Archives for October 2020

Opportunity Zones Big Picture with David Sillaman – CREPN #272

David Sillaman 0:00

We offer a turnkey fund development platform where our team sets up the Opportunity Zone Fund which includes you know everything from your entity formation, your financial forecasts on the fund, your your you know our legal team takes cares of take care of the private placement documentations are raised the money term sheet, sub agreements ,are graphics video, video, web marketing team takes care of developing the website getting it distributed out you know doing the pitch decks, pitch videos, basically it is a full turnkey when you’re taking saying ,Hey, I got this project help me get this in front of investors the right way as an opportunity fund. Bring it to us day one, day 30 you’re able to connect with investors.

Announcer 0:42

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 Experts.

J Darrin Gross 1:01

Today, my guest is David Silliman David is the CEO of Eazy Do It and he’s here to speak with us about Opportunity Zones, and Opportunity Zone Funds. And in just a minute, we’re going to speak with David about creating and utilizing an Opportunity Zone Fund. But first a quick reminder, if you like our show, CREPN Radio, there are a couple of things you can do to help us out. You can like, share, and subscribe. And as always, we would love to hear from you. Please leave a comment. 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 youtube at Commercial Real Estate Pro Network. And I also want to remind you there if you would, please consider subscribing. I always love to see more. And it always helps attract more people as well. With that, I want to welcome my guest, David, welcome to CREPN Radio.

David Sillaman 2:32

Thank you for having me.

J Darrin Gross 2:34

I’m looking forward to our conversation today. And before we get into Opportunity Zones, if you could just take a minute and share a little bit about your background.

David Sillaman 2:47

Sure, I got into the commercial real estate market. Basically I came into a hotel deal back in May of 2018. And this was a month prior to the basically our Opportunity Zone legislation coming out and it was a commercial deal. Like so many others looking for money and, you know, got brought in to figure out where, where the holes were at in the ship, so to speak, and to make some corrections. And once I learned that the Opportunity Zone program very quickly saw the opp, you know, looked at the deal, realized that it was in an Opportunity Zone made a pivot, launched it, the the equity raise for it, launched it as the fun and it ended up being the second Opportunity Fund in the country to ever open. And from there, it was kind of off to the races you know, once we started building that up a little bit and getting out there. And then basically it was from there. went on to develop the first business based Opportunity Zone Fund now since developed a little over $21 billion worth of project real estate related and business related Opportunity Zone Funds. Account for approximately one out of every eight one out of every nine in the country. We’ve got our name, you know our fingerprint on it in some way, shape or form and have kind of been elevated up to really, you know, one of the top 10 experts in the country on this subject matter on how to utilize this program the right way. We have a tendency to see things a little differently from a couple different lenses. And just, you know, believe in this program, this is going to either be one of the biggest game changing programs that this country has ever seen across all spectrums of real estate and business, or it’ll be one of the biggest tax giveaways in the history of our country. And I believe that it’s going to be the first of the two. And commercial real estate makes up you know, right now 85% of this market space. So this is a very, very hot topic, something still very, very new, very applicable and you know, really with 2020 being the year of with extensions and everything else like that, you know, this is a major year for capital gain investments because that’s what this program is basically built on is capital gain investors investing into an opportunity fund that is built and developed around You know, some sort of real estate or commercial development project that’s there to support part of the equity stack cap stack of that project. And it’s designed to these cap gain investors get in. And so you’ve got a mass tidal wave, given the amount of capital gains the amount of liquidity that’s in the market right now getting ready to kind of all hit with the proverbial Opportunity Zone shoreline between now and the end of the year. So this is a prime prime subject for the commercial real estate market.

J Darrin Gross 5:28

Yeah, I would say, you know, the stars are aligning, you know for for what I know about Opportunity Zones or what I’ve learned prior to this conversation. You know, it’s clearly looking for a way to stimulate investment in real estate, and places that need investment. I mean, that was kind of the the underlying thing there and assuming you’re able to turn the market with that investment The the value of that investment would be a significant increase there.

David Sillaman 6:05

Absolutely.

J Darrin Gross 6:07

Before we we get run along, I didn’t quite hear what was your background before getting into real estate there?

David Sillaman 6:15

I worked in tech consulting, doing capital raises. So I come into a company and you know, they want to raise around a raise. So, you know, I get involved and help them structure, all the documentation and everything else like that, that need to be done to adequately raise that.

J Darrin Gross 6:33

Okay, so capital raising is not something that’s, I mean, you’re very familiar with that. So that’s, that would be I think, a head start for for you versus somebody saying, that’s a great idea. Let’s, let’s, let’s go with that. So let’s back up just one step. And so we can all make certain that we’re on the same page. Can you define what the Opportunity Zone is or what an Opportunity Zone is?

David Sillaman 7:00

Absolutely. So the Opportunity Zones are number one, they’re in all 50 states, Guam, Puerto Rico and US Virgin Islands. So what they are, are they are they’re literally designated census tracts, where they’re, you know, the economic numbers and poverty rates and stuff like that are within certain thresholds. And every, every mayor, every governor, so is across all all 50 states submitted the census tracts saying, Hey, we recognize these areas that are in need of economic stimulus. From there, it was approved by the Department of Treasury. So now collectively, we’ve got 9000 plus Opportunity Zones. So for real estate purposes, it is literally comes down to an address being on one side of the street versus the other, being in a zone or not being in a zone. So you have a lot of these opportunities. I didn’t there’s a misconception that, you know that the Opportunity Zones themselves are so you know, impoverished that, you know, it really is not like an enticing investment for an investor to really want to kind of get into it, it’s high risk is that. You have a lot of Opportunity Zones that are, you know, poised for college growth, poised for, you know, already doing, you know, semi decent are on the upswing, and investments are spurring that economic growth. So, they’re not all, you know, bad but the program is is a very special tax incentive program, if utilize the right way.

For investors, they get a bunch of specialized tax benefits by being willing to take their capital gains and putting it into what’s called an Opportunity Zone Fund. And the fund is then designed by by structure and by terms, guide guidance from the IRS that has to redeploy that investors money into you know some sort of Opportunity Zone project. The tax incentives are what is the major benefit of the program to give you a really simple example, say that I sold some real estate and I’ve got, you know, a $500,000 capital gain. And for one reason or another, I wasn’t able to do a 1031 exchange or I had a failed one or I just wanted to get my principal back out, well, I got a I got a half a million dollar capital gain. So instead of paying taxes on the way that I would normally have to reporting it as taxable income for this tax year. The start of that is I roll my money into an Opportunity Fund. I now defer paying tax the tax year 2026. So I’m pushing that off for six years. The second thing is is in that six year push off, I hit one of the anniversary hold dates in the Opportunity Fund, which is the five year anniversary.

So what happens is as an as a capital gain investor, at the five year anniversary, I get a 10% step up in basis. So what that means is, is that on that half million dollars, I’m paying tax on 90% of it, not the full half million in 2026. But here’s the amazing thing, which is why investors, you know, are really beginning to take a look at this program in multitude of troves and outlets. It’s the 10 year benefit. As an investor, if I keep my money into an Opportunity Zone Fund for 10 years in one day, I get a full step up in basis to fair market value at time of exit. So let’s say my half million grew to 2 million. So I got a million and a half game. I have a half million dollar basis, I paid tax on 90% and a half million dollar basis, the other million and a half. I don’t pay any tax on whatsoever at time of exit.

J Darrin Gross 10:53

So that’s on the subsequent gain that the no tax , right? That the initial one you still have

David Sillaman 11:01

Just a slightly reduce rate.

J Darrin Gross 11:02

Based on your your hold time.

David Sillaman 11:04

Yeah. Yeah.

J Darrin Gross 11:07

No, I appreciate you you come taking us through that because I’ve, I’ve had conversations with multiple people. And I would dare say that everybody understands what they are or, I mean, what you explain me is the way I understand it, and I get it. The idea is that you you have this gain. If you if you don’t invest in an opportunity zone, you got to pay your tax it’s due. But if you if you choose to invest in this, we’re going to give you first of all the time, you’re going to get, what six years to pay

David Sillaman 11:43

Six years, to pay the tax,

J Darrin Gross 11:45

Right? You’re going to get a reduction in the tax owed. So you’ve got the time value plus the discount. And then like you said, the bonus of this is the hold for 10 years

David Sillaman 11:56

Extended hold, yeah.

J Darrin Gross 11:58

And is that 10 years from when you when you invest into the fund, is that how they is that when the clock starts?

David Sillaman 12:04

Yeah, yeah. Because the fund itself, you know, reports every six months to the IRS. A couple things, you know, number one, what the fund invested into, number two who invested into it? So yeah.

J Darrin Gross 12:18

Well, and I think the other thing that that you’ve touched on here that I, it took me a while to understand this thinking primarily as real estate and looking this as a real estate investment, the capital does not necessarily need to come from real estate. That was the challenge it took a didn’t resonate with me is that not everybody coming into this and Opportunity Fund is necessarily coming from real estate, they could have sold Apple stock or Tesla or whatever it was.

David Sillaman 12:44

You’re right, let’s let’s look at what happened in March, right? We had a mass you know, sell off in the stock market in March because of COVID. That sell off generated almost $700 billion in new capital gain money. And that mindset is not Real Estate based mindset. That mindset is very, very much, you know, I found stocks because I believe in the business, I see the product, I buy the product, you know, good earnings, good boards, all that kind of stuff when you go from that mindset as an investor and now you’ve got capital gains number one, up until now, you know, the stock market investors really didn’t take this program very seriously, because they didn’t have a need for it, very much. I mean, they were just riding through the stock market. Now they do. You’re taking a mindset that is almost primarily business and bringing it into a market space that’s 85% real estate.

And so, you know, in the commercial side, where we see the biggest disconnect is with the the fund managers that are raising the money around the development, being able to adequately connect with the investors in the right mindset and getting both on the same playing field and educating why this is a good investment. And not just because of how your money is going to grow. Not just Because what an IRR is, but most importantly, and almost always overlooked is the exit strategy. You know, with with people that invest in stock markets, they know that the moment there’s anything that begins to blip, man, I can trade, I can sell, I can I can I have an exit. With the Opportunity Zone market space, it’s a very different animal because it’s an extended period of time. And so, you know, these projects are going to be relying on leverage in the future. And you know, but if they can adequately explain to investors today that, hey, this is what we’re going to do this, this is the growth, the equity, this is how we’re going to exit out and we’re going to either pay you back and you can choose to exit or we’re going to reinvest again into whatever the next project is.

Because the 10 year time period is not project sensitive, meaning that the fund has to stay in a project for 10 years. It’s just 10 years sensitive to me as an individual investor. So fun can do, you know, for especially for you know, commercial Real estate developers, this is prime if they’re dealing, you know, multiple deals per year. And they’re juggling, you know, an Opportunity Fund could act as a real estate portfolio fund for them to support investments into all of their projects. But if the investors know the exit strategy and find that out there are a lot more inclined to want to pull the trigger. But yeah, mindset is a big thing. Big Big thing.

J Darrin Gross 15:24

Yeah, cuz I think again, just the, you know, I think real estate people have a certain view and even like with with syndication and stuff, it took me a while to to fully recognize that because of the, the in and out the speed of of getting in and out at 1031 wasn’t necessarily as much of a concern because your, your depreciation is minimal. It’s more of a capital gain, which is this totally plays to so if you if you have been in a syndication and hit home run, and you’ve got a big gain and you’re looking to park it in or defer the tax and you like real estate, this seems to be a natural, something to

David Sillaman 16:06

Well, you, you have a lot going on that when you look real estate at both today, tomorrow and you know, at time of various exit points, you know, you know investors are going to say, Okay, if I put my money in today who pays the tax in 2026? Right? Am I gonna have to just pull the money on my bank account? Which I would normally have to do anyway, but I would normally just pull it out of the capital gain, set it aside, and then use the capital gain differently. Right. So if I don’t have that ability, where does the money come from? And that’s a big, big question when you when you talk real estate and so what you’ve got to be able to look at is it’s not just you know, what the, what the economics are on the deal today, but really what’s going to drive the economics on the on the deal for exit tomorrow?

You know, we look at things like okay, well, you know, right now, most commercial real estate loans, which are really how they’re going to create the exit is going to be leverage. It’s either going to be sold or refinanced out, right. So it’ll be less In some way, shape or form, but what drives those loans? Well, if you’re borrowing against it, you know, most real estate commercial deals driven on the Libor rate today, but that’s phasing out by the next year. You know, it’s a completely different, you know, rating system that, you know, commercial real estate rates are gonna be based on, it’s gonna be based off the sofr and an offering rate. When you look at that, you know, that doesn’t correlate to how the libor moves with Treasury rates relative to how the sofr rate moves to the Fed funds rate, and funds rate is bottomed out right now. So we’ve got to look at say well okay, well, are we going to expect higher rates in the future and just being able to like, you know, really kind of put thought into articulating that today is what really makes these things you know, very viable, very attractive for investors to get into understand because there’s a mass amount of upside potential. You know, especially when you look at like the rioting and all the stuff that’s going on across the country, eventually, when that when it ceases, there’s going to be a mass amount of projects and property. They’re gonna be in these Opportunity Zones, the Opportunity Zones are going to be designated to include some of these areas, they’re gonna pick properties up for pennies on the dollar and walk into a mass amount of equity with a low, you know, flip time on it. And, you know, so there’s going to be huge, huge upsides for this.

J Darrin Gross 18:15

No, and again, the 10 year hold, that was the thing that caught my attention was the, you know, the the gain, and in 10 years time, especially if you’re buying in a, in an area that’s needing investment, you’ve got time to turn that and if you have a concentration of investment in that area, I would think that that’s, I mean, that’s kind of the recipe for a home run. Yeah, if you have enough investment going into an area that it can attract new business, new, you know, just just new activity. That’s that’s kind of I mean, because you in Portland, Oregon, where I live, we I can go to certain neighborhoods and show you What was versus what it is, and the amount of time 10 years is enough to to fully re re transform a neighborhood.

David Sillaman 19:10

And we’re already seeing the seedlings of transformation in neighborhoods all across America in this program, believe it or not. Baltimore, Erie, the list goes on and on and on of different places where money has been invested, you know, projects are going on jobs are being created, both in real estate short term for development purposes, but also for businesses in the area. And in those areas. We’re seeing very, very strong support from both state and localized municipality levels, you know, state taxes where they’re, they’re matching, you know, that the federal tax program at the local level, we’re seeing we’re localized community, you know, municipalities are bringing in additional benefits, sales, tax rebates, extensions on when taxes are due, discounted tax rates, all sorts of stuff to really try to take this and harness it because it has that potential.

J Darrin Gross 20:01

Right. So you’ve made the case for it’s a good idea. How How does a a or I guess, knowing knowing that like a zip code or I mean, I forget if it was a zip codes primarily are were there.

David Sillaman 20:19

They were there literally census tracts addresses, like all of an entire zip code would be in and opportunities and they’re there. They’re kind of Believe it or not, if you familiar with what the CDFI tracks are, that they use the Treasury level there, a lot of them are just those Plus, you know, extension areas from within those already predefined economic tracks.

J Darrin Gross 20:44

Right. Right. No, I guess where I was going with this is that so we’ve identified the area that qualifies. Let’s talk about the specific investment. You mentioned you started off with hotels If, if a if a fund has identified a, an area, a neighborhood track, and what what are the specifics of the property? That that, that make it qualify? Not that it’s just located in can it be new construction?

David Sillaman 21:19

It’s it does start off with the fact that number one, first and foremost is the property in an Opportunity Zone. Right. Okay. As far as the type of development whether it’s hotel, whether it’s apartment complexes, multifamily townhouses, single family resident trailer parks, storage parks you’ve seen I mean, we’ve seen the gamut of a mall, okay? Doesn’t matter starts with isn’t in an opportunity. Number two is is this something that is number one qualifying for a original usage or B, is it substantial improvement? Okay.

The most of these, most of these projects, the idea is the substantial improvement piece. Where the fund is going to come in, pick up, take an equity position, maybe even own it entirely and do the whole project as an opportunity fund, because there’s nothing that prevents a fund from being a 1% equity stake in a project and the cap stack to the full cap stack. Okay, so the fund will come in, and you know, it will have a couple things that it’s got to do. It has to meet its basis plus $1, in substantial improvements. So, you know, you’ve got that to take into consideration but if done, right, you still have huge, huge upsides after improvements are gone. Um, other than that, those are the two main things, you know, it’s not project type specific, it’s applicable to all. You know, there’s, there’s, believe it or not, there’s 22 different federal programs, two executive orders that support this Opportunity Zone initiatives, everything from the USDA to the FHA to HUD to VA, you name it, you know, all of this is a stackable program, where new market tax credits, low income tax credits, historic tax credits, all of that stuff is all applicable within this program. So you really have a robust and it was done and designed to be private by design, you know, to where you and I could get into great deals and invest, you know, I believe that the mindset was, hey, let’s spur investors to invest in their own backyard type thing. But it was it’s designed to support any type of commercial deal.

J Darrin Gross 23:40

You mentioned stackable, can you spend a minute and clarify?

David Sillaman 23:46

Sure, let’s say that you’ve got a project that, you know, let’s, let’s say it’s a housing development, right. You’re coming into a low income housing area and some low income tax credits for building out housing development. Right. Well You can use the Opportunity Zone Fund and the Opportunity Zone Fund can take advantage of when it does its taxes, there’s tax credits, even being a fund. So, you know, when you look at it, then the tax liability that then gets distributed out to either the members of the fund wish or the stockholders of the fund because the funds are going to be designed one of two ways, almost always virtually with real estate will be partnerships. So that’s what most real estate deals are done as So, you know, when the distributions go out on the K1 at the end of every year, you know, the fund can do take advantage of certain aspects and you know, stackable programs that can it can work in conjunction with EB-5 investments into, you know, a lot of EB-5 is centered around real estate deals, stuff like that. So you really can kind of be pretty robust with the usage of how this program is interconnected with other tax programs.

J Darrin Gross 24:47

That’s something that I hadn’t understood. I mean, that’s kind of like turbocharging the you know, the tax viability or just, I mean, because on on The the Opportunity Zone Fund., again, that’s that’s all about attracting investment. But a lot of those other tax programs are about in I don’t want to put a blanket

David Sillaman 25:16

Yeah, it’s a lot of rabbit holes to go down.

J Darrin Gross 25:17

Yeah. But I mean, some of them that I’m familiar with are our additional funding sources available

David Sillaman 25:25

Yeah, like EB-5 is a funding source that can be used in the capital stack on a project along with Opportunity Zone money,

J Darrin Gross 25:32

Right. So you can essentially lower your leverage based on all of these, which makes, which in the end makes the property perform that much better. And that’s that’s the point. I think, if you’re going to take something away that when you add all those additional programs together, it makes that that property perform even at a greater level than if you were just coming in a standard. Investors come in with the downpayment. You borrow the balance kind of thing. So on the properties on the on the substantial improvement, can you define that? Is there a Is there a measure of what substantial improvement means.

David Sillaman 26:13

So you’re going to have a cost basis to improve. So you’ve got to do that basis plus $1 minus the cost of land for substantial improvement.

J Darrin Gross 26:23

So if you if you bought something for a million and just for round numbers that the dirt

David Sillaman 26:28

if you bought it for a million, the dirt was worth 100, 200; 200, you got 800, you got to put 800 and 800,000 in $1. In

J Darrin Gross 26:36

Gotcha, gotcha, gotcha, gotcha. All right. So, all right,

David Sillaman 26:40

With original use, you don’t have to meet that threshold at all.

J Darrin Gross 26:45

Okay, originally, you should because you’re coming in with new new construction essentially, then or, are you not?

David Sillaman 26:50

Okay. Yeah, nine out of 10. eight out of 10 times will be new construction on original use.

J Darrin Gross 26:55

Okay. So we we’ve talked about the benefits of a fund, we’ve talked about essentially what types of properties qualify and what kind of projects. How tell me how easy easy I’m sorry Easy Do It right? Yeah. Easy Do It. Where do you guys fit? Are you guys creating the funds are you are

David Sillaman 27:19

We offer a turnkey fund development platform where our team sets up the opportunity’s own fund which includes you know, everything from your entity formation, your financial forecasts on the fund, your your you know, our legal team takes cares of take care of the private placement documentations are raised the money term sheets sub agreements, our graphics video video web marketing team takes care of developing off the website getting it distributed out you know, doing the pitch decks pitch videos, basically it is a full turnkey when you’re taking saying Hey, I got this project helped me get this in front of investors the right way as an Opportunity Fund. Bring it to us day one, day 30 you’re able to connect with investors. We integrate a third party fund administrator that oversees, you know, investor onboarding, compliance reporting, so that way, you know, none of that stuff is on the project manager of the fund manager, because they’re usually one of the same. You know, so it’s, it’s designed to be very, very turnkey, very easy. Flat rate, we’re not broker dealers, so we’re not getting paid on a raise. We’re not coming in, you know, on a commission or anything else to that nature. It’s just boom, done and built to spec ready to go anywhere. So we do that. And then we also have our own directory listing OZFunds.com. So since we’re talking about Opportunity Zone Funds, OZ Funds, OZFunds.com is our directory listing for Opportunity Zone Funds to be listed there and an education platform as well. We educate people, you know, on the subject of Opportunity Zones, from an advisory standpoint. And then also, you know, that’s what we kind of do. For our clients, it’s a turkey 30 day, in out.,

J Darrin Gross 29:04

Got it. So you’re taking something from an idea to the execution. I mean, you’re you know, I think a lot of times Yeah, the idea is that somebody goes, wow, an opportunity. I mean, Opportunity Zone we need I mean, that’s, that’s about the, you know,

David Sillaman 29:17

You know, the shortest distance between between two points, is a straight line. Right? Right. And when you look at what most people do when they start something new, because the reality is all an Opportunity Zone Fund is, is a shell company, selling equity, whether it’s a partnership, or whether it’s a stock doesn’t matter, because it’s selling equity to you and me, the investor for our capital gain money. When we invest we’re getting at a partnership or stock. It’s then funneling that money into an investment. So you got to look at the mechanical basis of what an Opportunity Zone Fund is, is a business, raising capital, selling equity. And so when you think through that then from an execution standpoint, most people zigzag their way. And all we’re saying is, guys, listen, we’ve done enough of these, we’ve been responsible from day one all the way up to today, you know, huge market share we’ve built, we’ve just have figured out how to build an assembly line process, to where instead of, you know, you’re you thinking one thing, and then, you know, you’re already trying to put the cart 5000 steps in front of the horse, we just keep everything in an assembly line. Order your Corvette, you come out, drive it off the lot. That’s our concept. And it’s easy, Easy Do It.

J Darrin Gross 30:36

Yeah, I think that’s the, the underlying, you know, takeaway from this is that it’s that it’s, it is Easy,Do It. I mean, it’s a great, great name for your, your, your company, because, like I said, I’ve, I’ve talked with numerous people, but they’ve been more of the sponsor, type and not that they’ve you know, dweld on the the back office or the all the, the bits and pieces but what I’m hearing you say and I guess, me confirm with you is that if somebody has an idea, they’ve got a property in mind and they’ve got access to capital and they’re looking to do a property in an Opportunity Zone. Okay, and but now they need all the the functionality, the the support, so they stay compliant. Because Yeah, if you don’t, if you don’t do all the compliance, you’ve basically your bust or, you know, jeopardize everybody in their in their potential gains. So, somebody that that define a perfect prospect for you, typical somebody that’s coming to you with, with a need for your product.

David Sillaman 31:51

Alright, so usually it’s, it’s number one, we work with the developers, you know, are they a first time developer or are they somebody who’s a seasoned You know, commercial develop developer, they they’ve got a great project. The Opportunity Zones are not designed Opportunity Zone Funds and zones are not designed to polish a turd. So if it’s a bad deal at the get go, this is not going to make it any better. Okay, but if this is a good deal, this will make this phenomenal when you look at the tax benefits to the investor. So you know, somebody who has a good deal, something where they’ve already got some stuff already figured out on the project, you know, maybe feasibility studies have been done, they’ve got a good business plan for what they want to achieve or good development plan for they’ve got a good project, highlight somebody who’s coming to the table with at least something that we can kind of take and run with. And we know that there’s a lot out there because we get solicited by so many projects looking for money. So we see these things all day long. And that’s I think that’s the the more bigger thing, I think is not what the ideal client is. I think it really is understanding if we could economics at the market space for a second. Because when you really kind of think about it when you’re when you’re in commercial development, you’re looking For money to get any type of project on, you’re trying to find either investors or, you know, traditional outlets or whatnot. With Opportunity Zones, there are only about 600 Opportunity Zone Funds out there. That’s it, about 600 of them that are real, actually taking money in doing it. But what’s really important that nobody talks about and this is why the economics of it, I scratch my head sometimes and this is perfect for your audience, okay? When you look at those 600, first of all 15% of them are business, meaning that they’re focused on making investments as either like a venture capital fund or just into supporting a startup or the growth of a business. So let’s exclude 15%. For the real estate purposes, we’re now working with 85% of the shared space. In that 85% by design, these are offerings to invest investors, which means there’s a private placement that goes along with it. It that private placement is following some sort of reg offering, whether it’s ABC or D offering. All right, most of these are C D offering some more Reg A, but that’s rabbit holes. When you look at that 60% of the 85% market space in real estate, 60% of them are single asset focused funds, meaning that they can’t take or invest into any other deal other than the one they showed you and me as an investor legally.

So now we have 40% that are multi asset, out of that 40% that are multi asset. All of them are highlighting anywhere between one to already three deals that they’ve got on their plate as an opportunity fund. So even them having excess capital to invest into an opportunities on project they don’t have right now. The problem is we have an inverted supply demand yield curve, but the market space doesn’t fully recognize it, because they’re missing the forest from the trees. What we have is we have a exponentially huge amount of capital gain investors. And we have a very small pool of Opportunity Zone Funds, the real estate market, commercial real estate developers, the worst thing they could be doing right now is trying to solicit an Opportunity Zone Fund, which we see all the time. I can direct any real estate guy to an Opportunity Zone directory that’s at 25,000 projects in these Opportunity Zones. Looking for funding right now. You have economic development agencies within municipalities, that other than tax benefits are themselves struggling on how do we implement working this program with funds, fund managers and projects getting developed?

If you look at what they’re doing that they’re mainly doing project solicitation as well. They’re saying these are the projects that we as a city have to be able to offer within an Opportunity Zone for Opportunity Zone Fund. The reality is the Opportunity Zone Funds far and few between are looking for extra projects right now. But you’ve got all this capital that’s looking for a spot to go into and there’s not enough. So the best thing that any developer could do right now is if you’ve got a great project in an Opportunity Zone, don’t go fishing in a small pond that doesn’t have any money in it, meaning the OZ Fund market go fishing in the capital gain market. As an OZ Fund, come out and be that 601. So that way, you can hit a much, much larger market share. Because if we look at the tidal wave of capital gain investors right now, because of all the different COVID extensions related to this program, we have investors that go all the way back to October of last year, that are still eligible for participation in this program. every investor has till the end of the year, stock in real estate. So we have this huge tidal wave, we have more liquid money sitting aside in people’s bank accounts than ever in the history of our country right now. We’ve got changes that have been made the Volcker rule from an SEC standpoint, for banks, and also from a CRA guidelines standpoint, for banks to now get involved with investing in Opportunity Zone Funds as an investor. You know, being able to you know, we’re there we’re at that spot where developer could set up an opportunity zone fun walk into the bank that they usually would get a loan from, and say, hey, let’s talk about the bank investing in this As a fund and the bank get benefits of it. We’re at that point now, but but the market, when you look at the economics of the market, we’re so inverted that we don’t have enough supply. The demand is there. We don’t have the supply chain to handle it. I mean, it’s like, you know, scratching the tip of an article with a toothpick.

J Darrin Gross 37:20

Yeah. No, that’s a good problem to have. If you’re in a, you’re selling the product everybody needs that’s, that’s where you want to be. So that’s good. That’s good. David, if we could, I’d like to shift gears here for a second. By day, I’m an insurance broker. And one of the things we do is we try and manage risk. And there’s a couple of different strategies we typically consider. The first is can we avoid the risk? If we can’t avoid it, we look to see if there’s a way we can minimize the risk and then If we’re not able to avoid or minimize we like to 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. If you can take a look at your your customers and your business and identify what it is that you think would be the BIGGEST RISK, and then explain that. For clarity, I’m not looking for an insurance related answer. But if you’re willing, I’d like to ask you, David Sillamon, what is the BIGGEST RISK?

David Sillaman 38:47

I see. Okay, the absolute BIGGEST RISK to the whole program is going to be fraud. Alright? Fraud because these are private by design to be between you and me as individual investors into development, Alright? They’re long term in nature, which means that we’re not thinking about it every single solitary day. As an investor, we already know going into whatever we’re putting our money into long term, years, six years, 10 years because of how every last one of these and it’s such a brand new market that, you know, there’s no not not a single Opportunity Fund has a major prior performance track record. So taking money in from an investor promising them that we’re going to do this, we’re going to do that, and then closing up or never even filing the right way to begin with causing, you know, detriment to the investor from a tax standpoint, thinking that here they’re deferring and now they’ve been collecting interest on taxes that are due because the fund never did the right thing. And the people behind the fund made it look so great. That, you know, they took the people’s money and ran. And when we look at look back at the history of track record of government programs, I speak truth on this because I built and operated one of the most successful loan modification companies on the East Coast was called Cornerstone group 175 employees, two call centers. I built a multimillion dollar business on the back of a government program once before. Fraught the proverbial saying of a few bad apples will ruin the entire basket was absolutely true in that program. We heard horror stories that people that you know gave money to companies out in California told don’t make your mortgage payments and then ended up losing their houses and the company’s closed up shop. That program was very dramatically changed through legislation and strokes of Penn from executives at the White House. This program has an immense amount of propensity for overwhelming overwhelming Change in an amazing way opportunistic way, in America, an amazing way to make a lot of great money. What it lacks because of how it’s written, there is no set platform yet. There is no set directory yet. There is no set, hey, this is the proper process and what you need to be able to do when you build one of these things and so that way, all the way down the supply chain, it’s transparent and everybody can get into it and know that okay, no matter what, that doesn’t exist yet, because this market is a brand new financial market that is penetrating both real estate and business. And within that it has to grow. And it’s like a baby right now that’s teething. It has the ability to do amazing, and the legislative support behind it is bipartisan. But at the same time, biggest concern would be fraud. The second biggest concern I think that would be to go along with fraud and I briefly touched on it, I think it probably plays into that fraud. The biggest way is right now, as an opportunity fund being private, you’ve got SEC compliance, you’ve got, you know, state compliance, blue sky laws plus whatever your corporate entity, you know, is both, you know, registered in and foreign because most of the time, you’re gonna have two entities at a corporate level with these, just a lot of this is still the compliance side. And that would be the the second biggest risk, none of them are performing. Proven. And I can’t tell you as an investor, hey, listen, you know, this fun is performed at a 10% interest rate of return for the last 10 years. Not a one, I can tell you that, hey, my company has done you know, $50 million in development projects and so you can trust us. But at the end of the day, as an investor, you know, and that’s that’s the risk is at the moment because there is no centralization on really, you know, what it looks like? You know, from that mass propensity of fraud, and then you couple that with no performance, they’re ultra ultra ultra high risk investment vehicles with huge upside potential, but also really high risk up front.

J Darrin Gross 43:16

Yeah, know thy operator or no thy sponsor. That’s a well said. I think that you know, like you said, even the the lack of a track record and then just the time that the investment has to go is there’ll be a tale to be told. So

David Sillaman 43:34

it’s good there will be there will be there definitely will be and you know, what we build funds ar Easy Do It in our turnkey model, we do coordinate with a lot of broker dealers, RIA’s, family offices. A lot of accredited investors that, you know, we have gleaned a lot of experience from trying to build an Opportunity Zone Fund when you don’t have prior performance. Your next best thing is full transparency. So when we build, we really took the FINRA 1022 checklist that a lot of brokers use when they do underwriting and due diligence and vetting these things. And so from a documentation preparation standpoint, from a third party integration standpoint, we go above and beyond to set up measures to always protect the investor. So that way the underlying sponsor the fund, when it’s all said and done, you know, they set up a fund, let’s say raises, you know, $20 million. Now, they get access to that by submitting a release request to themselves, and it gets documented. And then that way, there’s third party transparency for investors to always know where the money went, what went into and, you know, knowing the value, and I think, you know, we don’t have a defined system yet. I’m hoping that you know, enough of us doing this the right way will help kind of create a proper guide path. And if we can, as professionals in the industry, that are know both business and real estate Within the Opportunity Zone we talk about, if we understand that, hey, the biggest risk is fraud. And like we briefly just said a minute ago, then if we can stay collected when we talk to our clients, when we, when we know that, hey, this is how things need to be done, we can have a better path to follow and hopefully, avoid, you know, drastic changes. Because if the change if the administration is smart, the changes that are are to come, are only going to incentivize investment into this program even more over the next six months. And you know, the fraud aspect of it, we still won’t know for another two, three years. And that’s a little scary. But I think, you know, if you’re cognisantly aware of it, and that’s the biggest risk going into it, always thinking that hey, just transparency. Be honest right , and you’ll have no problems.

J Darrin Gross 45:51

No, it makes good sense. David, Where can the listeners go if they would like to learn more or connect with you?

David Sillaman 45:57

Sure. You can visit us right online. At Eazydoit.com, eazydoit.com, Eazy Do It. Also, if you’re learning to look into get more educated, they can connect with us on OZfunds.com. If you’re an investor looking for an opportunity fund, we probably have the most robust fund directory available right now ozfunds.com along with an education platform.

J Darrin Gross 46:24

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

David Sillaman 46:34

I look forward to it. Thank you.

J Darrin Gross 46:36

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. CREPN Radio.

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Passive Real Estate Investing with Travis Watts – CREPN #271

Travis Watts 0:00

When somebody first told me about syndications and what what that is, I was pretty skeptical. To be honest with you. I didn’t think that I don’t know. I just felt like, Okay, if you’re buying apartment communities, you’re a billionaire or you’re I don’t know, there’s got to be a catch. There’s got to be something right. And so or or these are real estate, people who have been in this industry for 10, 20, 30, 40, 50 years doing real estate, and this is kind of where they graduated to. That was, those were my first thoughts, right. So I could imagine there’s some folks thinking something along those lines. What I discovered is when I got into this space and started networking with folks, the majority of people who invest like I do in limited partnerships, as a passive investor, are simply highly paid business professionals, athletes, doctors, dentists, lawyers, attorneys, folks like this, right? They have a career, they have a profession, they make good money at it and rightfully so. They don’t want to take their eye off the ball.

Announcer 1:03

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 1:22

Today my guest is Travis Watts. Travis is a full time passive investor. He’s been investing in real estate since 2009 in multifamily single family and vacation rentals. Travis is the director of Investor Relations at Ashcroft Capital. And Travis has invested in over 30 syndications. And in just a minute, we’re going to speak with Travis about passive investing in real estate. But first, a quick reminder, if you liked our show CREPN Radio, there are a couple of things you can do to help us out. You can subscribe, like and share. And as always, we encourage you to consider leaving 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. And you can find us on youtube at Commercial Real Estate Pro Network. And always please consider subscribing. With that on Welcome my guest, Travis, welcome to CREPN Radio.

Travis Watts 2:52

Hey DarrIn, thanks so much.

J Darrin Gross 2:54

Well, I’m looking forward to our conversation today. But before we get started if you could take just a minute and share a little bit about your background.

Travis Watts 3:04

Sure. First thing I want to say is please do go to YouTube and check out our very attractive guest, as you see. So diligently said, Yeah, okay, so sure. My background, basically starts in single family. I got started in real estate the way a lot of folks do, and I bought a single family home. And from there, started kind of trying to scale that model. I did a lot of different things in the single family space. I did some fix and flips vacation rentals, some house hacking some buy and hold. And all the while I was working in oilfield job. So I was working 98 hours a week, 14 hour days, a lot of that was away from home out of state out of country. I worked in the Middle East. So it was crazy, crazy times. But what happened was the more properties I was acquired The more the light at the end of the tunnel was kind of closing in on me and I didn’t see this being a scalable model. I just felt like I’m gonna max myself out at a certain point and that certain point came in 2015 when I completely burned myself out and thought, okay, I love real estate I love you know, cash flow the tax advantages the upside like I get it, it’s tangible touch it, feel it, see it, I just love real estate but I do not love being in the business of real estate managing tenants trying to spend all my my days off finding properties trying to compete with everybody out there. So what I discovered is there is a way to be completely passive in the space and that would be through private placement, investing or syndications kind of layman’s terms. So in 2015, is when I started switching over to passive investing. And over the next several years, I had liquidated my entire single family portfolio I’d gone 100% On the syndication path, and today, I guess I call myself a full time passive investor with the irony that it’s not completely passive because you have to still network you still have to find deals, you still have to do your due diligence, right? So it’s not like I’m just sitting out on the beach. But anyway, it’s been revolutionary. I mean, for my wife and I, it allows us to travel allows us a lot of freedom of lifestyle. And so what I do nowadays is I try to help educate in the space of passive investing to show folks this is a possibility. This is a real thing. And, you know, everybody kind of has their their why or their what, you know, if you had enough money, if you had the financial independence, what would you do with your time and that’s kind of my big message is something I call time freedom. And that’s something that I believe passive investing can give, folks so that’s kind of my background in a nutshell.

J Darrin Gross 5:57

No, sounds like a full plate of investing experience. I started off with one and and how many units Did you grow to? At your peak?

Travis Watts 6:09

Yeah, that’s a good question. So because I was doing all these different models, I constantly had turnover, right? Because some were flips and like the homes that I would buy to rehab that I lived in, I would only do that for two years. And I would be selling them and then flipping them over. So I don’t know I probably got up to maybe like eight or so at any given time. I don’t know how many that I did in total, but But yeah, there was a lot A lot, a lot of work a lot of turnover, a lot of changes, but at the time through most of that period, I was just single with no kids so I thought why not, right?

J Darrin Gross 6:43

Right and were you self managing all of these properties?

Travis Watts 6:48

Yeah, so the first thing that happened when I started reaching out in desperation before I was breaking down, you know, how do I become passive? The first set of advice I got was, why don’t you just hire a Property Manager, right? that’ll solve all your problems. So at the end, I did have a property management company. But quite honestly, it didn’t make it any more passive. I had to manage them. They had to manage the tenants, I still had to make all the decisions. What do you want to do with this? What do you want to do with that? You know, the age back the roof, whatever. So it didn’t solve my problems, but I did try it.

J Darrin Gross 7:24

And were you investing locally or did you deploy a nationwide plan or how are you?

Travis Watts 7:30

Yeah, this was all out in Colorado. I grew up in Fort Collins, Colorado, about an hour outside Denver north and so I had properties all the way from Fort Collins into Denver. So that’s about a 60 mile radius, give or take, and that’s where everything was, and I started feeling also simultaneously. Despite the passive and the active stuff, I started feeling pretty uncomfortable, knowing how much of my net worth and equity I had and just single family in one small All market one small area which granted, Colorado was booming. I mean, it was a great market. I mean that certainly I attribute that to a lot of the success that I had. But I knew that wouldn’t last I knew there’s going to come a turning point. And I didn’t want to just stick it all in one market and wait for that to happen. So part of the beauty of the syndications is investing nationwide, which I do now I’ve got properties in probably, I don’t know, six, seven states. So that’s, that’s nice for diversification.

J Darrin Gross 8:31

Yeah, I think kind of diverse. diversification is key to any investment strategy. You know, if you put all your money on red or Bitcoin or whatever, and and turns out not to be the, you know, the opportunity you thought, you could end up with nothing, so clearly not a good way to go. So you started off, did you say it was 2015 did I get right?

Travis Watts 9:00

So is my transition year where I went from single family active to multifamily passive. Yeah.

J Darrin Gross 9:06

Okay, so so what was the year that you when did you start investing?

Travis Watts 9:11

2009 in September so we were kind of, I’m pretty near the bottom but we and I get you know, everybody says, Oh, you couldn’t have time that better Well, in hindsight Yes, but I remember specifically at that time talking to family, you know, should I buy a home that kind of stuff? A lot of folks are saying no, they’re saying Absolutely not. The economy’s in shambles, like this thing could go down further you might be purchasing something that loses 30% more of its value. Everyone was scared there was a ton of fear at least in my my bubble my network and but I took the plunge anyway because I was ready to get started. I had read years before this, Robert Kiyosaki Rich Dad Prophecy so not Rich Dad, Poor Dad, but Rich Dad Prophecy. All that book really talks me in high school, I think is when I read that ,was don’t be in the stock market. We’re gonna have this big stock market meltdown. That was only like, like advice to anybody, cuz readers have him know, he doesn’t really give advice. So, so I didn’t so I had some money saved up for college. It was actually in stocks. I pulled that out in about 2006 maybe. And I just sat in cash because I knew one day I wanted to do real estate, I didn’t know when and then here here we were 2009 it happened, so to speak. And the government was also giving out of $8,000 tax credit for first time homebuyers. So I’m sitting there running the numbers for myself thinking well wait a second, you know, looking at this house that sold for 165 now it’s 95. I got an $8,000 tax credit, and I got the money for the down payment. I’m like, screw it. You know, at the end of the day, I’ll house hack it. I’ll rent a spare bedroom. I did do that. That ended up paying my entire mortgage. I thought, you know everyone’s got their opinion, but the only one that matters is your own. That was my takeaway.

J Darrin Gross 11:06

No, there’s, there’s real wisdom in that. I think that it’s especially in challenging times, like right now. I’m more and more convinced that nobody knows what’s gonna happen.

Travis Watts 11:18

Oh, yeah.

J Darrin Gross 11:19

Nobody’s we’ve not been here before. I think that everybody keeps trying to draw from past experience and paint a picture of this is where we’re going next. But there’s some compounding variables that I don’t think that everybody fully understands. Myself included. And, you know, I think the best thing you can do is assess. as best you can draw off informations from from various points, test your, your ideas and make sure you’re getting into something conservatively. So that and not risking more than you can lose, I guess, another good point. But But that aside, You know, it’s interesting your timing and the fact that you were able to recognize from a Kiyosaki book which I had not heard of Rich Dad Prophecies. I’ve gotta check that one out. But that you had the idea to get out of the stock market in 2006. I mean, that was still things running fast and up.

Travis Watts 12:22

Yeah.

J Darrin Gross 12:23

So whatever your spidey sense was that encouraged you to get out, I mean, that that sounds to me like you were, you were paying attention or had some sort of a solid reason for getting out and it certainly sounds like a paid paid well for us that you had the money to get into the real estate at the low time. I mean, that’s, you know, that. I also wanted to just touch on another thing you said, when you were asking friends, neighbors family about investing in 2009, and however, But he was saying, Oh my god, no, no, no, no, no. And how, how powerful? And how difficult was it for you to go against the feedback you were getting?

Travis Watts 13:13

Yeah, I think. So if we if we unwind a little further back in my life, I think there’s kind of a lot of this, trying to make a decision for myself, given my own, you know, interests and my own goals. And so I’ve kind of done that a lot in my life kind of so called going against the grain. So I didn’t make the mistake of asking about selling out of my stocks when I did right. Because had I asked that would have been absolutely not. That’s crazy. What do you think and right, we’re in the best bull market ever. But and we got to be frank here. There was some dumb luck to it, too, right? I mean, I’m attributing the fact that I read that book and I took that action, which I did, but who really knew like you said, the more you you study and learn, it’s like, who really knows Kiyosaki, by the way also called for the biggest meltdown ever in 2016. Did that happen? I mean, you know, so you might be right once, not twice. So he didn’t have the crystal ball and he didn’t give a specific deadline either. He just said, it’s coming, right? Well just scare the crap out of me as a teenager. I thought, well, if nothing else, I mean, what it can’t hurt too bad to be in cash. Like it’s not like I’m, I’m spending all my money, right? I’m just sitting on the sidelines. So it worked out. But anyway, my long response

J Darrin Gross 14:36

Well, no, I just I applaud your your action there because I think so often it’s the easiest thing to do is to sit on the sidelines and gather information and and analyze and assess and try and pick your spot and not act. The action is really the the difficult. I mean, that’s the test. Do you have Have the courage Do you have the the the willingness to test what you believe? Test what you you know, you know?

Travis Watts 15:08

Yeah, and yeah.

J Darrin Gross 15:09

And go forward. And you know, I believe and I would, I would love to hear what your thoughts are on real estate. But I would tend to think we’re similarly wired as far as the thought process is that real estate is it’s not I mean, while while the the the meltdown of the 2008 could be, I think probably more easily recognized if you put some hindsight just based on everything was in play. Historically, it’s been a pretty safe bet. As with respects to housing, primary need. It’s not something that you can replace on the internet. Yeah. You can’t go virtual. You can’t. I mean, you may have technology. I mean, we’re starting to see some things with COVID Yeah, effect Where people might live? Hmm, and why they might choose to live in a certain place. But But nonetheless, housing is just a, it’s a it’s a basic need. And yeah, as long as there’s inflation and rent increases, and and, you know valuations and interest rates as long as interest rates stay in a, a, you know, and I, it as long as interest rates stay competitive, and I don’t see how we can get out of this based on raising interest rates, because that affects so much of the consumers willingness to spend money, right. I think we’re, I think we’re locked in these low interest rates. Yeah, for a long time. But I’d love to hear anything you have any thoughts you have on just real estate, and then we’ll get more into the the passive side of things.

Travis Watts 16:54

Sure. You mentioned something earlier, which was spot on you know, like, it’s 2015 I didn’t just gamble and choose a shiny object and say, oh, multifamily, let’s try that out. Like Like a lot of folks do with Bitcoin. I think that’s what you mentioned earlier, right? And so everyone just wants to jump on the latest and the greatest and maybe this is the next big trend or whatever. But instead what I did is I knew my reasons for liking real estate. I already had a level of success there to an extent. And so what I did is I doubled down on the education aspect of real estate and I started looking at what happened in 2008 2009 2010 and multifamily what happened even before that, I started looking at a lot of data and default rates and you know, occupancy trends and all this kind of stuff. And then because here’s why I, I if I’m going to do all that work and all that education and really put everything I have into something more or less right. I want to make sure I can be in that Ideally for 10, 20, 30, maybe even 40 years, and not be losing my ass every 10 years, and starting over and trying to find next latest and greatest. So there’s a lot in what I invest in that there’s a lot backing, right? It’s not foolproof, it’s not recession proof. It’s not a guarantee. It’s none of those things, but value add properties that you’re improving and probably buying at a discount from day one. And the older sector but not too old. So like B class value add 1980s 1990s, early 2000s. I still really like that niche. It’s very affordable for most Americans, but you’re just above the subsidized housing and we’re not talking about section eight we’re talking about the rent is 1000 bucks a month, you know, so most families in America can afford that. And I feel like it’s always kind of a sweet spot. You’ve got that Folks that move down from the luxury a class into B, you’ve got people always improving their lives moving from C and D up to B. And a lot of people just staying put kind of in that so called, you know, middle class standard. And so I really like B class, you know, value add multifamily. So that that was my conclusion to the research that I conducted. And that’s that’s about 80% what I invest in, so.

J Darrin Gross 19:27

So when you you did your research, this is after you’ve already been in real estate, you’re looking on where to go,

Travis Watts 19:33

right when I was finally making that transition to pass it around. 2015 2015 was like books, podcasts, mentors research year. I went pretty crazy and overboard in 2015. So yeah, it was that year basically.

J Darrin Gross 19:48

Okay. And, and prior to that, you were you’re investing in single family doing some flips. You mentioned you had some vacation rentals, huh? And all of that. Can you sum up? The was there a frustration? Was it just the overwhelming you mentioned about the light at the end of the tunnel was getting dark? What What were the things that that were leading to that? Yeah. Which you saw?

Travis Watts 20:16

Yeah, it was all about my time. It was all about my time commitment. So I posted this this video the other day on I forget Instagram or LinkedIn. And it was this, comparing an example between what if you had a single family home that you self managed a rental property that gave you a 15% annualized return just to throw out a simple number, and then you have a syndication and multifamily that’s completely passive and hands off that that gives you a 10% return. On the surface, you’d go well, the single family is a better bet, right? That’s a better investment. Why wouldn’t I just get 15 instead of 10? But here’s the way I look at that. I see that as both of these Pay 10. But the single family home has a 5% Premium that you pay yourself in your time to manage it. So if it’s worth it to you, whatever that 5% equates to overall for the year say it’s, I don’t know, a couple thousand bucks is it worth a couple thousand bucks of your time to be the asset manager basically to go buy it and underwrite it and close it and sign the dotted line and to manage your tenants and to advertise into or whatever, hire property manager and deal with that whole fiasco. So it’s not that one’s right or wrong. It’s just realizing your time value and what that’s worth. And to me, I didn’t have the time. But my time was valued high on my days off because I spent almost all of my life at work in the oil industry. So I really, really valued those days off and when I had to spend them, driving neighborhoods or putting in 20 offers and getting nothing back, that kind of stuff. It was just so discouraging It was my biggest pain point is I felt like I was wasting my life away. So for me, that’s what it was. And that’s what I speak a lot to is kind of the time value and to factor that into your investing.

J Darrin Gross 22:15

No, that’s that’s a point that I think a lot of people don’t recognize. I know myself when I first got in, I was basically happy that the rent added up to the mortgage insurance and taxes had no idea that there was additional expenses coming, you know, like repairs or vacancies or turns are all that fun stuff. So now, that’s, that’s all good. So you made the decision to get into or to get out of the single family and to get into the passive investment. And one of the things that most people are aware of or think about with investing is the ability to To do an exchange, as far as I know, when you go from something you own to something you’re you’re participating in as a passive investor, the the 1031 exchange is not an option available to you, is that true?

Travis Watts 23:16

So, from my understanding, which clearly not a 1031 expert here, but it can be possible, it needs to be a light, kind, you know property and there’s different third party groups that can kind of walk you through the ins and outs of that if you’re interested. I didn’t do 1031’s going from single family to multifamily. And the reason is what I discovered after talking to several people that were doing syndication investing is, number one, it’s common when you’re 1031ing into a new syndication with a new group, there’s often a really high threshold that you have to hit it might be a million dollar minimum five million minimum, everyone’s got kind of a threshold there. So a that could be a barrier for you to that group often won’t offer a 1031 option on the back end of that deal to go into their next deal. So then you might kind of be left hanging again, several years down the road. Now you got to figure it out on your own again and switch to another group, where you have to pay those costs, you have to figure out the logistics behind it, yada, yada, and quite frankly, there there aren’t nearly as many deals in this private placement space as there are single family homes that you could potentially purchase as an investment property. by a longshot. My fear personally, is that I would do one 1031 then another than maybe another now let’s say I’m in my 40s 50s Well, now it’s not going to work anymore. For whatever reason, there’s no deals that I like or the markets changed or something happened. Now I might be stuck with owing $200 grand in taxes. So I never wanted that that unexpected explosion to pop up later in life. And so I’ve never done a 1031 myself, but not to bash it. I know plenty that have my dad has and it’s all great, but for me not a strategy that I do.

J Darrin Gross 25:18

Well, I think too, for somebody that was in a relatively short amount of time, I mean, from 09 to 15, roughly six years. Yeah. You haven’t eaten up a lot of depreciation. Right? I think it it’s something where if if you’ve held a property for 20 plus years, it becomes kind of more of a Yeah, something you’re you’re more attuned to or more you know, sensitive to

Travis Watts 25:44

Yeah. It’s one of those things that I feel like once you get on that, that that treadmill don’t get off. You know, right right I on that treadmill.

J Darrin Gross 25:54

Yeah,

Travis Watts 25:55

That’s the strategy.

J Darrin Gross 25:55

Exactly. Because if you if you maintain The flexibility where you pay the tax, you can port your money, wherever you choose, whether it be into another syndication a stock or, you know, whatever, you’ve got maximum flexibility because you paid the tax. So, and that’s something I think that there’s a, there was a point it took me a while to fully understand or recognize the why because I had always been kind of had kind of a long term view of real estate, as opposed to the value add kind of thing where you you get in and prove it and prove the value and you make your profit on the sale.

Travis Watts 26:11

Yeah.

J Darrin Gross 26:15

So it’s just, I think it’s just a it’s a line that people need to recognize the difference. And, and that’s, that’s about the some of that. Yeah. So, okay, so you, you you make the decision you get into, I mean, you’ve made the decision that multifamily is the space you want to be in, so you’re no longer driving for dollars. No longer spending all these hours making all these offers, you know, getting no deals kind of being frustrated. How How did you underwrite the deal sponsor that you selected to invest with?

Travis Watts 27:19

Yeah, that’s a excellent question. And quite frankly, I had it backwards when I first got started in syndications. And I put way too much emphasis on the deal itself, the Proforma, the projected returns, the the, the what ifs, the possibilities, the dreams, and I did not put near enough emphasis on the sponsorship team, the general partnership, and at the end of the day, obviously what I’ve what I’ve learned here over the past few years, is it’s it’s everything about the team. It’s everything about the execution of the business plan. It’s that team’s track record experience and capability executing what they say they’re gonna do. So how do you how do you know? Well, you’ve got to ask some questions, you’ve got to look at some data, you’ve got to check out their past performance. I mean, there’s things that you have to do proactively. So the the hierarchy that I give it is the team and sponsor the market, believe it or not, I say a second. The deal is last. And and I’ll give an example that I that Hi, that hierarchy, My belief is two out of three should do pretty well for you. Overall, I worked with a sponsor that was quite frankly, just no good and in one deal, and they did everything wrong. They made every mistake you could make, but they bought a great deal, a great property in a great location and a diversified job market and a growing time in the market. I mean, the market was just stellar, right. And so the deal in the market were in place, but the sponsorship team was just horrid, but we ended up crashing profitable and just about hitting our projected return, believe it or not, and that was incredible because I was so scared, I thought these people are gonna run this into the ground and it just and it didn’t. So they’re all important. But at the end of the day, I’d rather work with a very experienced competent group doing just a mediocre deal because they’re going to make it happen at least I’ve got a little more certainty around that. So you want to start with your criteria to answer your question more specifically, I had to write down my criteria I like value add the class multifamily and these particular states you know, whatever I like, monthly distributions monthly reporting. I like you know, great communication, good transparency, like whatever. I had a big list. And and I still do, but I don’t know what it was back then. But, and then I went seeking groups doing that, you know, and so yeah, that’s how I initially got affiliated with Joe Fairless and with Ashcroft was a friend of a friend introduced me. And it was just after I wrote down all of my criteria, and it turns out, they do 100% of what I’m looking to do. And so it was just that alignment, and it’s been a great partnership. So that’s most important. You just want to get along with these, these folks trust them, and know that, that they can do it, that they can do what they say they’re gonna do.

J Darrin Gross 30:26

No, I think there’s there’s a ton of value in what you just shared there because I think that investing by nature lends itself to returns, the expectation of returns, and more is better, right? But I think one of the things that’s often overlooked is the risk to get more and not fully understood. You know, specifically I think and cap rates Just as a, an easy example, I think that most people would look for a higher cap return. Not understanding that that cap rate pretty well predicts your ability to exit the investment. If you have a really high cap rate, okay, who’s who’s coming in behind you to buy that? Yeah. All right. Whereas if it’s a it’s a very low cap rate, that says that there’s a lot of competition and a lot of people want that property. Yeah. And that market that you’re in, so I think that there’s, there is kind of that you know, I guess it’s just more of an education, more of a full understanding of, of what the numbers represent, what your goal is, and how achievable is that goal. So that you can, you can hit the number and, and you know, still have your principal now. Put your principal at risk, right?

Travis Watts 32:01

Yeah. Number one for me that preservation of capital. So,

J Darrin Gross 32:05

Yeah, it’s it’s something that I think when you have nothing I guess there’s also the flip side that if you have nothing, all this doesn’t doesn’t matter, but if you’ve if you’ve accumulated something, it becomes much more of a concern. And, you know, it sounds like I mean, clearly you’ve you’ve whether you say it was luck in 2006, you got out he had some money, you know, you put that to work for you in real estate, you grew that you got frustrated. You got that out, and now you’re putting it in, in picking these passive deals. I’m assuming that you’ve, you’ve done well, I mean, even when, you know, you talked about the one operator that you were invested with that in sound like they, they were good at what they did, but they got lucky on market and a property. Everything’s gone up for you. Fair enough. I mean,

Travis Watts 32:59

With the exception Here’s one thing I’ll point out, I did at one point, take my eye off the ball, so to speak. And I, you know, I didn’t, I never want to have 100% of my portfolio in one asset class or with one group or in one investment or anything like that. So I allocate 20% of my overall portfolio to experimenting. I’ve done some self storage, some ATM machine investing some first lien notes, you know, some distressed debt funds. I have a lot of stuff in there, and it’s hit and miss, but I’ll give you a story of where I really kind of screwed myself. I, I had every reason to be doing this multifamily stuff. I’ve done my homework done my research. Well, I’m in part of I’m in a lot of investment groups, but I’m in a pretty big one out in Colorado, and there was a presenter, they’re doing this new fund of distressed debt. And a lot of people were investing with them and they didn’t have a huge track record, but I kind of let all my criteria fall to the side and go well, I’ll give it a shot. Put in way too much. And about a year and a half in one of their partners in this fund. That was not the people I did my due diligence on it was someone out on the East Coast doing their own little thing, but they were part of this fund ended up being a fraud. And so we all lost like 35% initially right off the bat of our total investment, and then now it’s trickled into be probably closer to 50%. So I lost a lot of money, you know, and that’s the Bitcoin example. And it scares me to death when people reach out to me on social media and say, do you want to I’m a Bitcoin trader, do you want to buy my program or whatever? And I asked him, What kind of returns are you getting? And they’re like, Oh, 300% a week, you know, it’s, you got to understand your risk profile and you got to understand reality. So that was my hard lesson learned. So.

J Darrin Gross 34:52

Well. Your, your lesson clearly cemented kind of what we’ve already talked about is Your priority priority one is the sponsor. Right? There’s right if there’s if there’s no credibility from the sponsor, right. The rest of it is really up to, you know, the shifting sands or the blowing winds. And, you know, I think, you know, sadly, I say, sadly, I think part of life is learning from experience. I know, my parents used to always say, Well, I could have told you, you know, and, and, you know, I, a lot of the lessons that I’ve learned that are so indelible are based on mistakes I’ve made. Yeah. So I think it’s, it’s a, it’s good to note that mistakes are going to happen. And even in some of these these best, most vetted cases, there are no guarantees correct. And even in this market, we’re in where we’ve already talked about, nobody really knows how this could play out. There will be lessons that are learned from this, this experience. That we can carry forward and apply to the next one, but the next one will be different than this one. So it’s it’s a constant trying, you know, get the information you know, make assumptions based on educated guesses based on experience and, and others and that shift to constant. So, it sounds to me like you’re a fairly would it be fair to say that you don’t want to be a control freak, but you’d like control?

Travis Watts 36:35

Actually, I would say a little bit of the opposite because I had no problem relinquishing control to do these passive deals. And I realized that what I was doing actively when I had full control, wasn’t that great and there was people all around me doing it better. So I would say that for the for the folks that really love to have control and they have to make decisions. And they have to you know where that the syndication space may not be a great option or you want to limit your exposure there, because you really are at the discretion of other people to make decisions on your behalf. So I don’t have a problem with finding a trustworthy individual that I personally believe in and trust and saying, You clearly can do this better than I can, here’s some money. You know, and that’s kind of my approach with it is I don’t think I can do any better personally, nor do I really want to, and so it’s a good match for me. So So now I would kind of say the other way with that.

J Darrin Gross 37:38

Well, in maybe I misstated that I guess what I was picking up on was the aggravation level that you were having in the beginning. And and then even you mentioned some anxiety about the the one investor that that was not good at anything. And now that that, you know, I can see like, Oh my god, oh my god. Yeah, yeah. Okay guys fine. So, but no, I think, to the, to the flip side of that the fact that you you are willing to turn your, you know, invest with others. And even, you know, the ones where you’ve had some some experiences or you know, some lessons learned. You know, you have your criteria and and you define that. And I guess my question is, when when you define that? How did you go about gathering the information sorting that what were you relying on? or How did you, how did you? Were you reading books?

Travis Watts 38:40

I’ll share with you something and for your listeners that I’ve done for a long time. It’s just kind of my own little strategy or philosophy here. So I don’t like to listen to any one source and then say, that’s the way it is. I agree. 100% I’m done listening. I’m done learning. That’s how it is. I like to answer I’ll read a book, say real estate book and it says something about real estate always do this. Okay, cool. I’ll take a note of that. I’ll read another real estate book. And if I happen to see commonalities, ah, two people say, absolutely do this, okay, there’s, there’s probably something to it. And I keep reading, but I’m an avid reader. I’m an avid educator. So, you know, after I get to 2, 3, 4, or 5 sources that are all kind of agreeing, like, here’s the general consensus, we all kind of think this. Then I implement that into what I believe or what I think and so the same goes for anything. So before COVID happened, I was going around nationwide to conferences, big multifamily and real estate networking events. And I’m talking with hundreds of probably thousands of investors. And something I did initially to well not initially right after initially, to start finding who I wanted to invest with, is asking people, who do you invest with? What is your experience been? And as I started hearing certain names of certain groups pop up over and over and over, and I started picking up who are the key players here who’s really in the space. And that’s who I I ended up investing with, and in most cases, so. So anyway, that’s kind of how I approached it is finding multiple sources to say basically the same thing.

J Darrin Gross 40:27

Well, it makes sense. You know, you do educate yourself, you get reinforcement to, you know, what’s that old saying? If you, you hear hoofs, don’t think zebras. First I mean, there’s just kind of that the you get the information, you keep getting confirmation. You know, you can try and go all the other ways. But if, if all the tried and true is, you know, had in this one direction And it’s proven or the experience has been mostly positive, it’d be hard to argue otherwise. So Travis, let me ask you so your experience you basically you were active, you made the decision to go passive. Who, who do you think? Or I guess if somebody listening, yeah, is currently trying to do it on their own. And they are reaching the frustrations. What are some, some frustrations that you would encourage them to look for? At and compare that to what your experience has been on the passive side?

Travis Watts 41:48

Sure, sure. And I guess I’ll start answering that with with just this realization that happened that was totally unsuspected from, from my standpoint, when somebody first told me about syndications and what what that is. I was pretty skeptical. To be honest with you. I didn’t think that I don’t know. I just felt like, Okay, if you’re buying apartment communities, you’re a billionaire or you’re I don’t know, there’s got to be a cast. There’s got to be something right. And so or these are real estate, people who have been in this industry for 10, 20, 30, 40, 50 years doing real estate, and this is kind of where they graduated to that that was those were my first thoughts, right. I could imagine there’s some folks thinking something along those lines. What I discovered is when I got into the space and started networking with folks, the majority of people who invest like I do in limited partnerships, as a passive investor, are simply highly paid business professionals, athletes, doctors, dentists, lawyers, attorneys, folks like this, right? They have a career, they have a profession, they make good money at it, and rightfully so. They don’t want Take their eye off the ball, right, they want to keep doing what they do for money. And then they need a place to park some capital, maybe they don’t want to put 100% of their, their capital into their 401k or into the stock market. So this gives an alternative to that. So, so that’s one thing. The other thing is in and so those are the folks that love their careers and want to keep doing them and just need a place to park capital. The other side of the coin is more like myself, who’s out there doing everything on my own, being active, grinding it out working a career that I hated, working a lot of hours, basically, I just wanted to leave that job. That was one of my biggest motivators. And when I realized that, you know, first of all, I’ve always been an avid saver. I was raised by two very frugal parents, right. So I’ve always had this like crazy over the top savings rate, you know, 50% Plus in my income kind of stuff. And so I was parking all of that into real estate in one day I sat down this is the first time I guess I’d actually sat down and calculated more or less my network. I thought, okay, if I, but I did in a weird way. I said, if I sold everything if I sold all my single family homes, if I sold the house I lived in, if I got rid of all this crap, I paid all the tax and the penalties and all this, what would I actually have leftover, right? I was like my real raw networth. I said, Okay, if I took that number, and I put it to work passively, with like a conservative cash flow amount, that would be my projection number. What would that amount to? Well, what I discovered was, it was enough for me to leave that job. And there couldn’t have been a bigger motivator at the time. And so that’s really what prompted me initially to pull the switch. And it wasn’t until later that I really started discovering this this time freedom concept in this. You know, the first thing I did is went to I went to worked for a brokerage firm. So I wanted to learn stocks, bonds and mutual funds. And it was just literally self interest. I could care less what my salary was I wanted to learn that was something I actually just wanted to do. And I ended up not liking it. So I went to go work for syndication groups, because as you know, I mean, that’s where I was transitioning into that world. And I thought, what better education than the work from the inside of this, and then be investing in it. So that’s kind of how it evolved. And I thought, this is cool. I have an ability to pivot careers, I have the ability to work part time or full time I have the ability to move. And that’s the thing for people this has nothing to do with me. By the way, I’m painting this picture to say that passive income when your passive income exceeds your living expenses, that gives you this type of freedom to make these different means or go to church more, be more charitable, spend more time with your family, traveled the world, whatever it is for you. Everyone has their wives we talked about earlier, but Yeah, that’s that’s the purpose. That’s the bigger picture here is that it doesn’t make much difference for most people to have 200 bucks a month passive income, that’s not necessarily going to be life changing for most people, but when you have 5000 a month or 6000 a month now it starts to be a little bit of a game changer, you can make a lot more but you know, positive changes in your life in different areas.

J Darrin Gross 46:24

No, I think that’s that’s a good way to kind of summarize the passive income, you know, that’s the goal is to to have more than your expenses add up to. So that’s good. Hey, Travis, if we could, I’d like to shift gears here for a second? Yeah, as I mentioned before, by day, I’m an insurance broker, and as such, we do risk management with our clients. We typically consider a couple of different strategies. First, we look and see can we avoid the risk? If that’s not an option, we’ll 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 space, and how they work with their clients, and consider what they or explain what they consider to be the BIGGEST RISK. Sure. And for clarity, I’m not necessarily looking for an insurance related answer. But if you’re willing, I’d like to ask you, Travis Watts, what is the BIGGEST RISK?

Travis Watts 47:39

I would say the BIGGEST RISK in passive investing to me is partnering up with the wrong team. It can be disastrous, as we’ve talked about, but, you know, if you can’t execute a business plan, specifically if we’re not talking about value, add real estate. So say we’re talking about new development new construction, it can be a very bad scene. So I would say you’re aligning yourself with the right folks picking the right partners and doing your due diligence up front to mitigate those risks. And in the deal itself, you’re looking for a sponsor or or yourself if you’re doing your own deals to be as conservative as you possibly can be. You mentioned earlier on the call cap rates, you know, on real estate. So if you’re buying something at a five cap, you should be and you’re hoping to sell it in five years, you’d like to see a higher cap rate down the road, right? Maybe you project a sell at a six cap, you’re just being conservative in case the market softens in case COVID ends up being a, b, c or d. You’re using your best judgment to mitigate risk that way. So those are kind of the to two part question. Two part answer.

J Darrin Gross 48:57

Oh, that’s that’s good stuff. Travis, I can’t say thanks enough for taking the time to talk today. But before we wrap up, where can listeners go if they would like to learn more connect with you?

Travis Watts 49:15

Sure some that we didn’t talk about in as it pertains to that. I spend my weeks on these 15 minute, completely free no sales pitch q&a calls because I do a lot of videos and blogs and podcasting, a lot of folks have questions as it pertains to them specifically. So if you want to sign up for a free 15 minute call with me, literally free, no obligation, or I have a downloadable guide. It’s called Understanding Real Estate Private Placements. It’s about a 20 page downloadable guide. Both these are free and you can get them at AshcroftCapital.com/connectwithTravis and whether you just want the call or or the guide or both. That’s where you can go additionally, I’m on Instagram, LinkedIn, Bigger Pockets, Facebook, all these things, the the symbols @passiveinvestortips. And so I push a lot of content out there too and you know, everything’s free and just a resource to help others so feel free to connect if I can help in any way. anybody listening.

J Darrin Gross 50:23

Awesome. Travis, like said, I’ve enjoyed it. Hope we can do it again sometime soon. And stay well.

Travis Watts 50:34

Thank you for having me, Darrin. I really appreciate it.

J Darrin Gross 50:36

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 CREPN Radio.

Announcer 50:55

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Credit Unions for Commercial Real Estate Loans with Mark Ritter – CREPN #270

Mark Ritter 0:00

We’re looking for people who want first of all want that relationship with your institution, that we can have a conversation and get to know who you are and you’re, who you are now and where you’re looking to go. And we really focus on the real estate side on three major buckets. You know, about a third of our business is that residential real estate investor. The other piece where we do a lot of is that owner occupied small business. And and the third bucket that we love, is that just a straight up commercial real estate investor. Maybe you have some some different projects that are credit worthy, but there’s an explanation behind them. We’re good where we can talk to you on that piece.

Announcer 0:47

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, Property Manager, attorney or accountant, we’re here to learn from the experts.

J Darrin Gross 1:06

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 insight and experience to help you grow your real estate portfolio. Today, my guest is Mark Ritter. Mark is the CEO of MBFS and an expert in credit unions, real estate investment lending and small business lending. His primary role at MBFS is leading company efforts to assess assist credit unions and making commercial loans and helping businesses and investors. And in just a minute we’re going to speak with Mark about how credit unions are a force you should not overlook when financing your commercial real estate.

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 as always, we’d love to hear from you please consider leaving a comment. Also, if you’d like to see all handsome our guests are, be sure to check out our YouTube YouTube channel. And on YouTube, we are Commercial Real Estate Pro Network. And if you’re inclined, please consider subscribing. That’s always the challenge, try and grow the subscription and appeal to more real estate investors. With that, I want to welcome my guest, Mark. Welcome to CREPN Radio.

Mark Ritter 2:48

Thank you for having me looking forward to the conversation.

J Darrin Gross 2:51

Likewise. And before we get into the meat of the conversation Mark, if you could take just a minute and share with the listeners a little bit about your background.

Mark Ritter 3:03

Sure. Like you said, my name is Mark Ritter. I’m the CEO of MBFS. And we are a company that’s owned by 13 credit unions and work with credit unions all throughout the East Coast. I’ve been involved in quit credit unions for close to 20 years now. And it’s just been involved in business lending, when this was a twinkle in somebody’s eye in a microscopic level of business out there, and it hardly even existed. But before that, I was a, you know, a banker work with different companies consulting with banks,. But and then grew up in Pennsylvania, lifelong Pennsylvania, nate. Resident other than a few years down south, and a graduate of Penn State where I root for those Penn State Nittany Lions.

J Darrin Gross 3:57

All right. Well, the Credit Union I grew up my dad was a banker. And I don’t know what the nature of was, but I know there was maybe it was a competitive thing, or we’re better than you kind of a thing I know. And in our house, there was always this nature of the distinction between banks, savings loans and credit unions. And I’m wondering if you could take just a minute and distinguish the difference between the the credit unions and the other lending institutions?

Mark Ritter 4:35

Sure. And it’s, as you said, there’s a long history there between banks and credit unions, and I try to stay out of those battles just because I let Congress worry about those more than anything. But when you walk into a credit union or meet with your local credit union representative, it looks and feels just like just about any Mainstreet financial institution. We have checking accounts, we have credit cards, we have car loans, and mortgages and investments and all those types of things that you have. But really what is different from that underlying structure is what a credit union is, is a cooperative. And it’s owned by the members, just like any other cooperative business. It’s run by a board of directors who have who’s elected by the members of the Associate of the of the organization. And really the profits, you know, kind of go back into helping make it a stronger organization. So what and and credit unions have, it used to be, you know, maybe when you were growing up, it was the local teachers credit union, or the local factories credit union, and they really tended to serve just that tight knit group. Unless you were an immediate employee there. But it you know, you probably couldn’t join, but that’s probably been the biggest change in the past 15, 20 years is that credit unions are much more open to people from wider groups. And what happened about 20 years ago, is so many people had credit union relationships. Well, and then maybe as they progress their life, they open up a business, they open up, start buying real estate, and they have this nice relationship. But they couldn’t help out their credit union. So the law was finally changed that allowed that to expand and be open. So but yeah, that so that’s kind of where we came into play and started building this up. But yeah, that was you know, when you look at it the same day, I hate to say it’s commodity and sometimes commodity products are very boring. But really, you know, we look at it as that co operative difference helps makes that the culture of the credit union network. A little bit different. It’s nice to work in an industry where nobody’s out there protesting on the streets against their local credit unions as evil people. We’`re usually considered the good guys in this business.

J Darrin Gross 7:12

I can say from personal experience, you know, I’ve used banks, savings and loans, and I have actually have a commercial mortgage through a credit union. And I was pleasantly pleased at how easy and personable it felt, you know, they’re easy to deal with and personable and and I can’t say as a user, that there’s any distinguishable difference as far as the look and feel like you mentioned. So I would, I would agree that So you mentioned 20 years ago, laws change. What what was it? congressional act or changed?

Mark Ritter 7:57

Yeah, they’re the it actually rolled back into the Federal Credit Union act, that it did two things. It it really made it clear that they wanted to open up the membership to multiple organizations or larger communities and allow different groups, many different groups to join into a credit union. And that’s why you see, you know why a lot of credit unions that you probably drive past in your neighborhood, if you really wanted to, you could probably go in and open an account. So that opened it up. And then in conjunction with that, they also opened up the commercial lending function, where it used to be very, very tightly regulated to the point where it’s almost impractical. So and that, like I said, that was about 20 years ago. And when I got into credit union business lending, you know, here in Pennsylvania, we had $13 million in credit union commercial loans among every credit union, and almost all of that was for Amish credit unions. So is a real narrow niche and hardly ever done. And today we have billions just here in Pennsylvania and credit unions, you know, each year we’re funding about 25 billion in commercial loans.

J Darrin Gross 9:16

Well, it’s great, great growth. Are you finding that that real estate investors are more regularly thinking of credit unions for commercial lending?

Mark Ritter 9:28

You know, that’s actually our biggest challenge is being that Top of Mind choice. You know, when you drive past your community bank, when you drive past the regional banks or the big banks, they all know that it’s a choice. But credit unions in the United States have over 100 million members. So really, you’re talking about a third of America belongs to a credit union, but they just don’t think to maybe put that you know, when they’re in the market to should go to that same place where they already have The relationship. And as you probably know, it’s it’s some of the easiest places and best places to get the terms or where you have that in show have that established relationship. So really getting people to expand. Now not every credit union does commercial lending. So sometimes maybe they have that membership at a credit union, but they don’t do it. And they think, oh, credit unions don’t do that. Where in fact in the truth is maybe they just have to shift to somebody else down the street or in the region. And that’s really where we help out is we’re kind of an aggregator for credit unions being owned by credit unions helping drive the business. So and sometimes credit unions are relatively small institutions, compared to you know, your regional banks. So being a cooperative industry, we basically partner credit unions together. You know, this year we’ve done deals over $20 million You know, that’s the anomaly some, you know, our average deal, maybe is a small balance real estate deal. It’s very common to do deals of a couple million dollars in size. So but but maybe that local credit union can’t fund the deal themselves. So but but it’s a very cooperative industry that works together for real estate investors.

J Darrin Gross 11:22

So when you say your your average deal size you mentioned, you know, a lot of the small balance real estate stuff. Are you guys actually do you hold the paper or are you is kind of a, you put it through Fannie or Freddie or?

Mark Ritter 11:39

Credit unions hold all their own paper, okay. They really don’t sell off to agencies. And I hate to say it, but the best years for credit unions are typically after a recession because credit unions, you know, they can sit down and talk with somebody about their transaction and make that decision based off of the facts. And credit unions are also after during a recession or tougher softer times are flush with cash. So they’re looking to make loans and they’re looking to have those conversations with real estate investors so that they can get that deal done. Whereas maybe a larger institution tends to have a box and if it’s in the box, that’s great. And if it’s out of the box, it doesn’t work. Where where somebody in our in our industry can sit down with the decision makers and they can sit down to the investors can sit down with the people behind the money.

J Darrin Gross 12:42

Yeah, I have to say from personal experience, the lending was fairly simple. With a credit union. I presented you know the the property in this case Kind of my estimates based on all the expenses, I was able to show the debt cover ratio. You know, and it was basically, I don’t remember the exact but I want to say that presented all that to my, I still call him a banker. But the person I worked with that credit credit union, and he presented to the loan committee and and you know, it was very shortly thereafter I got a call saying when you want the money,

Mark Ritter 13:33

It, they tend to be a much flatter organization where that person that you talk with and working on the transaction isn’t that far removed from the senior executives, so that everybody knows that conversation and they’re looking for those relationships to make that first deal and in the future?

J Darrin Gross 13:55

Yeah, and then even even kind of what’s been demonstrated during this COVID crisis, I’ve seen just the value of those relationships and the ability to have a conversation. You know, and to, you know, whether it be rents or whatever the, the, the concern might be, if there was any issues there, there was somebody that was available to talk with, as opposed to an 800 number, or on hold or go to the website kind of thing. That’s good. So what what are some challenges you find on on connecting with investors to make them, you know, recognize the opportunity with a credit union?

Mark Ritter 14:49

You know, what, once we usually get over that perception and choice, you know, then it’s a fairly easy conversation because what we’re selling is what a lot of people are looking for in that they people like that connection, they want those relationships directly with the lenders. They don’t want to be merged through another institution and then move down the ladder. But there’s over 5000 credit unions in this country. So and maybe, you know, maybe a quarter of them are really active hardcore lenders, some of them just dabble. Or maybe there’s, they’re too small for this. So sometimes people have to weed their way through and find that nice fit for them themselves, and not just kind of judge that first institution that they say and say, oh, credit unions don’t do that. Much like banks, people tend people tend to lump credit unions into this homogenous bucket. Whereas maybe they don’t do that with a bank. You know, they think oh, credit unions don’t do this, or credit unions, this is how they do things. When in reality there, there are many different distinct financial institutions. In many of the metro areas, you know, their billion dollar plus institutions, which people don’t think about, you know, the largest in the country is over a billion hundred billion dollars in assets. And people don’t, you know, people still think of them as their credit union that’s on the corner of the street. So getting over that perception and making us a choice is the by far the hardest part of our job. Because credit unions tend to be friendly on fees, they tend to be friendly on terms. Federal Credit Unions can’t charge a prepayment penalty. And that’s part of that’s in the federal Federal Credit Union act. So things like that, that make us very friendly. You know, that’s good. But get making a choice for somebody who may be the more you’ve been in the more real estate You’ve had, the longer you’ve been in it, maybe when you started out credit unions weren’t an option. But now we are.

J Darrin Gross 17:07

Yeah. And you mentioned the loan size. It didn’t sound like there is really a limitation on that. Can you speak a little bit to kind of the range of loan able to do?

Mark Ritter 17:22

Well, and that’s what’s nice with us being owned by many different credit unions and working with them. We do deals, maybe it’s the first property you’ve wanting to buy, and kind of get your toe get your get your feet wet in their toes in the water. We do those types of loans and help build some small ones. Plus, we’re in some major metro areas and do large scale traditional cre deals up to 15,20, $25 million. That you never would really think a credit union could be in the ball game of we’d like to be a lot of things to a lot of people. We do your know your multifamily. We do owner occupied real estate. You know, credit union, like we we tend to be what I’ll call Main Street and community lenders, when you say what do we like to do? Well, they like to do what’s in their marketplace to help out their community. That’s what they like to do. So and that’s, that’s a nice experience, as opposed to some financial institutions where you say, this is my box and it’s either in or out.

J Darrin Gross 18:30

Yeah, I think the box underwriting is kind of one of the hazards of the bigger, bigger institutions. And especially the more computerized things get, you know, if it’s a computer making a decision based on some preset parameters, I’ve seen, deals that make sense to me not make sense to the larger system. And, you know, so whereas, versus the ability to have a conversation with somebody and lay it out and talk through it, it seems like there’s a, an opportunity there. If somebody is having a challenge, you know, trying to get a loan from from a lender. Can you make a suggestion or is there is there a good? Is that a good time to say, you know, what about the credit union?

Mark Ritter 19:35

You’re exactly right. That what if you if we really strive, you know, our products are nice, but my dollar spends the same dollar as everybody else. If you’re having trouble having those conversations, if you’re looking for more of that relationship where somebody can come out and see your property and your project and talk through it, and meet with the credit team, and meet With the credit decisions, you’re a good fit for a credit union. If you’re, if you’re just looking for corporate, you know, here’s the box, this is what we do. That’s it. Well, now maybe we can see if we can help. But maybe there’s other people out there who can do it the same as everybody else. But But yeah, that that’s a perfect example of who we are and what we’re looking to do. You know, in today’s world, credit unions are funding loans. Despite we’re actually back in June, we were back to funding loans at the same pace we were prior to the pandemic. Do do we ask a couple more questions? Absolutely. You know, we’re stewards of our members money and for the institution. So we want to make smart decisions, but we’re making those decisions and out there making money and making loans for people to put to push it out there.

J Darrin Gross 21:00

Let me ask you about rate. I think one of the things that that I’ve seen happen a lot when I speak with real estate investors, and it depends a lot on where they’re coming from, if they’re, they’re used to getting a home loan, and then all of a sudden, they’re they’re trying to buy a piece of commercial real estate. And there, they’re used to having that conversation with the advertised rate. And, you know, thinking that they should have, you know, a certain rate, but not understanding the difficulty to get that rate for the type of product that they’re, that they’re looking for. Can you speak a little bit to that? Because I think that’s one of the things I found that, that when I talk with people, they their perception versus what they really wants the money?

Mark Ritter 21:49

Yes. Yeah. And where we sometimes struggle the most with is maybe that newer real estate investor or somebody who’s in the residential space. Looking for that same transaction that is that they have on their home, even though you’re buying a home or you’re buying a two unit property, it’s not the same. You know, we’re not selling these loans on the secondary market, it is a little bit more work. But it is a little bit higher of a rate. We try to be competitive on the rates and do things that are fair for the membership and for the borrower. But the rates are certainly certainly in line with what you see everybody else. The one thing that we’re that we’re proud of in the credit union is that we are lending our own money. You know, we’re not borrowing against it or hedging it. And so so we have more flexibility since it’s the credit union’s own cash to manage that relationship as it goes on. You know, this, as I mentioned, we didn’t have we don’t have a prepayment penalty. And that’s by that’s by design for federal credit unions. So when rates plummeted this year, credit unions could modify and even last year, credit unions could modify their loans down. Because it’s really that internal borrowed funds. They didn’t borrow and match funds against it and have a yield premium that they have to maintain where there’s a penalty on the back end. So with our flexibility, being a cooperative structure allows us to be fair on rates not just at closing, but as your pro as your project progresses in the future.

J Darrin Gross 23:39

Want to ask you a little bit more on that your money versus borrowed money. My understanding is that most banks, again, this is kind of a very basic description, but based on what they have on deposit, then they’re able to borrow at the federal level. And then that’s the money they they lend out. And based on the rate, that they can borrow the money, then they increase that rate to when they lend it out and set spread on that is essentially the way they’re they’re making their their fees. Is that not the case with credit union?

Mark Ritter 24:22

A credit union, almost every dollar dot, there’s a couple rare exceptions out there. But in today’s world, if for every dollar of credit union deposits, usually about 85 cents to 85 to 88 cents is lent out to borrowers. So it is indeed it’s not borrowed funds, where they have a note to pay. It is just internal funds that they’re lending against, based off of the deposits of people that have accounts at the credit union. So they’re not beholden to secondary markets, third party investors, other loans that they have out there to their people. It’s really they can just sit back. And you know, and unfortunately in today’s world, those deposits don’t pay a lot. You know that that’s the nature of the beast. But that also bleeds through to credit unions being able to have be much more flexible in the money that they lend out because it is indeed a cooperative structure of that money that’s in there. That through everybody’s accounts, that’s the actual dollar that’s being lent out to two real estate investors in small businesses.

J Darrin Gross 25:40

Hmm, I didn’t, didn’t know that, per se. I guess I hadn’t really thought it through. But that’s that’s interesting, because that’s always been kind of the model that I thought of a bank worked on. But clearly realized as of late, that that’s not the case at all. The banks or banks are basically, you know, they really don’t want cash they want just enough so they can borrow more. So they can lend more kind of thing. That’s the nature of them. Well, that’s, that’s good stuff. I appreciate you sharing that. And, and so if you were to identify a, a prospective, ideal borrower, could you sum up what a, what a good candidate for a credit union would be based on the loan size and the property type?

Mark Ritter 26:39

Sure. And I hate to give a broad answer, but we, you know, we deal with a lot of broad people, we’re looking for people who want first of all want that relationship with your institution. That we can have a conversation and get to know who you are and you’re, who you are now and where you’re looking to go. And we really focus on the real estate side on three major buckets. You know, about a third of our business is that residential real estate investor, maybe you have two units, maybe you have 100 units, maybe you have 200 units, we have a lot of relationships where people you know, they’re in that business of the residential real estate side. The other piece where we do a lot of is that owner occupied small business and I would call in that segment usually we’re, we’re in that small balance commercial real estate, maybe we’re under a few million dollars, you know, and it really we deal in Center City urban areas and we deal with small town America. So so we’re willing to go in those secondary markets a lot more.

And and the third bucket that we love, is that just a straight up commercial real estate investor. Maybe you have So some different projects that are credit worthy, but there’s an explanation behind them. We’re good where we can talk to you on that piece. You know, we’re not looking to finance a Manhattan skyscraper, but there’s a lot of apartment buildings and office buildings and medical offices. And, and maybe that average sized in your portfolio is two and a half million dollars. We do those all day. You know, like I said, and we do some bigger ones, and we’ll do some smaller ones. So and what we tend to do is, you know, not all credit unions are homogenous. So we tend to talk to our people and try to match them up with somebody in their area that’s lending that fits the scale on who they want to be and where they want to go in the future.

J Darrin Gross 28:49

No, that’s great. That’s great. Hey, Mark, if we could, I’d like to shift gears here for a second. I mentioned to you earlier by day I am an insurance broker and such I work with my clients to assess risk and determine what to do with it. And there’s a couple of different strategies we typically consider. The first is we ask, can we avoid the risk? The next one we ask is can we minimize the risk? And if we cannot avoid nor minimize the risk, 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? And I’m looking for is kind of you can take a look at what your your clients and or your business across that, that spectrum. And just to be clear, I’m not necessarily looking for an insurance related answer. But if you’re willing, I’d like to ask you, Mark Ritter. What is the BIGGEST RISK?

Mark Ritter 30:00

As a lender and people who like to lend money for your real estate investments, my BIGGEST RISK that we come across is is it is kind of nothing to do with real estate. It has to do with the people behind it. When loans go bad in our cases, the vast majority of time it has to do with the people behind it. Maybe you had something go on in your personal life, maybe you you had that vise that you have to get taken care of. Maybe sometimes enough that some things are never enough, where you you can’t put the brakes on your growth. And because what happens is maybe when that personal life is out of whack, whether it be a whether it be a substance, whether it be some values, whether it be too much spending is that tends to cause people To make take too much risk in their commercial real estate business, where their margins and and window of error is much tighter. And then as soon as there’s a bump in the road, things start to snowball. So we really that’s why to manage that risk, we really want to get to know the people behind the transaction as much as the transaction itself. Because, you know, if we have good people who manage their personal life and their expenditures, all right, in a good manner, then all that then you’re much more prepared to manage the risk in your commercial real estate life.

J Darrin Gross 31:45

Makes a lot of sense. kind of messy life can turn to keep it all contained there. That’s, that’s, unfortunately, it’s true. But I think that, you know, I know as an insurance broker, there’s a lot of those types of questions. We look at as well. And, you know, they don’t always present themself up front. But usually there’s some clues. When you get to the claim, you know as to whether you could see it coming when you put all the pieces back. When you look in the rearview mirror and see all the pieces there so I can appreciate that. Mark, where can listeners go if they would like to learn more connect with you?

Mark Ritter 32:26

Sure. The easiest if you’re a real estate investor and want to get connected with a credit union, you can reach out to us at mbfs.org mbfs.org. And if we don’t have a credit union in your marketplace that can help you out. We have friends all over the country, with other credit unions that we match you up with and get you pointed in the right direction. We’re very active on LinkedIn. I’m a big LinkedIn user Mark Ritter, or they can they can also look up Member Business Financial Services. is on LinkedIn, but the website’s probably the easiest.

J Darrin Gross 33:06

Mark, I want to say thanks for taking the time to talk today. I’ve enjoyed it tremendously and learned a lot. And I hope we can do it again soon.

Mark Ritter 33:15

Appreciate the conversation. Thank you.

J Darrin Gross 33:18

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 33:38

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Reonomy Commercial Real Estate Property Data Provider with Rich Sarkis – CREPN #269

Rich Sarkis 0:00

We have a number of municipalities, tax assessors that use our system, ironically, to vet their own data because ultimately, because we’re multi sourcing it will have better or more timely data than they have access to. But to take it a step further, which is where you’re going, this has been a hot topic of conversation at a board level with us, because given the fact that we’ve got the system of record the Reonomy, ID, which you use the term backbone, which is exactly how we think about it, then yes, if you go all the way upstream, the natural extension is right at the source, if you can be if the Reonomy ID can be embedded as your recording and mortgage recording and deed transaction etc. Then to your point, it eliminates a lot of the friction, the cost the inefficiencies that are going on and that we’ve seen now during the COVID crisis, right when a lot of these assessors have had to shut down because literally the people can’t go there to record the mortgages because they do it the old fashioned way, right. It’s it’s analog. It’s not digital.

Announcer 1:00

J Darrin Gross 1:20

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 Rich Sarkis. Rich is the executive chairman of Reonomy, a leading provider of property intelligence to the commercial real estate industry. And in just a minute we’re going to speak with Rich about Reonomy and how you can utilize that to help grow your business. 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, please consider leaving 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 us on the YouTube at Commercial Real Estate Pro Network. And also there if you would please subscribe that always helps the the algorithm with the YouTube. With that I want to welcome my guest. Rich Welcome to CREPN Radio.

Rich Sarkis 2:42

Thanks for having me. Although I fear I’m going to disappoint your guests when they go on YouTube. And this is not one of the handsome guests. I’ll try to make up for it with insightful comments.

J Darrin Gross 2:52

Well, it’s always kind of a fun, fun, fun thought there but now you’re fine. You’re fine. lighting is good. So we’re good shape. So hey, before we get into this, if you could just take a second and share with listeners a little bit about your background.

Rich Sarkis 3:10

Sure, sure. So I actually grew up in London in the UK, but came over to the US several decades ago to go to school here and I never left. And it’s actually in school in college in northwestern Massachusetts that I caught the entrepreneurial bug. When I was a 19 year old, Junior, and started my first business many moons ago, the sexy way of saying that one was it was an international arbitrage business. What I found out is that you could find the exact same textbooks that were sold here for hundreds of dollars for a fraction of the cost overseas primarily in the UK. So I set up a whole supply chain and a network of student reps promoting these books. And that’s really was my first business and where I caught the bug as I mentioned, and I started and sold a number of businesses nothing really huge, but enough to sort of make ends meet over the subsequent years. And then I went to the dark side, went to business school because my liberal arts education was fantastic, but a education in business principles, it was not. So I went to Wharton, back in ’05 thinking that I’d meet a new founder or to make a bit of a miscalculation, because back then everyone at Wharton wanted to go into investment banking, sales and trading private equity. And so I was left sort of clutching at straws when it came to entrepreneurial sort of camaraderie for lack of a better term. So pure auction based reasoning, I went to management consulting, went to work at McKinsey in New York. Again, thinking that would be a great you know, not way to not pigeonhole myself into one specific sector or career and that out, after a couple years go and launch a new business. Ended up staying in McKinsey longer than I thought. The work was very Interesting. They’re good at sort of promoting at the right time and all that stuff back. But after about four or so years there and had just been promoted to associate partner, that’s when I realized I wanted to go back to my entrepreneurial roots. And that’s where, really Reonomy was born in the summer of 2012. So eight years ago now.

J Darrin Gross 5:20

Got it? Well, you did. I mean, I don’t know that much about McKinsey. But they’re always cited and all the big studies and kind of a finger on the pulse of what’s going on in business. So,

Rich Sarkis 5:34

Yeah, it was a lot of interesting stuff I started is pretty eclectic. My first ever project was doing a revenue assistance model for the National Basketball Association. So that was pretty cool. I get to hang out and they’re in their HQ Fifth Avenue and sort of ogle the stars and stuff like that. So it was it was fun.

J Darrin Gross 5:53

Yeah, no, but that’s a little bit different scene today. The COVID stuff Well, great, I appreciate you sharing a little bit about your background there. And so what I’d like to do is kind of talk a little bit about Reonomy. And and kind of if you could, could you basically just start with describing, you know what it is?

Rich Sarkis 6:18

Sure, sure. So maybe if I describe what it is today, it’ll be helpful for the listeners to hear what it was and what it started off as because there’s obviously been a big evolution and a, an increase in the number of products and features that we have. But initially, my thesis was that we needed to do for non single family homes, what others like Zillow and others had done for this single family home discovery experience. So when you and I would want to research our dream home or find out whether we should live in this town or that town we turn to Zillow, and unbeknownst to us because it’s a very easy to use tool. Use your Map based, searching your filters, there’s a lot of heavy computational work that goes on, not just with the zestimate and giving you an assessment of value, but also being able to bring all those myriad of different data points across all the MLS and all that stuff. So and that didn’t really exist at a ubiquitous level nationwide. And so that was the thesis. can we leverage technology on the back end to crunch all this data? leverage modern, elegant, intuitive software on the front end, so it is not heavyweight and burdensome to use? Right? It feels just that modern, right?

And so we set about doing that in New York. And lo and behold, after about a year of development, we had built a better mousetrap and the reason we knew that is because big lenders like JP Morgan, big brokerage firms like Cushman Wakefield developers, like Tishman Speyer, all their users were using our platform in New York City. To find information about properties, do some research on a sub market. A drill down and find out who actually owns the property. Who holds the debt, is there note holder all that stuff and it was very easy for them to use. So they used it day in day out. We used to like joke back then because we would pour over the the usage metrics that we could actually tell when people get up from their desk and go to the bathroom because there would be a 10 minute gap in their usage. That’s how much they’re using it right off the bat.

And so basically, that has evolved. And now we’ve got a platform that for the on the web application side, again, that the commercial version of Zillow is now available available nationwide coast to coast. And so we have scores of not just the brokers, lenders and investor developers, but we’ve got a lot of field service providers. We do have a lot of insurance brokers using our platform, as you know. And so it’s become this ubiquitous web portal where you can find out information on anything that’s not a single family home. And as the as the months have become quarters have become yours. We’ve also set up a slew of different products for medium sized companies and even large fortune 50 fortune 100 companies where they can access our data, our analytics, our insights by API and other means.

J Darrin Gross 9:15

Got it. So the when you started off at sound like you were the whole idea was basically kind of the Zillow for the commercial property. Was that that basically the

Rich Sarkis 9:26

Yes. On the on the web application side. Exactly. Yes. And one thing that was very interesting, and it was pure happenstance, and because we stumbled on this by doing that, because if you think about it, you can sort of wrap your hands around New York City, right? It’s the five boroughs. There’s a common data standard, borrow block, and lot. There’s something called the BIN to building identification number so you can take all these disparate datasets across these different government agencies and make them relational, but we really had a huge struggle when we have to try and replicate that nationwide because Now you’re talking 3000 counties plus 20,000, plus municipalities, each with its own data model. And so whatever we have built in New York sort of threw up on itself when we try to go to other markets. And what we ended up doing is creating our own data standard called the Reonomy. ID, which is a unique identifier the same way you and I have a social security number, which is our unique identifier. The same way in other areas of capital markets. There’s something called the CUSIP that all broker dealers, all lenders, all investors agree is the unique identifier for any company. We established that for the properties, right. And we built a huge machine learning knowledge graph, basically, that takes all of that data and is trained to resolve any record in a public or private data set to that unique ID. And that’s really our unfair competitive advantage and how we’ve been able to have not just a massive ubiquitous web application that covers every time every municipality No matter if it’s a, you know, one of the largest NFL cities or one of the secondary, tertiary, or even smaller towns in the middle of nowhere, but also how we’ve been able to stand up those enterprise products that do a lot of that entity resolution for our customers, again, fully automated, but then are able to layer on all these data sets on top of that.

J Darrin Gross 11:22

Got it. And so that the starting point, I guess I would ask, because I’m familiar with, you know, different municipalities and the way they they show the data and you’ll specifically look like where I’m at in Portland, Oregon, and the county I think it’s called Portland maps comm has a fairly rich program. It’s gotten I think it’s called Portland maps calm that’s that’s the name of it, but it it basically it goes to the lot, you’ve got a map and it’ll show the ownership and then it will show permits, it’ll show all the stuff but if you go across the county line to any of the other counties, it’s all like, you know, a whole new language. Yeah. All hidden in different places and all that. So I’m curious is you, you mentioned, you know, if you start in like one city, I could see how it’d be fairly easy from a standpoint of familiarity and create that model is you grew to nationwide. Yeah. The challenge is, how did you overcome the challenges? I mean, you mentioned the Reonomy ID number.

Rich Sarkis 12:31

Yeah, that and that’s how we did it. I mean, look, I sort of fast forward through all the pain and then the fact that I lost all my hair doing it, and but it took years to do and 10s of millions of dollars of R&D, because initially, frankly, we did not realize what you just articulated, which is there’s a huge heterogeneity in the data, accuracy in the data availability across county lines and across municipalities, right. And there’s no federal oversight to say this is how you should Should I record a mortgage? This is the data standard or anything like that. And so as a result, what we did is we were naive. And we said, okay, well, let’s do what we’ve done really well in New York and the second largest city, which is LA. And that’s where we realized that’s where we had our oh shit moment pardon my French, which is the fact that LA LA County is made up of over 80 different cities and municipalities, right. Encino, Beverly Hills, Calabasas, the list goes on and on. And each one of those is its own unique data snowflake. And so that’s where we really realize the size of the task that was ahead of us. And that’s where we went back to the R&D drawing board. And we were able to, luckily, thankfully come up with this idea to say, well, let’s build our own identifier because none existed out there.

Each one of those municipalities had a different way of recording and a different unique identifier, but let’s build our own one nationwide. And that’s truly turned to machine learning and AI Because we could not come up with all the rules ourselves across all these datasets, because when you zoom out and you look at all the non single family home, your your properties you’re talking about including vacant land about 50 million commercial assets, tax lots. So even if you’re just comparing two datasets, that’s 50 million times 50 million, that’s a really big number, a number of permutations on how you can match. And so we for the first time, this is about four years ago really turned to AI and machine learning and we’re able to crack the code doing that. So to answer a question, we returned to technology, truly not just from a marketing gimmick, point of view, to be able to to crack that code.

J Darrin Gross 14:44

Got it. So you you start out with an idea you you have a plan and to work into one area, you go to the next market, you realize, you know, one market doesn’t work like the other market. In each case, are you basically scraping data from public sites? Is that kind of were the starting point?

Rich Sarkis 15:04

Good question. Good question. So what we what happened is when we realized we had hit paydirt with this Reonomy, ID, and this machine learning classifier that enabled us to not just light up the top markets, but every market in the US, we said, well, let’s get as much data as we can, right? Because now we sort of eliminated the barrier to entry to stand up additional markets, as well as the barrier to entry to normalize and validate and cleanse data sets. Right? So what we did is yes, we collect at the source, but we supplement and that source being the local municipality, the tax assessor, the Secretary of State, but we’ve supplemented that with large third party partnerships that we have many of them exclusive. We’re really the only ones in commercial real estate that get access to that data. So these are companies the likes of Dun and Bradstreet, Corelogic, Black Knight, First American, Experian, the list goes on and on. We have these What I call our raw materials or ingredients, right? We’re like the chef, we have these very unique recipes, where we know how to take all these amazing ingredients, combine them in a way that makes the best cakes available. And that’s really what our end users are buying from us or licensing, whether it’s through our web application or API’s or data feed products. It is the reonomy dataset, which is derived, which takes all this raw materials across public and private data sources, as we mentioned, and compiles them in a way that is informative and valuable.

J Darrin Gross 16:36

Right. And I think one of the things is a user just having the uniform, the uniform presentation, yeah, data is, you know, just saves a lot of brain cells. When you know that you look at one property and you can look at another property and you’re going to get the information in a similar way. You don’t have to become a programmer to try and understand

Rich Sarkis 17:00

Exactly, you don’t need to you don’t need a PhD to figure it out. And look, that is that is a very important point you make because that is something in general, but especially I found in commercial real estate that gets overlooked is the UI, the user interface, the experience the the consistency of it, and making sure as I said, at the onset, it is modern, you know, my iPhone is essentially a supercomputer, but a three year olds can use it, right? And so getting to that level of sophistication and heavyweight analysis on the back end, but to some extent, shielding the end user from that and making sure it is consistent, elegant, intuitive and usable. is a very important flip side of the coin of machine learning and AI, it’s the delivery how you deliver it is crucial as well.

J Darrin Gross 17:47

Got it, so is your business. Would it be fair to kind of call it a data aggregator is it I mean as far as you’re going out, and again,

Rich Sarkis 17:58

Part of what we do that that that is Part of what we do I view that as means to an end the end being, what are the insights we can give? Really, it’s it’s an intelligence platform, right? Because we are providing intelligence, property intelligence, but also intelligence on companies and people and how they relate to those properties. As you and I were chatting before the show, right? But before we can do any of that, you’re absolutely right, we need to be able to aggregate disparate data sets that are messy, fragmented, and, and make them relational, basically put them in order, again, the same way as chef, you know, prepares all the ingredients before they figure out how to how to cook the dish. That is a necessary means. And that is a big part of our core IP. And our core competency is we’ve developed a system that’s just really good at aggregating data.

J Darrin Gross 18:50

Gotcha. And as far as the the data that you’re collecting, is there any I guess Quality control for lack of a better word?

Rich Sarkis 19:02

Yeah.

J Darrin Gross 19:03

To recognize, I guess, kind of boots on the ground to confirm the data, or how do you guys police that?

Rich Sarkis 19:10

Yeah, there’s multiple tiers of that. Really three main legs of that stool one is programmatically, those machine learning systems have built within. And that’s where the learning part of machine learning, we’re constantly retraining it with training sets, whether it’s new data sets, or training sets that come from the usage of our platform, the users themselves using the platform, and basically being able to signal an incorrect or incomplete data set. It feeds back into the system and it gets smarter over time and gets better at identifying what the correct value for an individual data point and we’re not perfect. We never will be but we’re constantly getting better. And every day that goes by as a data we are iterating or the system iterates and evolves and becomes stronger. So that’s the sort of technological component.

We do. amplify that with our own in house research team, it’s not a big research team, but it’s sort of we call it the SWAT team that goes deep and does two things. One is they help curate those training sets that are so valuable to the system. But they also help to crack the code on some of the really hairy problems, the edge cases that perhaps are not as well suited for the system. So that’s number two. And number three, and I alluded to this is we’ve got this unfair competitive advantage, where we have 100,000 plus users on our platform, that web app, the Zillow like experience, and their usage, and we never take, you know what one user sees or does and share it or everything, but in aggregate, when you can take all that usage data that is really valuable from a learning and data sanctity perspective, and so we leverage that heavily as well.

J Darrin Gross 20:46

On the uniformity of the information, I’m just kind of curious. All of these municipalities, I mean, it doesn’t matter whether it’s a state or company or county or whatever there, everybody invest so much money into creating a data collection system and maintaining that. And on and on. I’m just wondering, have you been approached? Or have you had any conversations with any mean municipalities about being the backbone, or the kind of the back office support for that? Because I could see that. As you know, every municipality is stretched for funding, for sure. And, you know, I would think that if there’s a better way, that’s a lesser cost, that would be of interest. And so is that anything like that?

Rich Sarkis 21:46

It is, it’s very topical. I would say two things. One is it’s something that is already in flight. We have a number of municipalities, tax assessors, they use our system, ironically to vet their own data because ultimately Because we’re multi sourcing it will have better or more timely data than they have access to. But to take it a step further, which is where you’re going, this has been a hot topic of conversation at a board level with us. Because given the fact that we’ve got this system of record, the Reonomy, ID, which you use the term backbone, which is exactly how we think about it, then yes, if you go all the way upstream, the natural extension is right at the source, if you can be if the Reonomy ID can be embedded as you’re recording a mortgage recording a deed transaction, etc, then to your point, it eliminates a lot of the friction, the cost, the inefficiencies that are going on, and that we’ve seen now during the COVID crisis, right when a lot of these assessors have had to shut down because literally the people can’t go there to record the mortgages because they do it the old fashioned way, right. It’s it’s analog, it’s not digital. And so yes, that is a stream of work that that is ongoing with us now. As you know, right elephant in the room, working with local government agencies is never, you know, fast. And so a lot of these things are going to take quarters, if not years to come to fruition. And you’re talking a lot of different agencies, but certainly it is something that that we believe is valuable, and, frankly, will benefit the overall market.

J Darrin Gross 23:24

Yeah, I’ve had a little bit of experience with just different public agencies. And you know, it’s never it’s, it’s amused me just how protective they can be about their position. based on historical This is the way we do it. Right kind of thing. Regardless of there’s an example. Local example I was on a committee and, and the the committee was, is responsible for one thing, and then there’s a whole nother branch. government that does a different thing, but calls on the exact same people for the exact same thing. And I was going like, that’s like two cars driving down the street will stop and at the same place, you know, taking up the consumers time twice. Once I’m gone how does that not? Does not does anybody else see that? You know, and they’re like, we do it totally differently our concerns are totally gone. You know, as a user, I just don’t see it. And I just but it was just it was a real eye opener just how territorial and I think it you know, as you look at politics and stuff you can see that real easy that it’s you know, if anybody’s gonna lose is not gonna be me it’s gonna be the other guy kind of thing. So I wish you well with that, but it does seem to make sense if if you know, the government’s are are stretched if there was a way that you can become the the backbone and they could feed your your platform. It seems like that’d be a win win for for you, because you would have the, the data, at least at the source, they’d have the backbone. So I wish you well with that. But I know I know, as a user, you know, there’s nothing more frustrating than if you buy, you know, a data set. I mean, I’ve done this with marketing before where you buy a list. And, you know, maybe 5% of it’s accurate. You know, you’re just I know that data is it’s just always a challenge. That’s why I’m kind of curious, like you, you know, we’re talking about some sort of verification or quality control that. Question I have for you, going forward, Are there additional data points that you recognize that would be useful that you could set on the platform, or that other people have, have approached you about?

Rich Sarkis 25:52

Yeah, so I alluded to this so so when we started off, and that’s where the system of record really we were very property centric, right? We were really They’re good at telling you most everything there is to know about a property. Right? Who owns it? Who owns the debt? How much dead, what zoning is, what the owner addresses are, etc, etc, etc.

J Darrin Gross 26:12

So, let me ask you that before it’s time to just say when you say that the the basics ownership great lender great, which would be to me kind of like a transactional stuff at a title. County is kind of a starting point. What about the property details, the square footage you’re built, and I’m thinking more about like the the permit all the county stuff that you know that that is an insurance professional that the the questions I always am trying to answer are, you know, when was this updated, you know, and if there’s permits, etc, kind of thing? Are those types of data points are those ones that you guys

Rich Sarkis 26:54

We do? We do but as you alluded to, it varies right and to some extent, we’re at the mercy What is recorded and how and when right? And that goes back to your whole question around? Well, if we could be the system of record, wouldn’t that be better for everyone? Certainly better for us, but better for you the end user, right, because we have a more timely and minimize the latency etc. So there are some counties that are pretty abysmal in terms of when and how they update their records. And unfortunately, we’re at the mercy. There are others where they’re at the forefront and it’s digitized. It’s available via API, they update it intraday multiple times a day, not just once a day, right? And there’s everything in between now, where we strive to be the best, but not perfect. And again, the bar varies by county is that we multi sources, we never just take one source and say, Okay, well, this is where we’re getting the data for county x, and this is where we’re getting it for county, why we get it from many redundant sources. And a lot of time you’ve asked, well, what’s the point because to your point, it’s like the same data set and you’ll get the same value for The same square footage point, but oftentimes you won’t and right. That’s where the algorithms come into play. And they’re learning, okay, for this type of property in this county, for this type of record this data point, what is the most accurate source? And that’s constantly iterating. And trying to figure out, you know, who wins in that scenario across our data set, and that’s the sophistication that goes in the background to try and assess what the most complete, most accurate picture is for any given property. As it relates to the data points that you’re saying.

J Darrin Gross 28:36

No, I think that the multiple sets I mean, that’s, that’s a real challenge I see just based on you know, if you start with the county record, and you assume that’s kind of the, I mean, assume, loosely, that that’s kind of the good starting point. But I’ve found, you know, many, many times that either it’s, it’s absent or incorrect? Or maybe the the assessor whoever’s in the field is having a bad day or maybe the property owner did some things that didn’t ever get recorded.

Rich Sarkis 29:12

Absolutely. There’s miriade of reasons.

J Darrin Gross 29:14

Yeah, yeah. Well, no, I think that it’s all fascinating and and the you know, I think the other thing that I’m really kind of recognizing is that for all these years that I’ve been putting data in the computer in the machine that I couldn’t understand, you know, what does this have to do with anything, you know, it feels like the era of big data and the ability or I guess, data science is really coming to life. And that all that information has been collected. Now there’s there are people that are able to comb through it and and whether it be you know, apply it in a situation like this, use it to forecast or to see trends or, or what have you. It’s it is kind of fascinating when you look at it from that standpoint. So let me ask you this that the obviously Reonomy you guys are a big player. I think I mentioned you have used Yardie and Costar before is this do you see this as like? Is that the field? Is it I guess I’m trying to understand the competition cuz I guess in your business, I would think probably the biggest potential challenger in this field would be Google itself.

Rich Sarkis 30:41

That’s true for any field, right?

J Darrin Gross 30:43

Yeah. No,

Rich Sarkis 30:44

As I chat with a lot of my founder friends is Google can basically wake up one day and go into any field and they’re going to make a dent.

J Darrin Gross 30:53

Yeah, I mean, insurance included. I’m just kind of curious. Do you, when looking at the the the current field, are there some distinctions that you see that Reonomy has that that sets you apart? In a way?

Rich Sarkis 31:10

To some extent what most, if not all, the legacy incumbents that you talked about? Right have been around for decades, right? And so and they’ve built great businesses, I mean, Costars market cap is north of 25 billion at this point, right. And so, and they are used by a lot of folks, but they have been built across several decades. And so it goes back to what I’m talking about modernity modern, what is the modern solution? So we like to think of ourselves and our users. More importantly, think of us as the modern solution to commercial real estate data and analytics and intelligence and insights, because we’ve had the benefit of hindsight and looking at what others do well and don’t do well. But we’ve also had the benefit of building our system from scratch on bleeding edge technology. Leading Edge databases, cloud computing, machine learning AI, and a lot of the software and tools we use just didn’t exist, even when we started the company, right? So that is our sort of differentiation when you look at the landscape. And then when you look at the new entrance, right, because there has been a proliferation of cre tech, prop tech companies over the last five or so years, to your point around reaching the critical mass getting to a certain point, we feel like we are one of very few companies out there that has managed to reach that critical mass, that adoption, and not just in terms of the fundraising that we’ve done right. With this series D last year, a lot of the banks participated because of the risk and underwriting that you can do with our data, but also just in terms of being in market and the validation we’ve got from our end users themselves. So we differentiate with the legacy incumbents by being more modern and we feel like we differentiate with somebody A new are your companies by being sort of more established and more validated and more trustworthy solution then, than those.

J Darrin Gross 33:11

Gotcha. And I ment to ask you earlier, in the beginning, when you guys started, were you Have you always been a subscription based?

Rich Sarkis 33:20

Yes. We’ve always been a subscription based? Yes. Whether it’s on our web application where it’s every user has a license, and it’s recurring and they renew and all that stuff. And on the data, you’re licensing our data on a recurring basis. Correct. It’s subscription based.

J Darrin Gross 33:36

Gotcha. I’m kind of curious, being somebody that’s so familiar with the data, like you are and just the commercial real estate. Today is what is today July 22nd, I believe 20 when we’re recording in the middle of a COVID, or the COVID-19 situation. I’m kind of curious if you can speak to or if you see any. Are you seeing anything? Are you able to identify anything that’s changing? Or do you have any kind of a crystal ball button on the application that says, you know, this is changing, just across the commercial real estate asset classes?

Rich Sarkis 34:23

Yeah, yeah. So we’ve actually got a whole part of Reonomy, our Reonomy research and we’ve got a bunch of very smart folks that leverage our data that put out a whole bunch of reports, analysis datasets, a lot of it dynamically update, etc. encourage everyone to go to Reonomy.com and click on our research section. And they’re putting out a lot of leading edge stuff that’s being used and picked up by government agencies and stuff. So yeah, we’re seeing a lot. I think some of the highlights we are seeing if I you know, rewind a few months is that we’re seeing a huge slowdown, not surprisingly, when you think about it on in terms of transaction velocity, right? Just the number of transactions that are happening or haven’t happened in Q2 certainly was a prodigious fall from where we were in Q1, but even, you know, Q2 last year, and that’s felt all the more acutely within Office, Retail and Hospitality.

Interestingly, multifamily has been somewhat resistance. Although, you know, questions remain as to how long they can be resistance. And equally interesting, we have seen some asset classes that have actually outperformed compared to where they were historically, specifically industrial, warehouse. Again, with a move to a lot of work from home, you need all these data centers, they take room and all that stuff. And so there has been a lot of interest on there. So yes, you can see a lot of that stuff on the platform. And again, I’d encourage everyone to go to the research section where a lot of that cutting edge data is being leveraged and shown in a very easy to digest way but it’s very very enlightening.

J Darrin Gross 36:02

I appreciate that. Typical user, obviously we’ve talked about the commercial real estate, people mentioned the, you know, a fair amount of insurance people use it. Is there a target user?

Rich Sarkis 36:22

The four main user groups if you will, our lenders so typically the loan originators we mentioned that a lot of the big banks and their originators use our platform to find which properties are in your refinance window, drill down under loans them and but they also use it increasingly for risk underwriting, compliance, etc, to find out information about who they’re lending to what is the portfolio of properties associated with any given person or company, right? So you’ve got lenders on the one hand, you’ve got a lot of institutional investors, developers, either people who buy the properties and they don’t just have to be the largest They can also be small local folks. But these are folks who do this day in, day out. These are the professionals who look for that assemblage that they can combine. Look for that repositioned opportunity from an asset point of view. Third is you have the brokers, not surprisingly, brokerage firms have widely adopted our platform our products for a number of years now. So these are typically of capital markets, folks, investment sales brokers, chief among them.

And then last but not least, and this is the one where we alluded to are the field service providers, we have a lot of roofers, solar folks, energy folks who use our platform from a lead gen perspective, because to your point around buying a list from a marketing perspective, typically those lists are pretty coarse and it’s the analogy is it’s a shotgun scatter approach and say somewhere in that list is a property owner or two that might have a need for your service. But good luck finding it right because you don’t have the ability to Take that list and filter it, right. And so if you think about what our platform really does for those field service providers and allows them to dial in the location, right, I’m interested in this area of the country, and they can literally draw on the map. I’m interested in this type of property multifamily only. And this size, and I’m only interested in ones that are old, right? Haven’t been renovated in the last 20 years or whatever. And then you go from 50 million assets throughout the US to the 13 that really are in your strike zone, and then you can tell me, okay, who owns those and what’s their phone number and all that stuff. That’s the type of lead list that you would want that the field service providers wants versus you know, 10s of thousands of people and to your point, only a very small percentage are even relevant, let alone accurate.

J Darrin Gross 38:49

Right. No, I’ve spent a lot of money on on lists that are you know, I mean, it’s it’s frustrating. I mean, there’s always a couple of golden nuggets in there that you figure it out, which I mean, but that’s just kind of the that’s no different than cold calling, you know, law of big numbers. If you, you know, whatever your numbers, are you if you call enough people, there’s somebody that needs to buy or somebody needs your product kind of thing. But no, I appreciate you sharing it.

Rich if we could, I’d like to shift gears here for a second. As I mentioned to you, by day, I’m an insurance broker. And I work with clients to assess risk and determine what to do with the risk. Yeah, and there’s a couple of different strategies we typically consider. The first is we look at can we avoid the risk? If that’s not a possibility, we look to see if there’s a way we can minimize the risk. And then if if neither of those are an option, we look to see if we can transfer the risk. And that’s essentially what an insurance policy is. And I like to ask my guests if they can take a look at, you know, their, their business their clients somewhere in that spectrum, and if they can identify what they consider to be the BIGGEST RISK. And, you know, again, for clarity, I’m not necessarily limiting this to a an insurance related answer. But if you’re willing, I’d like to ask you, Rich Sarkis, what is the BIGGEST RISK?

Rich Sarkis 40:28

So from my point of view, the BIGGEST RISK right now that folks within our industry have is the risk of complacency, the risk of getting crippled by what’s going on with COVID-19 and obviously, the situation is fluid, it’s evolving it’s it’s, to some extent, getting worse in many areas of the country and that is not good news. And there’s you know, no real light at the end of the tunnel because yes, there’s there’s vaccines in flight and therapeutics etc, but nothing really concrete. that’s readily available and where we can say, okay, by this date, you know, business as usual, right. And so in the face of such huge and unprecedented uncertainty, the BIGGEST RISK right now for companies and individuals alike is to almost freeze and to not make decisions that they ought to be making. In our world. That means specifically embracing data technology, information insights, to be able to when things do pick back up beyond the front foot and not get caught, shortchanged, basically. And to probe a little bit deeper, one of the things that recessions tend to do, right, and you don’t know if we’ve seen the last of the, you know, big dip that we had in March, April, and whether it’s a true V, you know, recovery, but there are going to be headwinds, at the very least, and we’re even seeing you know, job numbers come back and we’re was picking up now because states are having to shut down again, it’s going to create some more negative outlook, they’re one of the one of the benefits, perversely enough of a of a shock to the economic or financial system is it shines a light on inefficiencies. And whereas when the sun’s out and everyone’s making, hey, you can sort of throw more bodies at the problem and say all hire more people, and we’ll do this do that. When times are tough and belt tightening happens, it’s like, well, what are these people doing? Do I really need this? This? This is how we do that. And so when you are critically looking at those inefficiencies, there’s this almost this, this cleansing mechanism where you then say, Okay, well what is the most efficient way to do this function or to prospect to risk to assess risks to underwrite to whatever it is to conduct an appraisal? And that’s where invariably all roads lead to data technology, systems and machines doing what a lot of folks were doing. And don’t get me wrong, I’m not saying machines will do everything, but it’s really the highest best use and making sure that the appraisers, the brokers, the investors, the lenders, the insurance agents are focusing on their highest best use, which is doing bringing their local knowledge, their insights, their judgment. And that’s things that are very difficult to train a system to do, right? And let the computers and the machines and the data crunch through all the data and do the dirty work, frankly, right, the 80% of it, and let the people do the 20% of their highest best use. And so the BIGGEST RISK is to not embrace that not realize that there is this huge opportunity ahead of all of us to really sort of shift the paradigm and go to a much more efficient and I believe sustainable, long term outlook for the industry.

J Darrin Gross 43:55

Yeah, no, I think the future has a few more surprises in store. And I agree with you, I think one of the one of the healthy things that does come with these challenges is, you know, people get lean and and recognize that maybe there’s a better way more efficient way to do things and and she usually does it that’s kind of what propels the growth in the end. Yeah, yeah, that’s good. Hey, Rich, where can the listeners go? If they would like to learn more or connect with you?

Rich Sarkis 44:31

Absolutely, they should go to a Reonomy.com. As I mentioned, that is not only where they can find out more about the products and data that we offer, but also where there’s a bunch of free resources that folks can, can sign up for and and enjoy, whether it’s research on what the COVID impact has been on, on our markets or research at large about different asset types and markets and what we’ve seen historically.

J Darrin Gross 45:02

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

Rich Sarkis 45:12

Likewise, thanks for having me.

J Darrin Gross 45:14

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.

Announcer 45:33

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Self Directed IRA Invests In Commercial Real Estate with Glen Mather – CREPN #268

Glen Mather 0:00

People are drawn to us that have unshakable belief in themselves. And if you think of a group of three, you wouldn’t want an airline pilot that’s insecure and not sure. Now, it doesn’t make them any necessarily an investor’s, but they believe they are. And, you know, they have the confidence. So those kind of people are drawn to us. But, you know, there’s lots of people that have those same psychographics that don’t have those qualifications. They’re also drawn to us. And what’s neat is, is they talk amongst themselves We do lots of events and we now we’re doing them of course remotely with COVID. But, but it gives them more confidence once they say yeah, you can do this. This is how you do it. And there’s a powerful component about this Darrin, which I love, is the fact that you can partner your IRAs

Intro 0:47

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 1:06

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 Glen Mather. Glen is the founder of NuView IRA and has been its leader since 2003. In 2018, he also created NuView Trust, expanding the growing business of self directed IRAs into new services to further reduce and eliminate taxes. In just a minute, we’re going to speak with Glenn about how you can use a self directed IRA and a little bit about the difference between a custodian and a fiduciary. And, but before we bring Glenn in, I’d like to remind you, if you like our show CREPN Radio, there are a couple things you can do to help. You can like, share and subscribe. And as always, we love to hear from our listeners, 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 I also would like to encourage you to subscribe there as well. With that, I’d like to welcome my guest, Glenn, welcome to CREPN Radio.

Glen Mather 2:51

Thanks Darrin. It is intimidating that you have a handsome test on your guests but I hope I am able to survive that.

J Darrin Gross 3:00

I think you’re gonna do just fine here where we’re in good shape. Glenn, before we get started here, if you could take just a minute and share with the listeners a little bit about your background.

Glen Mather 3:11

Yeah, it’s kind of interesting because it may not be much different than a lot of your listeners. I came out of college and and I got a job at a little company on the West Coast called Lockheed Missiles and Space Company. I worked there 13 years. One of the first things that I did in 1980, when I started was I got enrolled in their 401k program. And that was interesting. It was Northern California, expensive as heck to live. But I kind of talked myself into putting 2% in. It’s a great way to say, by the way is to promise in the future to do something and rather than doing it at the time, but I said to 2% and what I’m going to do is every time I get a pay raise or bonus, maybe I was too optimistic, but I was assuming that one would come, I’d put 50% more into my 401k After I left Lockheed 13 years later, I had a I had a massed what I thought was a lot of money about $125,000 completely painless, through the 401k program. So I understood the power of payroll deduction, because you don’t miss it. And best of all, your spouse never sees it. So through that process, I was able to do that. As I went on, and I became a strategy consultant, I was traveling a lot and I read about in the paper about the fact that you could actually take your IRA and invest in real estate. That thrilled me because I felt like I didn’t have a chance in real estate or in the equity markets. And in real estate, I’d had some small successes, I didn’t have a lot of money. My largest amount of money was in my 401k, which had rolled over and became an IRA. This is traditional for most Americans, most Americans wealth, at least their cash or disposable wealth is in their retirement plans. And so I just felt like real estate was my best option. I looked around Chicago for weeks to find someone that would do it. And I finally snuck into that process through the wealth department of of a bank in Chicago. And that bank did it as a favor. I didn’t deserve there. I didn’t have enough money. But because I knew some, some people in the company they allowed me in. And so for $2,000, I bought my first piece of real estate. That was their fees to do it. In my IRA, that was about 23 years ago, and that was my first inkling you could do it. I watched that double in price. It was a place in South Carolina in a in a gated community. It was just a lot. And I realized later on in my life. I had moved to Florida, and I decided to start my own business. I had read about this in the paper about a company that did it. So I opened up an affiliate of Entrust back in 2003. I knew nothing about the business except the fact that I was passionate about it myself and I figured other people would feel the same way. Most the people I’ve talked to over the years didn’t really know it. They still don’t know it today and how it works. It’s been transformative, not just for our clients, but from my own retirement. Because I have the enviable position, Darrin, of being able to learn how to invest through my clients. Because as a self directed administrator, custodian, I don’t direct our clients to do anything. I don’t sell anything. So it’s a safe place. It’s a Switzerland of investing, safe place to go. Our clients choose our clients direct. And it’s been an amazing, amazing ride for us. And we now have about $1.3 billion of client assets that are sitting on our platform. More than half of it is in real estate today.

J Darrin Gross 6:52

Wow. That definitely, percentage wise speaks to the attraction and the power of real estate. You mentioned custodian, and I was hoping we could we could take a little bit of time and just differentiate between the custodian role versus the fiduciary role, and how that different or how that is different from the traditional role of like, you know, a typical advisor, a financial advisor Now, can you do that?

Glen Mather 7:28

Well, sure, a financial advisor, according to the rules right now is that they they are acting in a fiduciary role generally. And what that means is they’re not just selling you something, they’re selling you something appropriate to your particular financial situation, age, etc. So as you can imagine, that means that you have to spend a lot of time with each investor to understand them. The processes are longer and the fees are pretty high because it has to represent the getting to know and potentially even the legal risk that the financial planner and advisor may be under. That is one type of investment and and they’re making it advices. And perhaps the older you are, they would put you in something with less risk or maybe generate more cash flow. It may be contrary to the desire of the of the individual doing the investing, but they still kind of have to follow along with that path based on industry standards. So that’s what you’re going to get is you’re going to get investments based on industry standards. A custodian has a different role a custodian Think of it as your church custodian or your school’s custodian. Their job is to take care of something that doesn’t belong to them. So in essence, as a your custodian at NuView, we take care of your money in the sense that we we place it wherever you direct it to be when it’s not directed. We maintain it. We Have to control control it, we put it in a bank that where it’s going to be safe, and we wait for your investment decisions and we direct those funds based on your investment decisions. The reason why Darrin, you need a custodian is you have to have one with an IRA. So in other words, there’s no there’s not a chance for you to opt out. You have to have a custodian. And so what what you’re looking for is a custodian that serves your needs, whether it’s education, certainly good record, keeping in administration or reporting to the IRS, and stability has been in the business a long period of time.

J Darrin Gross 9:36

Gotcha. And I think, correct me if I’m wrong, but the the, the opportunity for investments, the custodian, you have kind of the wide range, I mean, it’s like you said wherever the investor chooses to go, with just a few limitations. Were as a fiduciary, the traditional investment advisor is going to lean more towards the the non alternative investments Is that fair to say?

Glen Mather 10:07

I think in almost all cases, they’ll be it provided, what you’re looking for is legal shelter, if you’re a fiduciary, and the further you get away from the normal types of investments, the more you’re perceived or actually placed at risk. If things go badly, and investments, things can go badly, whether you self direct, or you’re certainly in the traditional markets, they can go badly.

J Darrin Gross 10:35

Because I was saying, I don’t think I’ve ever come across or talked with or met a, an investment advisor that even recognizes or or would encourage somebody to consider an alternative investment is that have you found anybody like that?

Glen Mather 10:54

Well, in a perverse way I have, they don’t recommend it to their clients, but guess what they do themselves.

J Darrin Gross 10:59

They do it. Gotcha. No, the the IRA, or so that. Are you saying that you found people that are doing their self directing their own IRA or is theirs? They’re acting as a financial advisor for others?

Glen Mather 11:14

Yes, very much so. And because they understand the limitations of what the traditional markets give, and they want exposure to other markets mean that the thing is it’s not choosing all it can be choose partial, you can have as many IRAs as you lie. So if you if you want to be with Charles Schwab or Fidelity, Fidelity is actually the largest IRA holder in the country, you can. But you can take if you want to invest in startups, for example, you can take 10, 15 20% of your portfolio, move it to self direction, go do it that way. If you want exposure to commercial real estate, you can take a piece over. I think the irony is, is we watch the money come and go so so we have lots of accounts that are just fractional. In other words, people have money other places, we don’t always Know that necessarily, we would have to be involved in the transfer the funds, but we see where the funds go and self direction is a very healthy narcotic, you basically want to do more and more of it and have less and less direction from other people that are charging commissions, etc for it. Because you simply measure, it’s the freedom, right how you feel about your investments, sometimes it’s just as valuable as the return you get. And so how you feel about your own ability and knowledge. That’s one of the reasons that that they’re going to watch and listen to your podcast. It gives people knowledge to act, and it’s not after the first session or the second session, but all of a sudden, you’re around a group of community of people just like your listeners and viewers. It makes them more confident in their own choices. And usually that lack of confidence is just lack of education.

J Darrin Gross 12:52

So I’m wondering, can you identify what a typical client of NuView can you kind of give a scenario who describe the average person that that kind of NuView.

Glen Mather 13:10

Okay, I’ll do that understand that I’m missing most of them when I do that, because it’s going to be a vanilla person. But I will tell you that within our our portfolio here or our group that is on our platform, the average person owns a little less than two assets. So whether it’s to apartment buildings, whether it’s to single family homes, whether it’s to loans, whether it’s to silver and gold and precious metals, they own two assets. This is the average so that’s what I’m giving you the average person is aged 50 to about 60%, male 40% female and the they have $150,000 or so self directed That’s the average. We have. We have three and four year old babies, toddlers that have IRAs with us. And I think our oldest client is 99. I don’t know if it makes you older or I mean, it makes you live longer. I think it live makes you live without less stress when you’re older, maybe it does make you live longer. So, we have many clients, I would say that probably I haven’t even looked at this, but I would guess it maybe 20% of our clients are in the retirement years and about 80% are still building towards them.

There’s a certain psychographics Darrin I mean, the psychographics think about this in it’s it’s really strange, but it plays out because one of the questions that we’re, we’re required to ask actually an IRA applications a strange one, but I have I’m supposed to know your profession. So we start to gather that data and look at it and we end up with a tremendous amount of attorneys, an airline pilots and doctors. So I’m thinking well, that’s good, you know? They’re well heeled, they have a lot of money. But it’s really the psychographics. The people are drawn to us that have unshakable belief in themselves. And if you think of a group of three, you wouldn’t want an airline pilot that’s insecure and not sure. Now, it doesn’t make them any necessarily and investors, but they believe they are. And, you know, they have the confidence. So those kind of people are drawn to us. But, you know, there’s lots of people that have those same psychographics that don’t have those qualifications. They’re also drawn to us. And what’s neat is, is they talk amongst themselves, we do lots of events, and we now we’re doing them, of course remotely with COVID. But, but it gives them more confidence. Once they say, yeah, you can do this, this is how you do it. And there’s a powerful component about this Darrin, which I love, is the fact that you can partner your IRAs, and I love doing this because why would you ever want to go out on your first venture alone when you could partner 50/50 with someone you get 50 percent of the reward by making 50% of the investment, and you get 100% of the brain and knowledge from your partner. I do this all the time I sell them on my own until I really feel good about the asset class. And then I go off on my own. And also by doing this, you get the phone calls, and you get the recept people saying, Hey, would you like to come in on me with this, would you like to do this, and it may be $10,000, it may be $100,000. But in any case, I get a percentage ownership of a pair pursue what I put in. So that’s a great way to learn through doing and not wait until you have all the knowledge to get comfortable.

J Darrin Gross 16:39

That’s a great point because I think that one of the thoughts I had had with with specifically real estate and that was more than that, that people were buying like a something in total. Whether it be a lot or a single family rental or or You know, something controlling it, solely. But as you mentioned me, one of the powers of real estate is that, you know, if you can, you know, you can either leverage or or pool with others so that you can control a bigger asset. That’s, that’s definitely one of the, the attractions.

Glen Mather 17:23

I think it’s one of the it’s one of the practical ways to invest in commercial simply because of the size, you don’t find commercial opportunities at $10,000 slices, you know, so there’s ways that you can get in and get exposure to a particular asset class without risking making a big risk first time out.

J Darrin Gross 17:45

So when people come to you, do they typically have an investment they want to participate in, in mind, or is it more of just the concept of I want to be able to direct my money?

Glen Mather 17:56

Wow. Darrin, you just asked one of the most important question questions that we struggle with and deal with as a custodian, which is I really wish it was the second part of this, which is, people need to understand the power of this and why they should get an account even before because it’s in essence, what happens is people usually do the opposite, which is exactly that they, they find out that they might be able to use their IRA sometimes even after they locate the investment. Here’s the problem with that, first of all, well, the problem is it gates the number of clients that were able to serve because they don’t come until, they have an impetus. Maybe they meet you, maybe they find out a syndication you’re doing or one of your one of your listeners are doing and that’s what caused them come. Here’s the problem. A lot of times in real estate, things come with a clock attached to it or a calendar attached to it, right, they have to be done within a certain period of time. So what we’ve seen many times is people will actually open an account to make an investment, but they’re out there. Going administrator that’s holding on to their money really tight like it’s their own won’t, won’t move it over quick. There is, by the way, there is no federal guideline or federal law that says that a custodian or an IRA administrator must move the funds over within a period of time. I’ve seen them held on to six weeks, really that because they want the asset counted on their platform, there may be some sort of bonus attached to it. And it’s a crime because they view that since my my clients leaving me, I’m going to punish them on the way out, I don’t care how I treat them. I mean, in our company, we don’t do that we pass everything out within within seven working days without question, but not everybody does that. So what happens is, is the fact that they may lose that investment, because of timing. That’s the one reason that I would suggest the other thing is, is of course they get to be part of the community and get to learn a lot more about this through a lot of session, a lot of education that we do, I would like it to be the fact but the fact right now is the greatest impetus is when you have to buy that forces people to get their act together and move those move from a traditional custodian to NuView.

J Darrin Gross 20:16

So, let me ask you just in the the mechanics of the the shifting from the traditional fiduciary investment advisor to working with NuView. If I like to do that in my current investments or in Mutual’s that are that are you know, common, Mutual’s they’re not like ones that are unique to a particular brokerage, right. Can I not move those in, in the vessel they’re in to you or do I have to liquidate those to get them into my self directed IRA?

Glen Mather 20:53

Well, there’s a practical answer to that. And there’s one that we can do. Certainly I think most custodians would rather, unless you’re on a on a stock, you have a stock trading platform, which we’ll have in about six months. We don’t have it right now. I would suggest you liquidate it. Bring it over. We have, we have a relationship with Ameritrade now, where that account can actually be opened under ours. You we can actually do the transfer with Ameritrade. But it’s uglier and it takes longer. So I would just suggest if you’re if your trading costs aren’t that high, and we’d even probably pay them for you. So it’s not it’s not like it has to the money has to do with that, you know, you won’t be exposed for the market for those days that you’ve moving it from one platform to our platform. The reason that you’d want it on our platform potentially is this. If you want to be able to dictate to ameritrade sell it and move the money over to new view in an expeditious, expeditious manner. We can cause that to really happen because we’ll have a relationship with NuView because it’ll be or with Ameritrade because it’s our umbrella over the top of it. That’s what makes it valuable. However, this may also get to a point of you have so much money that you want to expose to self direction, so much money in the market, just leave that alone. You know, if you like the way it’s working, just leave it alone, and just move over the amount that you want to invest. So there’s there’s choices, whichever way you want to do it, you can do it.

J Darrin Gross 22:24

I would think that would be a big win for you guys to have that additional option available just from a standpoint of his people age and you have to take your minimum distributions and trying to sort through everything and the sale of certain assets, and especially if you’re in real estate, trying to time that. Does that. Does that kind of make it? I mean, I think there’s a there’s a little bit of strategy that needs to be involved in order to work within the guidelines. Is that fair?

Glen Mather 22:57

I think it is fair, I mean, RMD’s are real required minimum distributions. As you may be aware, the Cares Act actually shifted the age it used to be 70 and a half, it’s now 72. And if this is for all investments that were made pre tax, so if you got the tax benefit upfront, unlike a Roth, then your start to force to take minimum distributions, and it’s relatively small, like 2% of starts 2%, at age 72. What that what you’re pointing towards that is you need to have a liquidity, right? You need to have cash in your account. If you’re 100% invested in real estate that is not producing cash, then you’re going to be in trouble. Now rmds can come from any IRA you have, so they don’t have to come from your self directed part. You could always sell stock if you had more assets on the other side. That’s one of the reasons that an IRA requires you to have a declaration of value every year because as you get older is for two purposes. The Treasury wants to forecast how much tax you’re going to get out of you. Even if you’re 30 They need to forecast out to when you’re 72. And in some sort of growth manner on that. So, yes, you do need a philosophy or strategy to make sure that you’re investing in things that are in cash, probably by the time you’re 72, it is a good idea that you have part of your portfolio generating cash, you probably shouldn’t be 100% speculative when you’re 72. So you just need to make sure that you have enough cash generated so that you can make those minimum distributions that are required.

J Darrin Gross 24:32

Right, no and again, it’s it’s, I feel like I’m kind of one of the slow skis and remember, there was a, some sort of an ad for the internet there, but that’s typically the way I learned it seems like I’m in the slow lane a lot of times on this stuff. But the just the realization of that there are these RMD’s you have to have in the mechanics of the how you get your money out. I think that’s one of the things I’m becoming more and more aware of is how much of our time is spent on how to grow something or invest in something or you know, to make it bigger and bigger and bigger irrespective or without any thought on how do you get the money out of the vehicle or you know, what’s involved on the back end kind of thing. And, you know, the RMD’s are clearly something that’s, that’s kind of something you have to pay attention to them. So

Glen Mather 25:21

Well, you call yourself a slow ski, I appreciate that. Because you’re all you’re communicating to me and I, I learned slowly so that’s, that’s a plus. You know, and what happens is as we get older, and I won’t ask you your age, because you’re not a client yet, but I’ll no one should become a client. But in any case, bait as we age, we do become naturally concerned about cash flow. I think it’s, you know, it’s like because we take a look at our end of our traditional work, whatever that might look like and you say, Okay, how am I going to fund the rest of my life will it be a drop off and I want to touch on this for just a minute if you’ll give me some airtime, because it, it really bothers me how traditional Investment Advisors look at you and your retirement. They look at you and your retirement. So your job is to amass and save, and we’re going to invest it alongside and maybe it’s an average, if you look at the stock market’s an average of 6%, you plug it in. And I’m not suggesting it’s not a good long term investment, I think it is, but it’s just one type. But what they do is they say your job is to pile up money. And if you’re a professional, maybe you need $3 million. Right? And based on maybe you’ll retire at 67, we’re also tend to be a little bit older now. So what we do is we take a look at that money, we take a look at your lifestyle needs and whatever else you’ve invested in, and let’s say you have to draw down 40,000 the first year or 45,000, nothing to do with the RMD’s just what you need to live on. And what they do is they basically watch that pile go down, and then there’s a safety piece that says maybe there’ll be half a million dollars left when you die. I think to myself, are you kidding me? Is that how is that how that yes, that’s how America plans.

What I want to do is when I die, I want to have more assets than I ever had before the day that I die, not less. Because you don’t have to do that with self direction. You don’t have to do that with real proper real estate investments. You don’t have to do this. So you won’t be searching for an annuity that pays you one and a half percent when you’re 70. Because you’re scared to death about losing your money. So that’s so basically have no more earnings, you’re basically got distributions with a little bit of frosting on top. That’s not what I want. Because I want to be able to pass this on to my children to charities, I want to pass on to my children, not just the equity, but understanding how equities work and how they build. And that’s the beauty and I think that’s what you do whether you’re inside an IRA or you’re outside an IRA. That’s what your goal should be. It should not be that you continue to have to sell off all your good stock to live on it and all of a sudden you have less of what was really good. I would suggest that you could have more that’s really good and it’s not. It takes a little bit more work. Yes. And it takes you stepping out of line with different advisors and different people by listening to podcasts like this. It can inspire you because we needed inspiration to move, but we need education to move smartly. And I and I, I see all of this available. I see what my clients are doing. And it’s stunning. One guy came over about nine years ago, he told me a story came over with 90,000 or $70,000. He had lost it. Almost all of it in the 2006 2007 crash. And he now has 1.3 million just by moves he’s made primarily real estate moves. And now is is getting bigger. What happens is you don’t have to make as big a bet you can lend money so he’s lending part of it. So he’s taking part of the risk off the shelf and doing it other ways. That’s the power of self direction. That’s the power of educating paying yourself by the way, a lot of people pay 1% of their asset fee to their financial planner. I would suggest you pay 1% a year on going to webinars and seminars and learning more and buying books and learning from masters. And now it’s all you’ll you’ll own all the knowledge asset and you won’t pay anything more for it.

J Darrin Gross 29:21

No, I appreciate you going into that because that that is one of the I guess the the concept that I grabbed hold of when I first understood investing in the stock market and I think it came from a place where dividend stocks were kind of you know, presented to me and that’s what I understood. I remember my dad talking now you invest in the company they pay a dividend and that was just that concept of that the the nest egg was still there working and producing. But since then, I think the the stock market I don’t have a ton in the market but it’s pretty much A very speculative thing, it’s about, you know, you’re hoping that you’re going to buy something for less today than somebody else would be willing to pay for it tomorrow, without any distribution of any cash without, you know, unless you sell. And it’s, I, it did not occur to me until, you know, more recently here where I’ve had to get kind of more involved with my mother’s finances and stuff and just become aware of just how the mechanics like you talked about. And, you know, the basically the financial advisors, you know, the map is, you know, well, you, your life expectancy is here, you know, yeah, you won’t outlive your money. That’s basically the that’s, that’s the summary there. I thought, wow. Not exactly the plan I had I was I was expecting to have, like you said a bigger pile of money then than ever before and something that was thrown off cash and, and could continue to work. So I like that. So Want to ask you? So the cost of you mentioned like the 1% is what? You know, I don’t know if it’s a 1% or whatever, there’s usually a percentage. Now everybody’s going into this assets under management kind of pricing model. How, what are the fees, the pricing for doing a self directed IRA?

Glen Mather 31:25

Well, there’s two elements of it. One is deciding to do it. And the second is what you’re actually buying and holding inside it. But But our fees are very simple. Our fees have not changed, I think in seven and a half years. And the way it works is $50. To open your account, it’s $95 to make your first investment, so let’s assume that you’re maybe in a syndication, real estate syndication and you’re putting $50,000 into a strip mall somewhere that would cost you $95 in it and then 295 a year to hold it. And with that, Do you get, you’re going to get our full custodian, our record keeping our tracking or reporting to the IRS. And also access to all of our events, which is probably just are more valuable than doing the accounting and the record keeping for your IRA. It gives you the ability to buy and sell on your portal or on your on your phone, you can actually buy a piece of real estate on your phone. So it’s very quick and basically get you in the game. What’s nice is that cost does not increase when your asset value increases. So don’t worry about what watch it go up and enjoy it. Your fees don’t go up, they stay the same. So it’s a relatively small price to pay for freedom. And that’s what what is freedom of choice. You’re making the choice. You’re doing the hard lifting, we’re not. But we are providing all of the tools, the techniques and the platform for you to make these choices.

J Darrin Gross 32:55

No, it’s great. I want to ask you You know, we’re in the middle of this COVID-19 thing. I’m curious, have you seen a change in the way people are viewing the self directed IRA or is it brought more opportunities to you? Has it made people rethink?

Glen Mather 33:21

Any disruption in the market is good for us. I mean, it’s it’s really strange, bad news is good for us. And, and although it’s not good for us individually, it’s good for us as company, you know, you know, all the way from running our company. I mean, we, we are fortunately designated as as required or necessary or what was the word they used? Very important workers that could continue working. And, and so, we’ve not we’ve not stopped at all working from a perspective of watching what our investors do, there was probably a two week period where there’s a run on cash, meaning people drawing down. And the Cares Act actually included a provision that said that you can take IRAs out without penalty as long as you pay them back in within three years. And so I expected all of that to be draining. It wasn’t significant at all. And but we thought there was there has been a pause on investments. The challenge here isn’t so much. It’s just figuring people figuring out where to go next. You know, there’s a period of indecision. So it’s unlike any other kind of market downturn. Typically market downturns come with clear winners and losers, right? And, you know, obviously in real estate, you can clean up right after that, that trough You know, a lot of people did in 06 & 07 and have been sort of buying it up and we’ve seen prices prices going up. We haven’t seen prices decline, certainly in Florida and probably probably about 40% of our clients are in Florida, but many pockets of the US. It’s been Because the government dumped in so much money. So they’ve artificially stimulated pricing. So what do you do as an investment, I expect people to scratch their heads a bit and kind of figure it out. We’ve seen, we’ve seen Wall Street bigger money from Wall Street in the private investment side moving towards those things that tend not to get hurt. So we’ve seen apartment complexes being extremely strong, because it’s first tier housing. You know, it’s where people have to go. We’ve seen things like storage facilities, any disruption where people are moving storage facilities get full. So they like those kind of investments, office buildings, you know, we’re not sure what this is going to do. People are working out of their own home, what types of office buildings are structures, we’ve seen really good move up in investment in in storage, commercial storage, and anything that has to do with moving and transporting, especially foods. That’s been excellent, cold storage and everything has been very, very strong. So what’s happening is individual investors have to find this because Don’t forget, that’s what we are. We’re we’re a group of individual investors. So as they find it, that’s the doors that I seem to be opening and people are investing more and then maybe the traditional vanilla stuff that, that as the traditional markets were moving up before this disruption they, they felt good about. So we’ve seen that the the, what I’m really proud of from an individual standpoint is people are contributing to their IRAs and 401k’s now, that’s great to see. That means they feel better about it. They haven’t stopped their contributions. And they’ve stopped taking out more than just their RMD’s that are required. They’re required minimum distributions so that I think it’s caused a pause in fairness, it’s caused a pause to think about what are those things that are going to do well in a sideways market? A choppy market that we’re really not sure that maybe based on when we find a cure, you know, that may be the thing. I just think that I can’t believe that when they find a cure, there’s not going to be like all sorts of craziness going on the market. Yeah, there will be so much coming into the alternative space. That that’s going to be amazing. And I think we’re gonna see that’s going to be where inflation is going to start to crop its head. When everybody feels like we’re back to square one, we can now grow. There’s going to be such a pent up demand for so many things that I think that’s when it’s come. But until until that until we get the cure, or some sort of ways to deal with COVID-19 I think things are still going to be uncertain in many ways.

J Darrin Gross 37:47

Yeah, no, I think uncertainty is kind of the theme. I’m convinced now that whatever opinions I hear just that there’s no nobody has a crystal ball. We’ve not been here. You know, So, take it all in and try and process it and just kind of keep, keep listening and paying attention to the, you know, what’s going on there. But definitely interesting times, that’s for sure.

Glenn, if we could, I’d like to shift gears here for a second. As I mentioned to you before we started recording by day, I’m an insurance broker. And I work with real estate clients to assess risk and determine what to do with risk. And we typically look at one of three strategies we look and see can we avoid the risk? If we can’t avoid it, we look to see if we can minimize the risk. And then if we can’t minimize it, we look to see if we could transfer the risk. And that’s what an insurance policy is risk transfer measure. And I like to ask my CREPN Radio guest if they can look at their business and their clients and identify what you consider to be the BIGGEST RISK. And for clarity, I just wanna make sure you understand I’m not necessarily looking for a, an insurance related answer. But with that, if you’re willing, I’d like to ask you, Glen Mather, what is the BIGGEST RISK?

Glen Mather 39:19

is this? Are you asking us for my clients and self directing?

J Darrin Gross 39:23

Yep, I’m gonna let you define it for you to kind of, however the BIGGEST RISK, you see, what would you see that is, if it’s a client’s that’s, that’s great.

Glen Mather 39:33

I think when you go well, with any kind of investment, you kind of have two choices. You can invest based on the recommendation of others, or you can invest based on your own knowledge. And certainly, maybe alongside recommendations for others where you can actually do your own due diligence on the process. That’s what self direction is all about. And if you just get tagged if you’re just coming along and doing an alt with a recommend from somebody else, that you don’t really know the basis of it, then you might as well be in the stock market. It’s no different. I think the the risks, the risks are no greater or less, it’s when what you’re doing is you’re mitigating some of those risks, as you said, or lessening some of those risks through your own knowledge. And, you know, I’ve certainly heard that Warren Buffett say several times about he won’t invest in any business he doesn’t understand and I take that to heart is I don’t invest in anything and I get some pretty creative things that are thrown at me. And I just recall something if I can tell a brief story, there’s a new freeway that’s going around Orlando, on the on the west side of Orlando, and it’s it just completed almost all of its stops. And, but when you when you build a ring around the city, you generally go through wilderness, right? There’s nothing there yet. The freeway effect which we learned in LA right, which is you put a freeway houses are going to come When you own the land around interchange, it’s valuable beyond belief, right? So I had I invested in something like this similar that worked out and then the guy told me, he said, I got another interchange, I go great. Bring it in and show it to me. You know, and by the way, it’s only for me, it’s not for my clients, I don’t share it with my clients. And he talked about how he has a land option is going through this company and then you taking that you’re splitting the depreciation off and you’re moving it to a third company. And then there’s a developer who gets 15% of the back end load. My head was about to split. You talk about being the slow guy in the room I was I couldn’t get it and I I stopped it after about 30 minutes of trying to sketch it out on a pad and I said I can’t invest in it. You guys got a phenomenal track record. All I’d be doing is throwing you money and I trusting you and I don’t want to do that I promised I’m not going to do that my with my IRA and or my any over my retirement. So that’s been my mantra, the less I know, the more I’ll go to partnering until I know, without a lot of money, so, so my risk is mitigated by the fact that generally on my investments until I get to an educated state, is that I’m in it with you. If and if I’m in it with you, Darrin, I suggest that you’re probably pretty interested in your money and your segment, you’re going to make sure it’s as good as your education. So that’s kind of as close as I get to risk is, I may look at a deal. I’ll educate as much as I can, and then I’ll go in at 20% with Darrin. And if Darrin is screwed me is screwed himself 80% you know, and you’re not going to do that. So I think it’s a pretty fair and easy way to learn and to reduce the risk. But make no mistake, it’s on you. No one else is making these selections. It’s on you. So that’s where the risk lies. And and I don’t think that you should be somebody anyone should be scared. Do it with their retirement plan and be Cavalier enough to shove it to somebody else and say go manage it for me. We’re in it’s stunning because I talk to well educated people. And they’re very quick to wave off and say, I don’t know anything about investing. I make 600,000 a year but I don’t know about investing. So I have my buddy take care of it. I just like it. It shocks me.

J Darrin Gross 43:26

Yeah, no, it’s there’s a lot of opportunists out there and and you know, if you’re not someone, yeah, I mean, guarded defensive of your, what you created, you can end up with, you know, nothing. So, I appreciate that.

Glen Mather 43:47

We would all like to think that there actually is a green path that you have to follow like Fidelity says and, you know, you have the happy couple who look like you know, they’re retiring very young and they Walk down hand in hand in this path and it just kind of rolls out in front of them. I mean, you talk about fiction. I mean, that’s completely fiction. The only they don’t show you that that Green Path actually stops before you do not right. Right. That’s the problem.

J Darrin Gross 44:18

Not good. Hey, Glenn, before we wrap up, Where can the listeners go? If they would like to learn more connect with you?

Glen Mather 44:26

Yeah, I think the best place to start is is where our website is, and but I don’t want you to end it that way. And, and, you know, one of the things that we that we pride ourselves in that is that we answer 98% or more of our calls with a live knowledgeable person. So do call in, but certainly to whet your appetite to learn more, go to NuViewTrust.com and it’s spelled misspelled NuViewTrust.com. Go there and it’ll kind of teach you we deal with very special money managers. And we also deal with individuals just like you and just like me, who are just trying to get started and understand it. There’s videos, there’s podcasts, if you don’t mind, we’ll put this podcast up so that people can find us that way too. And it’s a great way to kind of understand it and and maybe you can even learn from some of our clients that have their success stories up and what they’ve done to change their retirement too. So it’s NuViewTrust.com.

J Darrin Gross 45:27

Got it. We’ll have it in the show notes. Glenn, I want to say thanks for taking the time today. I’ve enjoyed speaking with you learned a lot and hope we can do it again soon.

Glen Mather 45:39

I appreciate the opportunity. Thanks so much.

J Darrin Gross 45:42

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 46:02

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