m just kind of curious, any other points of friction that you run into? Or if you’ve seen?

Trevor Crow 23:08

Yeah, you know, another big one I would say is additional capital contributions. So if the idea of that project is we’re going to go in there, we’re going to renovate and do some things, and it’s going to help us increase rents or whatever it is to add value to the property. You know, typically, there’s a budget that’s put out right and says, here’s what it’s gonna cost to do all this and this is why we’re raising this money. And it’s hard to put together budgets, because they’re not always correct. And so the, you know, investors usually want to put in their money, and they don’t want to put any anymore. They said, you know, this, you you you’ve told me, this is the budget, this is the project, I’m investing this amount of money and I don’t want to put in any more. But that can put the, the promoter or sponsor in a bad position because if they don’t hit those budget targets, and they Need more capital than then what are they going to do, they either need to put in the money themselves, or they need to get more bank financing, which is a lot is hard to do. And or they need to go back to the investors. And so, you know, this gets negotiated in most of these agreements. And it’s kind of a point of contention on, on whether they can or can’t force the investors to make additional capital contributions. And, you know, it kind of is a negotiation that goes back and forth. But even in the case where there is required additional capital contributions to, you know, either cover an operating deficit or a development cost, deficit or overrun, then, you know, a lot of times there’s a that can lead to friction between the investors and the sponsor. And in that investors are saying, you know, what happened? You, you had this, you had this budget, how come we’re off? Why are you asking me for more money? And, you know, no matter what the document says, there’s still that friction. That’s created in potential disputes between the parties there that’s, you know, uncomfortable to navigate. So, you know, we always try to make sure that when we’re representing sponsors, especially first time, people who are really doing this, to make sure they have enough, either additional capital themselves or additional line of credit with a bank, or they have, you know, built in enough buffer in that budget to say, you know, there could be cost overruns here on some of these things.

J Darrin Gross 25:32

No, I know a number of my projects. They’ve all i don’t know that anything’s ever come in under budget or time. bills are settled saying good, cheaper, fast. Pick two, you know, yeah. And so I think the, the, you know, especially with I tend to believe that’d be a bigger issue with a lesser experienced operator. Because I’m guessing that your more experienced operator has learned that lesson. Also, I would I would guess would make it difficult to go raise capital. If that’s your if that’s the rumor on the street is the project you did. I mean that the people that you had in the first deal probably aren’t going to sign up to do a second deal. If that’s that’s your experience base. So that’s, that’s good to know.

So from a passive investor standpoint, what are some things you can you can point to that passive investors should look at or be aware of when engaging in a joint venture or syndication as far as you know, the the agreements or the the operator, are there any kind of things you can point to?

Trevor Crow 26:52

Certainly, yeah, so the A lot of times these get these agreements get drafted and and investors don’t really pay much much attention to it depending on, you know, obviously, if it’s a big institutional investor or just a big, you know, investor who’s putting in a lot of money, they’re gonna do their due diligence more than if you have a around, you know, you’re raising money and you’re getting it from small amounts from 20 different people that are all friends and family, they may just be buying into the person as opposed to the projects, you know, so they’re not paying attention to the documents as much. But the big hammer that I think if you’re a passive investor that you want to kind of have on your side is one that there’s budgets that need to be approved. And so the budgets come in in the beginning, and, and an annual budget is comes every year, and it’s improved, approved by the investors or certain percentage of the investors. And so that that’s one big thing. And then that kind of ticks, ties to a lot of other decisions, you know, so that the manager or the promoter can’t really make a lot of decisions outside of the budget, if it’s in the budget, and it’s been approved. They make those decisions. If it’s if we start getting outside the budget, then that’s go back to the class A members for approval. Also sale of the project approval of that by the, by the Class A members or, or I’m sorry, I say Class A because a lot of times the investors come in as a separate class, but really just the investor members have the ability to, to approve a sale or have to be it has to be brought to a vote of the members to approve a sale. And a certain percentage of those investors have to vote for it for it to happen. You know, those major decision rights are really the big ones that a passive investor should look for. So there’s not just a unfettered, unfettered ability for the manager to do or promoted to do whatever they they want. And, and I keep going back on these terms, you know, I sometimes people call managers sometimes they call it a promoter, sometimes they call it a sponsor. I’m using those terms synonymously as the same thing, it’s really the the person who’s kind of bringing the deal to the table and going to be managing the project.

J Darrin Gross 29:06

Understood, I appreciate you clarifying that because I know I, I think I’m pretty clear on that. But I know that it’s easy to get, you know, kind of mixed up on who’s on first what’s on second and, and you realize they’re all the same or whatever. So, in the spectrum of, you know, doing a deal, there’s a, an investor out there that wants to you know, do a project, raise capital, you know, get their ducks in a row and and, and go out and do a project and you know, be be a developer do be a deal sponsor. Are there some checklist items that you can point to that, that you recommended. They, you know, whether it be time experience resume, you know, any of all or all of the above? Is there a Is there a list when you when somebody calls you up and says, Hey, Trevor, this is what I want to do. Is, is there a kind of a list of things you can recommend the they’d be ready for?

Trevor Crow 30:21

Yeah, I would say, one. So what happens? Now I’ll kind of approach this question in a little different way. But you know, I often get a call, get calls from people who say, Hey, we want to we want to do real estate deals, and we want to and maybe we’ve done a few in the past and been successful. But now we want to do it on a on a bigger scale. And so we want to, what we want to do is raise a fund, we want to raise we want to get a bunch of capital in and we’re going to go chase deals, real estate deals,. And a lot of times they say, you know, I say all right, do you have you know, properties lined up or in the pipeline or locked up in that with a purchase and sale agreement or lease to an option or a term sheet. And they say no, you know, we just want to raise the money and then go look for him. And, and inevitably that that fails unless you’re, you know, a big institutional real estate company that that has a long track record. It’s really hard to raise money unless you have a specific project because investors just say, hey, show me that what projects you want to invest? You want to what project what the project is, and I’ll decide whether I want to invest or not, not many people want to make a capital commitment or an investment. Before they they see that. So this this blind pool fund idea is is very hard to pull off. And so, you know, I think a lot of people get that idea in their head. And it’s a lot tougher than you think just because investors aren’t aren’t going to put up money. So that that leads to the answer to your question, I think is one, you know, have have an idea of the properties that you’re looking at at least have a pipeline of properties.

But at the same time, you know, it’s kind of a chicken in the egg thing where you have to also have investors lined up or at least, you know, soft circled somewhere that that have said, Yeah, we’re interested if you find a good deal. And, and so you want to have those relationships in place, because if you already, if you find the project first and then try to start making those conversations, it’s the timing gets tough. So you’re kind of doing both of those at the same time you’re looking for deals. At the same time you’re talking to investors, telling them kind of what you’re looking at what you’re what you’re thinking about, and getting people excited or interested in so that you at least have a few few people that you have on board that you you know, as soon as you have that project in the door that you can send it to them and say, Hey, what do you think of this? And, and so that that’s important. Having, you know, an idea of the budget is important and something to think about from the beginning. Having your your your team lined up, you know, I think you want to have You got to move quickly on these things. So you need a real estate lawyer to draft the purchase and sale agreement you need, you know, a corporate lawyer or somebody who does entity documents, like me to help with the finding, or putting together that the operating agreements and investor documents that go out. Having, you know, your a good description of viewer track record, you know, any sort of bio on your history, you know, that’s important to investors. Although those things I think are important to think about and kind of have I know, that’s, those are more general rule then kind of a strict checklist, but those are the big things. I think that somebody who’s trying to put together and take take in investments and do real estate deals needs to consider before they’re doing it.

J Darrin Gross 33:55

I appreciate you, you know, taking us through that the I think there’s always This notion if you have the deal, the money will follow. And, and I’ve heard that if you’re, if you’re at a standing start or if you’re at a stop, and you’re waiting to start until you have the deal, you may have waited too long. I mean, kind of like you’re, you’re, you know, kind of putting the feelers like you mentioned is kinda like a juggling act you’re you’re you’re trying to stay in communication with potential investors and let them know kind of what you’re looking at and, and but before you get the formal offer, I mean have a property in mind and in kind of a direction because it seems like the the clock starts right I mean, as soon as you signed the documents, the you know, the bullets are live kind of thing. It’s, it’s, you know, no, no longer nerf kind of thing. It’s that’s the real thing you’ve got, you’ve got timelines and money. And if you don’t meet those timelines, there’s real money on the line kind of thing. So I appreciate that.

If we could, Trevor, I’d like to shift gears here for a second. I mentioned to you before we started that, by day, I’m an insurance broker. And I work with my clients to manage risk. And, you know, assess the risk and determine what to do with it. And there’s a couple of different strategy strategies we typically consider. The first is can we avoid the risk if we can’t avoid it, and we look to see if there’s a way to minimize the risk. And then lastly, if we’re not able to do the minimize or avoid, we look to transfer the risk. And I like to ask my guests if they can identify what they consider to be the BIGGEST RISK? And you know, basically take a look at your operation your customers you, you can frame it however you want to. And again, for clarity sake, I’m not necessarily looking for an insurance related answer. But if you’re willing, I’d like to ask you, Trevor Crow, what is the BIGGEST RISK??

Trevor Crow 36:09

So in my mind, that is assuming that there is no risk in certain actions and or in the status quo. So, you know, for me, I started this firm, which seemed like a big risk at the time. And I started in 2018. But at the, you know, because I was coming from a firm, a well established firm that, you know, paid me and I was, you know, never worried about the paycheck and it just came, and I knew there was business there and as business was going to keep coming in, and so it seemed like a big risk for me to, to go out on my own. Now. Now I look back at it and I think I was at a much bigger risk staying at that firm than I am now. And it kind of goes back to my roots of graduating law school in 2009. And seeing that the the people who had got terminated the attorneys that got let go or laid off. Were not the attorneys with big books of business. Those attorneys always have a place. And so if you have clients, if you have relationships you have, you know, people who know like and trust you and come to you do work for them, you always have a place to anywhere you want. Or you could write your own ticket by starting your own firm. And, you know, the firm I was at was a great firm, great attorneys loved it there. The problem was that I was the corporate guy doing all the corporate work for other people’s clients. And so at the end of the day, you know, my risk was, as I look back at it now, it was more of a risk for me to be there than it is now because now I have my own clients. I have those relationships, direct relationships, and when they have issues that come to me, and and so I can write my own ticket a lot more than I could At the prior firm, and so I think, you know, often people think that certain, whatever society says, or whatever seems normal and safe might not always be normal and safe because, you know, big, big fortune 500 companies will lay you off. And, and that happens all the time. And so just having that job doesn’t necessarily mean you’re safe. And so, you know, I think bottom line is sometimes take what seems like a risk might actually be safer in the long run.

J Darrin Gross 38:31

No, well said I think there’s a lot of people out there that believe if you have, are there security with a job, you know, I think it’s kind of a lot of the way we’ve been. Our society is kind of reflected you know, you go back a couple generations and, and you know, you look for the union label or whatever you want to was and just kind of the, the, you know, the comfort I think is probably to a part of that is a lot of times of jobs, they give you just enough to to satisfy you, but keep you hungry, you know, not so much you’re not hungry kind of thing. And you don’t realize that what’s what’s on the other side of the fence and then then the flip side of that is a lot of times the the opportunity always looks, or the grass always looks greener on the other side of the fence, but it’s just as tough to mow kind of thing. You know, there’s so but that’s, that’s, that’s great. I mean, again, I commend you on on jumping out on your own and congrats on your success. So

Trevor Crow 39:26

Thank you. Appreciate it.

J Darrin Gross 39:28

Hey, Trevor, before we wrap up, where can listeners go if they would like to learn more connect with you?

Trevor Crow 39:35

So my website is www.crow.legal and so it’s not a.com it’s dot legal and so crow.legal and so all my information is on there. But you know, you can feel free to email me at Trevor@crow.legal, happy to talk to anybody who’s who’s looking to do a deal or whatever, even if you just want to want to chat about it and bounce ideas. Happy to do that. You No, we don’t charge for anything like that or initial consultations, you know, we want to make sure we’re the best fit before you ever receive a bill for us from us. And, you know, my direct line is 720-230-7123. You could call me there as well. And yeah, so feel free to reach out anytime.

J Darrin Gross 40:18

All right. Well, Trevor, can’t say thanks enough for taking the time. I’ve enjoyed our talk, learned a lot and hope we can do it again soon.

Trevor Crow 40:27

Sounds good. Darrin, thank you.

J Darrin Gross 40:29

Announcer 40:48

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Earnings with Lior Gantz – CREPN #274

Lior Gantz 0:00

When you do when you buy a company if it’s a private company if it’s a laundromat or a restaurant in your area, whenever you look at earnings. What am I buying compared to what am I paying? Today, investors are paying some of the highest prices for stocks compared to the earnings that they make. But if you look at the alternatives to generating a return about 75% of the worlds bonds yield less than 1%.

Announcer 0:35

Welcome to CREPN Radio for influential commercial real estate professionals who work with investors buyers and sellers of commercial real estate coast to coast whether you’re an investor broker, lender, property manager, attorney or accountant We are here to learn from the experts.

J Darrin Gross 0:53

Welcome to Commercial Real Estate Pro Networks CREPN Radio. Thanks for joining us. My name is J. Darrin Gross. This is the podcast focused on commercial real estate investment and risk management strategies. Weekly we have conversations with commercial real estate investors and professionals who provide their experience and insight to help you grow your real estate portfolio.

Today, my guest is Lior Gantz. Lior is the founder and editor of the free number one rated financial newsletter, Wealth Research Group. He’s an investor. And in just a minute, we’re going to talk with Lior about the real economy versus the stock market. But first, a quick reminder, if you like the show, CREPN Radio, there’s couple things you can do. You can like, share and subscribe. And as always, we would love for you to leave a comment we’d love to hear from our listeners. Also, if you’d like to see how handsome our guests are, be sure to check out our YouTube channel. And you can find this on YouTube at Commercial Real Estate Pro Network. With that on welcome back, Lior to CREPN Radio. Lior welcome back.

Lior Gantz 2:09

Thanks for having me back.

J Darrin Gross 2:11

I’m looking forward to our talk today. I think the last time we were together, things were a little different. There was no pandemic. And you know, just definitely some some different circumstances. So but before we get started, if you could just take a minute and share with the listeners a little bit about your background.

Lior Gantz 2:34

Okay. I’m 36. And when I was 13, I think I had a pivotal moment in my life where my father’s business went under, and I had to start earning money for myself if I want to allowance and stuff. So I started babysitting in my neighborhood. And then I told all the parents that I was babysitting at least the male children. That I can tutor them in basketball. So I upsold the parents. For the first time in my life, I upsold something. And then babysat, tutored basketball, and started saving money. I’m 16. I have $20,000 in the bank saved up from like three years of this stuff. And the banker says, Well, you have all this money, why don’t you invest in a way to make your money work? And what does that mean? This? Well, you you invest in the stock market, sign up, get your parents sign waiver, your 16 it’s your parents sign a waiver and we can start doing this. And this was June of 2000. It’s like three months after the.com bubble burst. So in hindsight, a very good time to start investing, and he was like, you should you should see China. And so he was literally telling me great stuff. And then I asked him, What should I learn? Because I was in high school. So you know, my mind is like, what book should I read? Amazon was just starting to ship books. So I bought A bunch of books in English and started tearing through them. And that’s how I got into investing.

My father’s my father had a second business and third business both going under as well. So my mind was obsessed about risk. And what’s he missing? Because I’m, you know, father figure is very important in your life you always assume as a hero, and here’s this guy failing and failing and failing. So, by the time I’m 23, I’m so engaged in entrepreneurship and business and how to do it, right. And that’s the path I took life entrepreneurship and investing. And about four years ago, I really, it’s something to me that most people do not read, you know, one book a week for, for their entire 20s and most people do not have financial education. So I said, let me congest everything that I’m doing because I’m reading four hours a day Talk to CEOs and I, I do the business in our own business and let me congeste it to bite size article three times a week, a week about the economy what’s going on, if I see specific opportunities, then to cover them as well. And that’s how we found that Wealth Research Group in 2016. It’s a free letter, it was one of the first letters to cover Bitcoin $400 per coin. And in early 2017, it was the first newsletter that I know of that covered ethereum, which was a cryptocurrency that traded for $12 when I covered it in $1,000, six months later. And last year, when I was on the show, we talked about gold, gold is actually as we’re doing this interview is an all time high. So, you know, that’s sort of the the way that the newsletter works. We really talk a lot about the economy, and we try to see exactly what’s really important for To give educated on right now and to cover it.

J Darrin Gross 6:04

So let me ask you the the I’ll say the average consumer myself included you turn on the news there’s a blip usually about the the market rallied or the market gave back. But it’s usually focused around the indexes. You’ve got your your DOW or your a in

Lior Gantz 6:29

The Dow and

J Darrin Gross 6:31

S&P yeah NASDAQ and the S&P 500. And those are kind of like just these reference points that are kind of like a collection of multiple stocks and an index and I think if I recall the DOW is the, the collective price of multiple stocks

Lior Gantz 6:51

30 industrials, the 30 Industrial stocks Yeah.

J Darrin Gross 6:54

Okay. So they’re their price combined, equals this. This index

Lior Gantz 7:00

So no, it’s it’s, it’s, it’s weighted on the market cap. So it’s not something like each company is 3% of the index of the index. It’s it’s weighted according to your industry, ya know, to your size to your market.

J Darrin Gross 7:17

Okay. Gotcha. Gotcha.

All right. So, so if the average person is watching the news, and they see it’s up, it’s down, it’s up, it’s down. It’s up, it’s down. And you have some sort of a reference point. I mean, like, right now, I know when when this whole COVID thing started. I think we were, we’re closing in on 29 or we are at 29,000 for the Dow. And since then, I think yesterday I was watching it’s been hovering 26. Close to 27.

Lior Gantz 7:51

Right now.

J Darrin Gross 7:52

Okay. And it. So I mean, the, you know, you look at that and you say it’s down, you know, what is that 10% Okay.

Lior Gantz 8:02

Yeah, from the highs.

J Darrin Gross 8:04

Okay. And all things considered that seems like a not not a horrible place to be considering what’s what’s taking place. My my concern and I think that one of the challenges for really understanding what does that mean when you have all of this governmental interaction with the supporting of the markets and the kind of propping up the markets? How do you take a look at that and sort through that? Is there a, is there any kind of a sense of a false market there? That’s, that’s, you know, if the government doesn’t continue supporting it, that it that it collapses or is it or is there a weight given or help me understand how you, somebody that studies us day in and day out, looks at that and views it.

Lior Gantz 9:00

So that is literally the question of questions that is on everybody’s minds, you know, from the retail investor to the hedge fund manager, Warren Buffett, everyone is literally trying to understand if this market is what we call artificial, if it’s if it’s fake. And if it’s fake, what’s the real price? And if it’s not fake, how am I getting it wrong? Why do I think it’s fake? And it’s not. So the first thing you want to look at is earnings.

Today’s when you buy an index, or the when you buy shares of the Dow Jones, or shares the s&p 500 points, the s&p five etc. What you’re buing is a collection of companies and now you own a piece of them. And the first thing you do when you buy a company, if it’s a private company, if it’s laundromat or a restaurant in your area. Whenever you look at earnings, what am I buying compared to what am I paying? Today, investors are paying some of the highest prices for stocks compared to the earnings that they make. But if you look at the alternatives to generating a return about 75%, the world’s bonds yield less than 1%. As an insurance broker, you obviously know that what insurance companies do are property and casualty insurance specifically or Warren Buffett even more specific because he came up with this is they they take all the premiums in advance, and then they have a float. Basically, this is money. That is that they need to keep on reserve in case their claims on it. But in the meantime, they get invested. That’s a float Where insurance companies investors flow. This is billions and billions dollars of your money, basically, that you paid. They may well retain it. But they for the meantime, after keeping in reserve, they get invested tax free. That’s how insurance companies become giants.

And usually, they don’t want to do the stock market, they do bonds. Now they can’t do bonds. Because you can’t generate a return, you’re getting less than 1%. Inflation is higher pension funds, same thing throughout history throughout the 1980s. The 10 year bonds so you lend Washington money for 10 years, you get 8, 9, 10 percent. In the 90s. It’s about 6 to 7%. In the 2000s. It’s about 4 to 5%. Still great returns overall for very low risk. Today. Zero. And so when you have this challenge, then stocks are just worth more companies are worth more you can pay more for companies if there is no other an alternative, because if the dividend yield of the s&p 500 is 300 or 400%, larger than the yield on the 10 year bond. You know, there’s a point where pension funds and sovereign wealth funds and hedge funds etc. They just stopped with that 6040 mentality because they were not earning anything on their bonds. So, this is one thing that is driving stock prices are much higher. Secondly, think about all of the real estate investors who cannot invest in hotels, casinos, construction of retail, all these you know, very troubled industries and they have to go towards stocks.

Now suddenly stocks you look at what they did in time before And they had a lot of their expenses offset and their expenses basically with the government. Government is paying their their salaries for the employees can lend and they can borrow money from the government to pay a lot of their expenses. So a lot of companies have adapted really quick talking about the multinational companies. And as you as well, pointing out, the s&p 500 is only 500 companies. The Nasdaq 100 is 100 companies in the Dow 30s 30 companies. So this is a collection of 630 companies. And most of Americans have nothing to do with these companies. They don’t work for these companies. They don’t own shares in these companies. 84% of the stock market of the s&p 500 etc, is owned by the top 1% of Americans. We say that again. 84% of the equities are owned by 1% of the people in America. So most Americans have, you know, they they don’t if the Dow is 30,000. That’s a that’s the annual salary. That’s the annual median median salary. For most Americans. It’s the median salary, basically, step. So if it takes you one year, to buy the doubt, that is an all time high right away in 1980. It took about 10% of that. So you could have bought 10 times more be part of the american enterprise system. today. It takes you a year. That’s, that’s insane. So that’s why you have this wealth gap. Why did this wolf gap happen? Why is there is there such an income gap?

One thing is education. When education is so expensive, there is a there’s a certain segment of the population that can never enter college and never go into college, high tech, etc. They’re stuck 30-40 years behind and industries that are getting either outsourced or optimized, or whatever else. And just they’re frozen, their salaries are going to be frozen, etc. So that’s one thing, education and the cost of education. Secondly, what you have in America is the financial system is predominantly handled by the Central Bank, in the central bank, this does not really touch Darrin. It can’t reach Darrin. It can lower interest rates, which indirectly in signal to Darrin and hey, maybe Darrin should, instead of rent, take a mortgage, and then that will fuel the real estate market. But they never touched the real thing. Whereas the government, it can come to Darrin and say, Hey, Darrin, want to buy a house? We’ll give you two years of tax breaks. That’s that’s touching you directly. And I’m not a not an American, and I’m not a political animal. So this is not a political action or something. But during the Obama years, the government was pretty much laid back on, on doing fiscal policy. They left everything up to the central bank. And the central bank wanted the baton, and to the government, but the government just didn’t take it. And so, after 2008, you lower interest rates. If you get over the hump, you get a lot of deficits because of this, but then government needs to start, you know, maneuvering the economy and it didn’t. Trump, on the other hand, is very proactive, maybe does a lot of mistakes. We’ll have to judge that, you know, a few years down the road, but he’s very active tax tax cuts, opportunity zones. You know, working on a trade deal with China. These are all things that touch the people and obviously people PPE, all the things that are happening right now, that’s the government and not just not just the central bank. That’s what you’re going to see going forward. It’s a marriage of doing both of these together. Because interest rates are already at zero. So like a big answer to your question is, there’s the real economy, or 54% of Americans are employed. That’s your small businesses, you know, mom and pops. And then there’s the rest. The rest are doing pretty well, because the central bank has created a situation where they have a lot of liquidity. This is very unusual for a crisis usually. And of course, it’s all the credit contracts, like you saw in 2008. Here, there’s the opposite. There’s all the credit in the world. So you know, companies can can even if they have lots, much lower earnings, they can borrow money at very low costs and get through the hurdle. This is the multinational company, the big company, the small companies, they have much more issues, they don’t have access to the debt market. And the credit markets, they have nothing to do with central banks. That’s why the government had to help them. Otherwise, you would have seen a collapse of small businesses, and just big business is buying them, and there’ll be even more gear than there is right now. And so that’s basically the the dual economy that we have, and have, on one hand, assets prices are totally elevated, because governments are telling you, hey, if you lend me money in 10 years, I’ll bring you back your principal but no interest. So that forces people to go into the stock market.

And then you have the real economy, which depends more on government stimulus, and it’s it’s not as open to all these advantages of cheap credit. It’s struggling. And that back and forth is what’s called causing riots and populism and everything else. Because people are saying, Hey, this is this is not fair. It’s not capitalism. I’m not enjoying the fruits of capitalism only, I’m only enjoying the two, you know, two rules and deciding what to eat for dinner. And I’m the sheep. So it’s fine. The two wolves have raised their hands and we’re in a, you know, democratic system and in a capitalistic free market, but I’m always losing. And so I don’t like it. So that’s where America is right now. And there are clear winners or losers to the system.

J Darrin Gross 19:41

Yeah, I think, you know, everything you talked about, I mean, I get it. It’s, I think it’s it’s frustrating for most of us that you know, support a free market. But yet you see the it’s kind of a bastardized market when you have the the government You know, pouring cash into it, he doesn’t allow the winners and losers like you would normally expect to tries to keep falsely falsely in some cases, you know, and maybe reward some with with additional liquidity to where they can have those opportunities down the road to take advantage of those opportunities when they come, but that that would, I guess, if you, if you, if everything was equal, the the people that have more capital probably had more capital to begin with, you know, in reserve, they were probably operated differently as opposed to the people that were, you know, sink or swim kind of a model there. So, when you when you assess a company, you mentioned talking about looking at earnings and stuff. How How are you in this market? Given this infusion of cash from from the government’s How do you reason through that because Without that, I think you could you could assess, you know, Company A versus Company B or make some sort of a determination. But, you know, there’s a lot of people talk about, it’s kinda like driving in fog lights on, you can’t see where you’re gone and everybody’s kind of in the same. You know, we’re how do you take a look at that and, and when you’re when you’re making a decision to invest? How are you sorting through this? The fog?

Lior Gantz 21:29

Sure. Okay, so there are industries that have really been affected by COVID-19. Those are real items, right? Hotel chains, casinos, cruise lines, hospitality, hospitality, oil companies, tourism, to the airline industry. Okay. So you put all these in one basket, and then within that basket, you look for very specific things, and I can touch on that. So those are the real casualties. amount of in the food industry, you know companies like that, put them in one batch, and in retail, in malls, etc. Let’s put them in one batch. And they are basically whatever is sporting companies, whatever is really impacted either buying government restrictions, literally the government telling you you can’t operate this business or you have to operate within really crazy restrictions, cinemas, etc. Put them in one basket, let’s touch upon them later, then you have the ones that are thriving. Once this is like the government telling you all eliminate your competition for you. You know, I mean, there will be no retail stores online will go big. For example, Amazon, right. So, these are the two companies and then these are two extremes, those that are being victimized, those that are being being benefited, and then there’s in the Middle, all the companies that are sort of chugging along in terms of they haven’t been too much impacted from the bad side, too much for the for the upside.

What most investors are currently doing is that they’re trying to buy a company at x and a few weeks or a few months later just sell it for a higher price. And that model, it works until it doesn’t work. In other words, there’s there’s a top somewhere for the price. I don’t do that. For the most part, I avoid trying to buy a company for x and gambling, we’re speculating that somebody else will pay more for it in the future. What I’m trying to do is look for a company that I buy an x because I can see the earnings are currently pretty good or that I think it they’ll they’ll come back to normal real soon, and its prices cheap compared to the growth of the company going forward. And therefore what I care about is the cash flow this business will generate in the coming years and decades to come and not, then I buy one at one price and I can sell it a few weeks later and another price. And so that’s my model to begin with, because people have to realize the price appreciation is only 40% of historical returns to the stock market. The additional 40% is dividend distributions. And then the additional 20% is what we call buybacks or share buybacks that companies that are there instead of using their capital to distribute the dividend are basically telling you will buy more shares of our own company will will close the pool of shareholders and you will own more of the company tax free. Okay, so that’s just a bit. That’s some points. This is even better than a dividend.

Okay, so now that we’ve done that, we want to look at companies that are almost a monopoly in their industry companies that have very few competitors, either because they operate in a very tricky industry. In other words, it’s hard to compete. Even if you raise the capital, you won’t be able to come in. So they either are operating with very low, very thin margins. And therefore, if you try to compete with them, you’ll probably get eaten alive. Or they have a special relationship with a government or some sort of a regulator that it’s hard to compete with. Or they have a lot of brand loyalty. And it’s hard to shift the trend towards a new company.

Or that they’re one of the dominators or two or three dominators and no one else can get in. It’s very hard to get in and that would be because of economies of scale, for example, other companies will have higher costs. If you can find those types of companies that have what I call a moat, something around their business that makes it very hard for others to compete with, then you have a chance at finding something that will be index. Because otherwise, it is pretty much a certain that if you just find index fund, and you wait at least a business cycle, so at least seven years or more, you will start seeing how consistent the returns are. In the past 100 years. The s&p 500 has returned 8.3% a year but only on four calendar years out of 100 it actually close to you. Listen that 8.3% average. In other words, most it’s like having one hand in in boiling water The other hand and ice, if you combine it, it will probably have a nice feeling to it, but both of your hands are, or one is having froze whites and ones, you know, I mean you know, it’s, it’s, it’s in hot water. So you have to realize that over the long term, the American Enterprise is doing very good, you’re gonna make a fortune betting on American companies. But if you knew how to find companies that even grow faster than the index, then you have something unique.

93% of investors underperform the index and they should just invest in index, and they should probably double down or pilot more after a huge correction. For example, what happened in March that would be an amazing buying opportunity. And for the rest of the people that have a succinct way of understanding businesses can outperform that now over the long term, if you invest for 30 years, the difference between earning 8% a year and 12% is mean over one or two years, it’s it’s almost a negligence. It’s few thousand dollars depending on how much you your risk, but over a 30 year period when you compound that as an insane difference. So that’s where you have to figure out, am I capable? Do I have the time? Or do I need to offset this to somebody else? How do I do this? And that’s, that’s basically the business. So one, competitive advantages. That’s the main way to find a phenomenal business. And then if it’s a complex of knowing the industry, knowing this knowing that understanding the books, the numbers, it that is what being an investor is it’s a profession. Many people do not see it as a profession and And therefore many people lose a lot of money in the stock market.

J Darrin Gross 29:06

No, I think everything you you touched on there, I was kind of surprised you mentioned that only 40% of the returns is through price appreciation. Is that is that true even over the longer haul? Or is that

Lior Gantz 29:20

That is true only in the longer haul? day to day? No. I don’t. I can’t tell you what will happen from now until right. But over the hundred years that they did the study 40% comes from dividends 40% from the appreciation of the price and 20% from you know, earnings with buy backs.

J Darrin Gross 29:49

Well, that’s that’s interesting.

That’s great. Hey,

Lior Gantz 29:53

you may find that study online.

J Darrin Gross 29:56

No, I appreciate it. I want to ask you quick. I know you’re You’re a fan of gold. Can you speak to gold as to how it’s held up and give a little perspective on gold?

Lior Gantz 30:09

Sure. Today I’m a big fan of only a fan. Gold is trading at an all time high. And more importantly, than gold trading at an all time high, which is amazing. And, you know, if you go to our website, for example, for free shipping, you click on that top menu, you’ll see special reports. Lots of them have to do with gold. So If you don’t know why gold is important. As a part of your portfolio, you can definitely download some of those and also go to wealthissues.com/goldplaybook, which is a special report we created for your listeners. That’s a very comprehensive manual on investing going slower.

Okay, so gold is also it’s almost like a mirror of other things that are happening in the economy and the most important thing for gold That investors like to own it, when the interest rates that they can get either intervene by buying bonds is negative. So, let me say that again. If you currently want to do the safest thing in, in finance the traditionally you go and you purchase a and you lend Washington money for 10 years. The 10 year bond is the barometer for all the other assets in the world. Okay, that is, you know, whoever you ask, any professional investor, he will tell you the bare meter is the 10 year bond. So today the 10 year bond is yielding point five of a percent. In other words, if you lend Washington a million dollars, you’ll get point 5%. So that’s $5,000 of interest, a year, million dollars and then you have to duck inflation, inflation is a point and a half. Therefore, in real terms, you are losing $1,000 every year. On on, on this transaction, you are lending money at real negative rates when that happens, gold soars historically.

So that is exactly what’s happening right now the 10 year bond right now, in real terms. So whatever the nominal yield that you see on when you when you’re quoted online, minus the CPI, the consumer price index is the lowest it’s ever been. It’s point zero, it’s minus 1%. And in that kind of environment, there’s a lot of institutions that say, I am not going to just lose money, not going to lend money to Washington, knowing that I’m losing money. I’ll just find gold. And that’s what’s happening right now. And that’s my goal. There’s over $2,000 an ounce. And it will continue on doing what it’s doing, if there’s no change in that, and to me, it looks like there’s not going to be any change because the chairman of the Federal Reserve central bank is saying we are probably done raising interest rates for a few years. And so if they if interest rates are going to stay the same, I think inflation is even going to go up a little bit and rates are going to go even more negative.

Secondly, you have $1 bear market that has just started two months ago after 10 years of a bull market. Now the dollar what is it what is $1 bull market $1 bear market, a dominant bull market is if the dollars value relative value is rising compared to a basket of other leading currencies, the Euro, the yen, the Canadian, the Australian, the Swiss, the Hong Kong, etc. And it was beautiful. 10 years bull Market from 2010. It just broke down below. That was that support line that 10 year support and it’s in a bear market. dollar bear market is the most important financial event or dollar bull market is the most one financial terms, so many other things, because the dollar is the reserve currency that everyone uses. And all bear markets historically are six to seven years long. And so if we just started one then has insane repercussions, or commodity prices and you’ve seen in the last two months, or three months, that’s Silver’s price has gone up 100% that’s the smaller precious metal, the one that’s much more correlated or inversely correlated with the dollar. So you’ve seen phenomenal returns, or gold, silver, gold stocks, silver stocks, some of the stocks that we’ve profiled in our own portfolio are up over 100% Three, four months in the newsletter. So that’s what happens when you have a bull market, in commodities specifically in the mining sector.

J Darrin Gross 35:12

I appreciate you taking us through that the precious metals are I know they they have that are there times when they’re more sought after and it sounds like the way you described it now is definitely a time to make certain you have some in your portfolio. Lior if we could, I’d like to shift gears here for a second. As I mentioned to you before, I’m by day I’m an insurance broker. And I work with my clients to assess risk and do some risk management. There’s a couple of strategies we typically consider. We first look to see if we can avoid the risk. If that’s not a possibility, can we minimize the risk and when that’s not an option, then we look to see if we can transfer the risk and that’s what an insurance policy is. And I like to ask my guests if they can identify what they consider to be the biggest risk grand. for clarification, I’m not necessarily looking for an insurance related answer. You can apply this however you you feel if you want to look at your your business, your clients business, however you want to frame the question is up to you. But with that, if you’re willing, I’d like to ask you, Lior Gantz, what is the biggest risk?

Lior Gantz 36:39

`So I think COVID-19 is changing a lot of habits that people have some habits changed faster for certain people, some habits have not changed and some habits are slowly starting to change. And it’s very important to see that you’re not kind of touch with what’s happening. In other words that you don’t think that the way that you’re being changed by COVID-19 is the way that your clients are being changed by COVID-19. Therefore, you will take your business one way because that’s what personally is happening to you your own personal experience was your, your clients are, are looking at a different route to go forward and you’re going to lose them to competition. So the biggest risk right now is not understanding how your client has changed if it changed, and I think that’s really important for people to to stay on top of now, if you’re an employee, which most people are, your client is your boss, you need to see if he’s changed. If his business is more vulnerable, you should look at moving to a different business. His business is full of problems, but he also has a way to get through it, then you can bring a lot of value by solving problems and you can move ahead in the company. So just think of that, understand that everyone right now is experiencing either multiple problems or other experiencing a boom, because basically the government has benefited if you want to be part of that, be part of that. In other words, go with companies that and with industries that have a huge tailwind or go to the victims because you’re going to have opportunities to make a huge significant significant impact on them. Because they need so many new ideas and some fresh solutions. So either or, but just know that this is a phenomenal time to show your value that is the key point. Just think of the experiment that no business would have ever taken to close down or to put all the employees home. These are unheard of. And they’ve happened now. So you have to be unconscious that and that is the biggest risk losing the mindset of your clients because he’s changing you’re no longer understand what he wants and what he needs.

J Darrin Gross 39:30

Now that’s well put, and I think it’s a good reminder for people to recognize there is an opportunity here and in every crisis, there is an opportunity and it’s up to you to find that and and be the solution there. So that’s great. Um, Lior, Where can the listeners go if they’d like to learn more or connect with you?

Lior Gantz 39:51

Wealthreserchgroup.com. The homepage, you can sign up for the newsletter that’s literally like the best way to stay in touch with whatever I am doing.

J Darrin Gross 40:02

Got it. Lior, I can’t say thanks enough for taking the time. I’ve enjoyed talking with you again, learned a lot and I hope we can do it again soon.

Lior Gantz 40:13

Thank you, sir.

J Darrin Gross 40:14

Intro 40:33

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