Archives for November 2021

Real Estate Deal Sponsors Verification with Lance Pederson – CRE PN #328

Lance Pederson 0:00

It’s been great because we’ve been on a historic Bull Run. So everyone looks like a genius. But at some point, some point that stops, right? It’s these these markets, real estate is cyclical, and it will cycle and they’ll, you know, I just don’t want to see a situation where a bunch of people raised a bunch of money did a bunch of deals based on you know, fabricating sort of their claim. So we allow sponsors to pay us to verify their track record, right. So my whole thing is, listen, pay us once we’re an independent third party and just keep paying us to verify the things you do, you now have a living track record. So when you make the claim that you’ve acquired half a billion dollars worth of real estate, you can literally say, well, don’t trust me, just go look on my profile on Verivest and you can see that you know that that they’ve already checked it.

Unknown Speaker 0:46

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

J Darrin Gross 1:05

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

Today, my guest is Lance Pederson. Lance is the Founder and Managing Partner of Verivest, and the host of the Real Estate Risk Report Podcast.

And in just a minute, we’re gonna speak with Lance about Verivest, verification and monitoring. And but first, if you would like we would love your your help, there’s couple things you can do to help us out. You can like, share and subscribe. And as always, we encourage you to leave a comment, we’d love to hear from our listeners. Also, if you’d like to see how handsome our guests are, you can check out our YouTube channel. And you can find us on youtube at Commercial Real Estate Pro Network. And while you’re there, please subscribe. With that, I want to welcome my guest, Lance, welcome to CRE PN Radio.

Lance Pederson 2:17

Yeah, thanks for having me, Darrin. Appreciate it.

J Darrin Gross 2:20

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

Lance Pederson 2:29

Yeah, I think you know, for me, my background is I’m an entrepreneur at heart. So you know, went to college for a brief time realized that wasn’t for me, had not to, you know, too much fine. I think I you know, realize that more of the entrepreneurial pursuits are my thing. And so I started my first company I was 20 years old, it was an IT services company. So built that from nothing to about 5 million in revenue and 35 employees and sold that and then I ended up getting into the real estate game via commercial hard money lending through a mutual acquaintance of ours, Darrin, Matt Burk. He was in my EO Entrepreneurs Organization forum group who became good buddies and I joined forces with him in 2008. And then we pivoted the business in 2011, to really moving more from private lending strategy exclusively to more of a capital allocation strategy. You know, private equity, real estate investing. And and that led to sort of the accidental business that we now refer to as veribest. We learned quickly with our capital allocation strategy of investing in deal sponsors around the country that the back end back office reporting is a was a big problem and was creating issues for us to report to our investors. And so we started offering it as a service. And given my sort of outsourcing type of background and I headed that up. And it really took off and and now if we’re, what do we have nine years later, it’s a, it’s a, it’s a great business. And we’ve got about two almost pushing 2.3 billion in assets under administration and serving a big need. And along the way, we’ve sort of, you know, uncovered as entrepreneurs do other other issues or friction in this little corner of the world, that is sort of sub sub institutional, real estate investing and, and have tried to eliminate or remove as much of it as we can to, to help all the participants, you know, limited partners, or investors and general partners and deal sponsors.

J Darrin Gross 4:41

I love the path. You know, even from college, recognizing that wasn’t the thing to, you know, following your entrepreneurial spirit and then sounds like you’ve, you have kind of an awareness of a problem and when there’s a problem, kind of find a solution. If there’s not one, I’m assuming And it sounds like it’s worked out pretty well for you. So let’s talk a little bit about Verivest Can you describe just what is Verivest?

Lance Pederson 5:14

Yeah, I mean I think at the core of what Verivest is, is we’re really a middle and back office administration platform, you know, for the like what I call the sub institutional real estate space you know, and it’s really with the proliferation of syndication since the passage of the jobs act right you’ve got a lot more high net worth investors and you know, smaller family offices that are investing into you know, funds or one offs or syndicated deals you know, 50 100 150 200 grand at a time and so you know, there’s there’s a lot of moving parts that come along with that and so it veribest really what we’re trying to do I think now you know, as the years go by the clarity becomes greater is that it’s really trying to help match interested investors you know, match and you know, educate and match limited partners or passive investors with you know, general partners or, you know, deal sponsors in the space. Because, you know, I think the commonality between the deal sponsors is that these aren’t household names we’re not talking Blackstone or KKR. So you don’t have no you have no brand recognition. If you’re really good, it means you probably have a really solid acquisition strategy whether you’re originating loans or you’re buying houses or multifamily buildings, you know, if the better you become at it, then then your pipeline becomes You know, it versions and, and it really capital becomes a constraint, and then managing that capital, right, those investor relationships and all those things is very different than you know, acquiring property and even the asset management right, which is what many of the participants in this space that’s their passion, you know, their deal guys, they like negotiating, they like underwriting, they like you know, real estate for, you know, for the real estate, but yet you know, what comes along with it is that you really need to use other people’s capital to grow and scale a real estate investment firm. And I think from the investor side right, it’s now that they are aware that you know, you can allocate capital into these alternative investments and specifically real estate ventures into agree that you’re credited especially that’s what most of the opportunities are available to them. It’s just you can really generate outsized returns, right, and I think, above average risk adjusted returns. And but the issue of course, once again, is figuring out who’s offering those investments and then figuring out whether or not you should trust them with your money, I think is that problem now that needs to be solved? You know, back in the day, you know, if you were gonna invest in a deal like this, it was probably in the town you’re you lived in, right? And you probably heard about it from buddies on the golf course. And that’s fine and dandy, but you know, that’s not super scalable. So even even from any deal sponsors I mean, even as human beings I mean, how many relationships can we really build I mean, it’s some of us more guys like me fewer, I’m introverted. Anyway, many real estate guys are probably similar. So they’re not it’s hard to go out there and sort of build the net new relationships with people that are in your locale, there’s sort of a finite number, but now that we can advertise these things broadly, you know, you can develop relationships with the power of the internet, but you run into this problem of you know, there’s there’s limited oversight and regulation by design which is which is which is a good thing, we want to keep it that way. But at the same time, we want to make sure that the good guys are winning and that you know who they are. That’s sort of when I wake when I woke up this morning that’s really what I’m all about Darrin is I woke up this morning a leader of a movement you know, I really believe that that this is what the industry needs Is this fair play you know to ensure that it can proliferate and I believe that limited partners deserve to have greater transparency into these investments and you know, I’m a lead the movement and try to help create and foster the solutions and implement them so that so that that continues.

J Darrin Gross 9:24

Got it. So Verivest, you guys kind of set between the deal sponsors and the investors as far as a kind of a lens to look through that, that looks at the the deal sponsors and kind of, do you rate them or do you just kind of composite, the, you know, profile the information or how, how does an investor What do they see when they when they look at a Verivest, is it a report or is it a subscription or how is it that the information is made available,

Lance Pederson 9:58

So the way we structured that component of it is we’ve created a directory. So each sponsor has a profile. And so investors can go there and they can filter that directory by, you know, property types geography, you know, you know, try to narrow down, like who’s doing deals that look like what I’m looking for. And then what we don’t rate them. But what we do is we say, Okay, well, if you want to be a verified, you know, you want to be verified, verified sponsor, then you and the principals of the firm those who control this firm that you’ve representing your company need to pass a background check. So will that look back seven years and you can’t have any felony criminal convictions? No, you know, personal or business bankruptcies, no unresolved accusations of fraud from investors, no regulatory sanctions, you know, the bad boy stuff. And then the results of that background check are publicly accessible to the world. So even if, you know, if you’ve been in some lawsuits, those are going to show up. I mean, it may not be a disqualifying event from being veribest verified. But you know, nonetheless, those are the things that show up because, as we know, that’s sort of where you can find some red flags. People are highly litigious, although it’s not my place to sort of pass judgment on what’s too litigious or not. And I’d rather not do that. And veribest would rather not do that. I if we make that information transparent to the investors before they invest, they can say, well, this person, although, you know, has no, no one’s accusing them currently of fraud that hasn’t been resolved, you seem they seem to keep running into issues, right. So giving that in that information, and you know, what happens when they know that’s going to be accessible, the guys who have questionable backgrounds, guess what, they don’t participate. And then for those who do participate, it’s sort of that reminder every day that they wake up, to sort of keep their nose clean. So to me, you know, that’s, that’s that component of it. And then the other big piece that we do, once again, we’re not rating it, we’re just we’re just the twist is all what’s objective and empirical. And what can we measure? So someone’s telling me on the phone, that that they’ve acquired $500 million worth of multifamily properties? It’s pretty easy to say that, you know, eyes the investor having just met them minutes before, how in the world can I? How can I corroborate whether or not that’s an accurate and true statement or not, I can’t. So what’s happened in this business, which is one of the reasons why I sort of, you know, ny veribest started to go down this road is that I saw that misrepresentation was becoming rampant. And that’s a problem. And I think that, unfortunately, many of the participants in this face, you know, deal sponsors or real estate guys, I don’t think they fully appreciate sort of the how important it is to not misrepresent yourself, right? So it’s fine to exaggerate your fishing expeditions and your high school football career. I mean, I mean, it’s not fine, but I don’t care, right? Like it’s not, it doesn’t affect me. But you exaggerating your, the the length, and the your track record is a problem. those are those are securities violations. And it’s serious stuff. And you’ve been in the insurance business notice, you got to take licensing and tests, and I’ve been a registered representative and an investment advisor. Rep, I’ve had to pass the tests. I know how I know how important those things are. But it’s happening, and it’s happening too much. And we have to clean it up. Right? Like, it can’t be that way, you can’t fudge numbers like that, because people make decisions based upon that information. And it’s been great, because we’ve been on a historic Bull Run. So everyone looks like a genius. But at some point, some point that stops, right, it’s these these markets, real estate is cyclical, and it will cycle and they’ll you know, I just don’t want to see a situation where a bunch of people raised a bunch of money did a bunch of deals based on you know, fabricating sort of their claim. So we allow sponsors to pay us to verify their track record, right. So my whole thing is, listen, pay us once we’re an independent third party and just keep paying us to verify the things you do, you now have a living track record. So when you make the claim that you’ve acquired half a billion dollars worth of real estate, you can literally say, well, don’t trust me, just go look on my profile on veribest. And you can see that, you know, that, that they’ve already checked it. Right. And so and I think that removes a lot of friction from that. what amounts to a sales process fundraising and getting someone invested in a deal that’s friction because I as the LP or the passive investor, it if I can’t corroborate that, it’s going to cause me to do things differently, right, I may I may write a smaller check, right, I only invest 50 grand instead of even though I could write the $200,000 check. Or I may decide to pass on this deal and wait for deals later to get more comfortable and see more before I invest. Or I may not invest at all because I just can’t bring myself to doing it without being able to corroborate those claims.

And then you know, and then for us, the last piece we do is just after someone makes the investment into it. Deal. Most of these things don’t have audit requirements, right? So no one’s really you know, a tax returns being done by a tax preparer but he’s not it he or she’s not digging into the details, right. So what we do is we monitor, we have a service where we’ll monitor that deal on a quarterly basis and basically review the financials. It’s like audit light, where we’re making sure that the fees that are being charged, you know, are being calculated correctly per the operating agreement, making sure that all the money’s going where it’s supposed to go make sure that the assets and on the balance sheet actually exist. And make sure that there aren’t any, you know, related party transactions or money going out the backdoor, which is most Ponzi scheme and fraudsters that’s what they do they have control of the money and the money has its way of sort of disappearing and sitting in some you know, company account or you know,

J Darrin Gross 15:51

Right now making it back to the investors. Yeah, right. So you mentioned kind of the you know, the fishing tails or just the kind of the not the truth per se I’m curious in in your discovery mode Have you found that those are typically like intentional or are a lot on just like they don’t know the rules and the boundaries as far as what they can and cannot say?

Lance Pederson 16:21

I think I think what happens Darrin is that when because they aren’t necessarily paying super close attention it’s so what happens in conversation and then ends up translating an email communication oftentimes is that we always throw out sort of these round numbers and the numbers just I think, depending upon the person tend to be you know, anywhere from 10 to 40% more than they really are so what we’ve seen already early on in this process is just in my you know, in our conversations with the prospect this prospective member of front like hey well How much do you think it is or whatever right and then when push comes to shove and we they actually give us the information then we start to see that there’s there’s a gap right and then you start to hear the we have but why included the stuff that I did when I worked for this other guy that did whatever and you know and it’s just it’s it’s once again it’s not like they’re trying to lie it’s I mean it’s just that they don’t think they realize that okay, but you have to be able to prove it right like and and so in you know letters you know, you’ve been in the business and you’ve seen a lot of LP activity a lot of investors are kind of getting into syndication games so you’re sweating also seeing is people that have invested as LPs in deals sort of trying to count that in you know, this these claims about how many doors they have or you know, and it’s just it’s just stuff like that it’s like I don’t have a problem with it right like obviously you know you making a $50,000 investment in a in another person’s deal to me is part of your track record right because you made the investment so versus you not having made the investment it makes you more experience than the person who hadn’t you know and and then of course if you make the investment the deal goes full cycle and it’s a win then you know, you should get credit for identifying an operator and ideal that you invested in and you know, when you get as much credit in the mind of a prospective investor as you would for someone who actually found the deal and bought it managed and operated it No but it’s it’s so that’s sort of the way I look at it

J Darrin Gross 18:19

Yeah and I think that is kind of one of these you know, when you get down to it and you and you really study the numbers and stuff I found that to be a consistent thing or some you’ll say I’m in you know, hundreds of doors or whatever and you find out that they’re fractional you know and like so they are invested so I don’t want to like take that away from them but it just it’s more a matter of I guess clarity and kind understanding level of participation kind of thing and and I think the to the to the to the good again being involved in in deal and stuff and and you know watching others operate and stuff definitely helps one see how to or how not to or what, you know, how to overcome certain situation or what if there is value in that, but definitely it is it is kind of a an interesting, you know, tale of sorts, you’ve got to try and parse to try and fully understand where somebody’s sitting. Yeah. So so you guys then if somebody is very vest verified then you will do like a quarterly is that basically taking their their quarterly report and then just measuring that against you know, what you find or how, how, how deep does that go? He said, it’s kind of a light, but I’m just kind of curious.

Lance Pederson 19:40

Well, yeah, I mean, I think it’s it’s like compared to a full blown financial audit, I mean, so I’ll tell you what it is and you can tell me if you think it’s like so yeah, and for the record to the other step, the other state of member we have the very best verified gold members and a gold member is someone who’s engaged us to monitor the totality of the amount of capital they have under management, so they so what they’re doing is on a quarterly basis, they are sending us their income statements, balance sheets, bank statements, bank reconciliations, and a general ledger detail, and any backup documentation on acquisitions of assets, or dispositions of assets. So basically, they’re sending us the financial package, one, one, what that does is it requires you to actually have a process in place where you’re closing your books, at least on a quarterly basis, which actually disqualifies lots of people. So another pet peeve of mine, I don’t understand why that’s such a problem. But then how you can actually operate a business without doing that. But nonetheless, we requested information, which is information that should already exist, right? If you’ve done a closed process, everything I just said is readily available. We take it in, and we make sure that everything ties out income statement ties, the balance sheet, the bank statements tied to the bank, rec, the bank rec ties to the balance sheet. Because he that’s how people sort of fabricate things, right is that it’s really hard to like fabricate financials, but if I get that total thing, I can basically tie everything out with all the reports, I just said, if you know what you’re doing, and we do have a bunch of accounts that work for us. So So that’s sort of what we do. And then we spend much of our time focused on money out, right, so the cash out the door, is where we hone in on like, okay, I mean, money came in, that’s, that’s great. But where did the money go out, and we look at the operating agreement, it says the manager is going to earn an asset management fee, and the property manager who’s a third party property manager earning a fee based on this, we’re going to make sure that the fees that those people are earning is actually the amount that they should be earning. Because that’s the other thing that happens is that well, no one’s paying attention, I’ll pay myself double, you know, the asset management fee, who’s gonna really notice, right, and the reality is probably nobody. But we do, and it’s sort of, that’s that proof that it’s like, hey, everything you’re seeing here is legitimate, and you can sleep well at night, knowing that someone who knows what they’re looking at is looking at it regularly on behalf of all the investors,

J Darrin Gross 22:07

I would think that’s, that’s definitely a higher level of certainty and, and would give any investor, you know, comfort to know that, that everything is because like you said, the, and I think, you know, real estate lends itself to a lot of lesser sophisticated operators, from a standpoint of just, you know, getting the once you qualify for the loan, kind of thing, you know, you talked about as far as management operations, reporting requirements aren’t that great. If you’re operating your own deal, you might have to provide financial the bank annually or something like that, but, but when you’re when you have other people’s money, and have to be able to provide them the level of detail, or some sort of report that assures them that their money is what is where it’s supposed to be. And that, you know, they’re going to get paid, and they’re going to get their money back. You know, it’s definitely a degree of, of reporting that they may not have been used to, on their own deal, you know, kind of thing is, whereas when they, when they start working with others, that is absolutely a requirement.

Lance Pederson 23:16

Yeah, I mean, it shouldn’t, it shouldn’t be right. And that’s why I was telling guys all the time, like, let’s just seems like this is a lot of stuff I’m like, but you don’t understand, like, if we don’t, as an industry start doing these things ourselves, then what’s going to happen is, and we’re already seeing some of this is that it’s the regulators are going to come in and start requiring it of more people within all that’s gonna do is the way that they’ll implement their regulatory regime will be far worse. And we’ll make it so that most people that are trying to participate, now, the barrier to entry will be even higher, which is what, you know, I think we’re starting to see Wall Street, sort of realize that the public markets are shrinking, you know, their ability to generate, you know, alpha that markets not there. And, you know, they’re they’ve got lobbyists looking for ways to sort of, you know, get access to more of that retail type money, you know, the accredited investor money, and it’d be a hell of a lot easier to do that if, if it wasn’t all flowing to a bunch of, you know, random, highly fragmented individuals and all sorts of corners, you know, like, it’s just, it’s, anyway, the point is, it’s the right thing to do no matter what, I think that it definitely demonstrates that you have competence, right? That you’re able to do that you’re willing to be transparent, which is the whole point, right? Is like how do we narrow down the universe for perspective, LP, who may not be as sophisticated yet or whatever, we need to narrow it down this sort of it certainly narrows it down and then it gives you greater certainty. And it’s a way for those who are really good at what they do to demonstrate that to the world, when they may not be the world’s greatest marketers or have the best branding or whatever but it’s that’s you know, that’s sort of what I’m after. I’m we know of having been we’re very active investors. ourselves you know the guys who are some of our best operators that we invest with, I mean, on the surface they don’t necessarily look like they are. right but but but these they’re the type of people that do everything that we’ve been talking about during this episode. Right?

J Darrin Gross 25:15

So do you does Verivest offer a verification for individuals that are doing one deal at a time or more fund oriented?

Lance Pederson 25:31

So the I mean the one deal at a time, if it’s syndicated equity then that fits in right I mean, those who are like acquiring single family homes with their own money and some baina

J Darrin Gross 25:45

Yeah, I wasn’t planning but I meant more like somebody that’s that’s doing a syndication as opposed to a fund.

Lance Pederson 25:51

Yeah, yeah, definitely. I mean, I think the syndications are Yeah, it’s it’s, it’s really targeted at syndications. And, and those who’ve graduated to using funds is really the, the any I mean, I think the key here, right, is that it’s anytime that investors putting money in where they’re in that limited, you know, and, you know, their limited partner there, they have, they don’t have any, they have no rights, they’re completely abdicating the decision making authority to some other party. That’s, I mean, that’s really the the rub.

J Darrin Gross 26:22

Right? Are you seeing more of the experience syndicators leveling up to creating funds? I yeah.

Lance Pederson 26:33

Yeah, I mean, I think I think we are, it’s a bit of a, you know, a love hate thing for people. But I mean, I think what we what I’ve been telling guys, you know, is that if, hey, if you’re in a position where, you know, you’re going to syndicate six or more deals in a given year or something, you really should think about sort of launching at least what may amount to like a co GP fund or just a co investment fund. So even though the fund may not end up, you know, wholly owning all of the assets, I mean, that’s a pretty steep climb to sort of go straight from syndicating one deal at a time to that, but it’s a good interim step, right to demonstrate to your investor base, like hey, there’s a more there’s more efficient ways to sort of capitalize our deals and we’re getting to the point where we need to start using those you know, those ways which would be a fun and I think it’s a good so rather because a lot of people look at it very binary like I’m going to syndicate each deal or I have to have a fund that’s going to raise all the equity and in control the equity in the deal. And I’m going yeah, that’s a really steep and wide you know, deep and wide Canyon. That’s a really hard leave to sort of make, but I think that offering that and starting to put that in place early where it’s like hey, and what we did that you know, at fairway America, that was sort of what we did is say, Hey, we’re gonna start syndicating some deals one off but it the first look is gonna go to those who are foreign investors. So for the investors listening, I think you got to understand that the more successful people come they become and the more velocity they have, it sort of may make sense for them to make that leap and don’t be surprised that that’s sort of what happens is they’ll say, Hey, I’ll give you a look at these these one off deals that you’ve grown accustomed to, but only if you’ve you make an allocation of the fund as well.

J Darrin Gross 28:24

Well it makes sense you know, from a standpoint of you have the investors capital you’ve you’ve you know implied you’re going to put it to work and they’ve they’ve gone with you and now you have an opportunity to get a reward and investor money and make the you know the returns or your investors are looking for I find it fascinating just fell in again kind of going back to the the impetus of all this kind of the JOBS Act really kind of freed up all this or created all this opportunity whereas before it was kind of like you know, like suddenly you know, somebody the golf course and just how it’s kind of proliferated and and really, you know, kind of what you you identified as well it’s just the you can do this but how good are you at marketing or, or attracting capital? And is that space kind of becomes more known and crowded you know, how can you you know, stand out and make certain that people know that you you can do are able to and provide the returns that they’re looking for and have something like veribest that can actually you know, provide some transparency to it and and you know, third party I think it’s I think it’s an awesome idea that you guys created this and I’m you know, the few syndicators I’ve talked to that are that are clients of yours. You know, are gone Wow, this is exactly what the space needed. Because of of just the the lack of ability to discern, you know, a, you know, an operator that that is doing well versus one that tells him a good story one that’s more marketing oriented kind of thing. So I think that’s, that’s a great thing. So you mentioned you know it, fairway, you guys were doing the the funds and also sponsoring some deals. Do you find that that all of that experiences and also helps you be that much more able to discern? You know, because obviously, everything we’ve talked about so far has been more about numbers to the numbers match. But I’m just curious, your your own experience and having been in the market, as long as you guys have, are there things that you for that maybe that the, the numbers don’t tell that, that help you? And again, I know you’re not grading and you’re not providing any subjective reporting, but I’m just kind of curious, does it does it? Does it show up anywhere? That experience you guys have?

Lance Pederson 31:07

Oh, most definitely. Yeah, I mean, most definitely, I think that My take is on everything we’ve spent all our time just talking about is the sort of thing that that removes a bunch of the bias we have just because we’re human beings, and we’re attracted to certain people, and like, you know what I mean, like, you’ve got that whole thing, we just, there’s so much bias built in. So as investors, and it doesn’t matter, if you’re real estate investor investing in equities, like, it doesn’t matter. I mean, to be a good investor, you need to learn how to keep yourself out of that as much as you can, you know, you can’t be emotional, right? You just can’t, right, like, you have to have a process. And so, for us, what we found is that, you know, we were no different, we’re professional investors. But, you know, we were assessed as susceptible as anyone else to just those marketing things, and the charisma of a given operator and, and, of course, we’re human beings, we’re going to be so much the things I think that are important. That’s why I say, take this stuff off the table, right? Like, this is stuff that’s empirical and objective taken off the table. Okay, so you know, what you’re dealing with. When it comes to the people, I think one of the most important things that you have to look at as a passive investor and the things I’ve we’ve learned through going through this process of like, you know, how do you do it and get become better at figuring out who you should invest with? And what deals you should invest in is that it really is about the people. So it’s, it’s looking at who’s on their team, right? Who are these people? What roles do they play specifically? And what is their background? Right? Which ones again, might not necessarily show up on the track record stuff that they have as a principle and its principles, whatever. I mean, it’s still these other things are important. And and then the other big thing is just what’s their strategy? Right? Like, do they have conviction about their strategy and their mandate? And is there a method to their madness, right? Because it’s it they, once again, there’s no right answer, per se, but if they haven’t, they don’t have clarity about how they do what they do, why they do it, you know, all those things, you need to dig into that stuff. And you need to be able to get to buy into whatever it is they’re telling you. Right? Because that’s the risk mitigation part, like that’s the extra it’s like, how do you do what you do? And why do you do it? And then you have to ask yourself an investor does them doing that mitigate risk, right? Like, if you like a multifamily guy who goes in and makes a big deal about having social services for their tenants? And, and you know, and then whatever it is, they’re doing these different types of amenities? Like, those are the people who thought through that, and they’ve got a bunch of different things they do that’s like their playbook that they run, you need to be looking for stuff that a little more depth to it than just like we buy ugly apartment buildings, or you know, I don’t know, right? Like, you want to push on all those things, to see if there’s any depth to it, or any conviction behind it, or they just this is looking for the passing fad, right? And that’s why I mean, I don’t like to be the guy who says, like, oh, people who invest in markets, they’re not in, that’s impossible. And I would always pass on that maybe that’s your own mandate or philosophy, that’s fine. But that’s not necessarily true that someone couldn’t live in California, and invest in a bunch of multifamily deals in Arkansas, but I want to know how in the world, they’re going to do that, you know, and do it successfully and ensure that you know, that they’re not, you know, that there’s not risks that they can’t mitigate because of the distance as an as one example. Right, like so. Those are the things we’ve learned like, it’s just not easy. It’s not simple. And you really have to like do your homework on everything.

J Darrin Gross 34:40

Yeah, no, I think the the, the question I think is outstanding, and I think it’s just across the board. On it kind of goes back to the start of this when the the JOBS Act passed, and how the market has been running up ever since. And you know, how many guys got in when the market was upside down from the, you know, the great recession and have been able to produce these amazing returns? How does their experience translate when there is the, the, you know, future dip correction, whatever you want to call it, I think ever since I’ve been doing this podcast, there’s been a, a, you know, in anticipation that we’re in the late innings of a baseball game, if you will, for an analogy, and that, you know, it’s it’s coming, but there’s continually these different you know, factors that have changed the lay of the land or they continue to promote this run. And so I think it’s, it’s crystal ball business is not what I’m, I don’t think anybody has one. But it’s, I think, just again, everything that you’ve, you’ve talked about this, it’ll be interesting to see how, how these, you know, players do when, when they, you know, the market is corrects itself or, or whatever the next challenge is, and it’s not necessarily a correction, but just a change in the in the course of the winds or, you know, the wind blows a different way.

Lance Pederson 36:16

So you got, I mean, we, you know, a book that I think many people quote is one of the greatest business books ever right was good to great by, by Jim Collins, in the whole book is based on studying comparable firms that we’ve all heard of, you know, head to head, right? And which ones are the ones that went from good to great. And so at the heart of that, and if you listen, if you follow Warren Buffett at all, right, like, what’s his whole thing? It’s all about the teams. It’s all about the leadership of these companies, or whatever. So it’s the, it’s this intangible stuff. It’s like, what are they made of, you know, what’s in them. Because what happens is, that’s why you have to figure that out. And that’s why we don’t Advair Avast, I don’t tell you what deal to invest in. I don’t want to do that. I don’t want to be in the business of saying, you know, shilling this deal, like, you know, put money in this deal. It’s the greatest deal in the world. Right? Right, right. I’m like, I just don’t believe in that. What I believe in is like, that’s your job, you’re an investor. If you want to be in the game, then you need to get learn enough, educate yourself enough to do that, I’m going to help you, we’re going to do as much of that stuff that’s really hard to do for any given individual, but you can do the stuff I’m talking about. In fact, that’s what we tell our sponsor members is that we’re providing you because we have the level of insight into your operation as we do. Our willingness then to provide you with a platform to share what you’re made of with the world goes way up. Because if I didn’t have that level of insight, I’d be super nervous that I’m letting some you know, charlatan up on stage, you know, tell you how great he is. Right? So it’s To me, it’s that’s not my job. So my job, the pitch the deals is not my job to sell, why I’m why I’m, you know, this guy’s great at what he does, it’s their job. And if they don’t figure it out, they won’t get capital. And if they do figure it out, you know, they might, right. And then investors need to also do the same. They need to dig in and see what makes these guys tick. And what are they all about? And do you believe in it or not? Yeah, I don’t know. I don’t I don’t know the answer.

J Darrin Gross 38:12

Right. Right. Right now, and I think, you know, there’s always a, you know, a degree of risk in that. But I think just to try and eliminate the noise as much as possible to where you can, you know, see the numbers and make it more empirical, certainly is a good starting place. I’m curious, is there any asset class that you guys don’t work with as far as any any of the investors is or do you work across all the asset classes for real estate investors?

Lance Pederson 38:42

Yeah, we were Yeah, across all the asset classes for real estate. I mean, we’ve we’ve got, you know, guys doing tax liens, and, you know, single family multifamily. I mean, I can’t think of anything that I mean, obviously, some of the special purpose stuff, we probably haven’t, you know, haven’t done anything with the ski resort there. But it’s not to say, I mean, I mean, we wouldn’t stay away from it. So I mean, I think for us, that’s the other thing is just, it’s, hey, if it has if it’s real estate, and you there’s a strategy you can put around it to acquire it and add value to it and do whatever, then, you know, then it makes sense. They need some of this ATM stuff, which isn’t really real estate, it’s like personal property seems to be popping up. I’ve got a client who’s, you know, thinking about doing a fun with one of those. So that’s kind of different, but the mechanics are kind of the same. Now on the monitoring front. You know, that’s not something we could monitor as a good example, because I have no idea how to keep track of 3000 ATMs around the country, right, like, right, but I certainly know how to figure out with real estate it should be titled, and, you know, with the technology that exists today, we can, we can we have much higher levels of certainty that that things are properly titled.

J Darrin Gross 39:54

Well, income and expenses, right.

Lance Pederson 39:56

income and expenses bank and cash and tax returns and You know, so there’s when you know the financial side I mean, it really is I know it’s complicated lots of people but you know, when you do know it, it’s like, it’s either right or it’s wrong.

J Darrin Gross 40:09

Right? Math. Yeah, like it. Got it. Lance, if we could, I’d like shift gears here for a second. By day, I’m an insurance broker and work with my clients to assess risk and determine what to do with the risk. And there’s three strategies that we typically consider, we first look to see if we can avoid the risk, that’s not an option, then we look to see if we can minimize the risk. And when we can’t avoid or minimize and let’s 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 look at their own situation could be their clients investors the market, in tenants interest rates, however you want to define that. But if you can take a look at the at the situation, and identify what you consider to be the biggest risk and again for for clarification, while I am an insurance broker, I’m not necessarily looking for an insurance related answer. So if you’re willing, I’d like to ask you Lance Pederson what is the BIGGEST RISK?

Lance Pederson 41:21

Yeah, I mean, this is a bias answer but I wouldn’t be doing what I do if I didn’t believe it. I believe that the lack of oversight and I mean is as it pertains to a limited partner investing into a deal that’s controlled by somebody else is just if no one’s watching what’s going on that’s the biggest risk that you’re more than likely not being compensated for you know, in whatever return you’ve been quoted so to me to your to your three step thing I don’t know how to transfer it because there’s no you know, no one’s writing I mean, I’ve seen a few where you can insurance on stuff like this but that’s ridiculous but you can minimize it right? And I think that’s what veribest does, is we just we just minimize it. Is it foolproof? No, it’s not but it’s a big deterrent, right and you take that off the you take that off the table so once again much like concerns the cost of the monitoring and even the light touch in the way we do it to keep that cost down it’s certainly minimises what I believe is your biggest risk is just some go sideways they stick their head in their sand and they start moving money out of the deal and you don’t become whole because of it. How many times have you heard that?

J Darrin Gross 42:32

Yeah, no, absolutely the the you know, the ponds here just you know, again, like you said, People aren’t watching the numbers and nobody’s paying attention and go. Lansa can’t say thanks enough for taking the time to talk today. Before we wrap up, where can listeners go if they’d like to learn more connect with you?

Lance Pederson 42:57

Sure. I mean, so you can go to Verivest dot com check out the directory. there there’s a little chat bubble there. I currently man that I like to be on the front lines. As we you know, the service gets off the ground so you can chat with me there. I’m on Twitter at L at L Pederson. Pederson. pretty active on LinkedIn as well. So yeah, it’s it’s pretty easy to get ahold of me or find me.

J Darrin Gross 43:25

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

Lance Pederson 43:33

Yeah. Thanks, Darrin. Appreciate it.

J Darrin Gross 43:35

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

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Infinite Banking Leverage using Insurance with Jim Oliver – CRE PN # 327

Jim Oliver 0:00

But I looked at what our actual rate of return was versus what our platforms were telling our customers, their rate of return was. And now you would think those two things would be the same, but they weren’t. The platforms were telling my customers and me that they were getting 9.38% over the last 10 years. They were actually there kegger compound annual growth rate was a little over four, after fees, taxes, expenses, etc. It was then that I started to look at all of my clients and how much money or how they made their money, excuse me. And I found that there were two ways real estate in businesses. Now at the time, I didn’t realize. I mean, real estate is a business, right? So it’s real estate and businesses. And I started to study real estate and business ownership. And I shifted all of my focus to that, and how I was going to help my customers build wealth in real estate and businesses rather than in the stock market.

Announcer 1:05

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

J Darrin Gross 1:25

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

Today, my guest is Jim Oliver. Jim is the world’s foremost authority on the infinite banking concept and has dedicated his career to breaking the financial shackles that bind people in businesses to unnecessary taxes and interest expenses. And in just a minute, I’m going to speak with Jim about infinite banking.

But first, a quick reminder, if you like our show, CRE PN Radio, there are a couple of things you can do to help us out. You can like, share and subscribe. And as always, we encourage you to leave a comment. We’d love to hear from our listeners. Also, if you’d like to see how handsome our guests are, be sure to check out our YouTube channel. And you can find us on youtube at the commercial real estate pro network. And while you’re there, please subscribe. Without I want to welcome my guest. Jim, welcome to CRE PN Radio.

Jim Oliver 2:49

Thanks for having me. Darrin, I’m excited to be here and share with your audience today.

J Darrin Gross 2:54

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

Jim Oliver 3:03

Yeah, absolutely. So I grew up in Los Angeles and went to school in the Midwest was a big change. And I decided because I grew up very poor, stood in line for government cheese, and lived in Inglewood, California, I decided that I was going to study money. So I went to school, became a financial planner, and set up shop in Denver, Colorado, and thought, Okay, this is great. And I studied everything I could find on money, and Wall Street, and everything that I can find like how to get rich in Wall Street. And after 15 years of doing that I didn’t say I was I was a quick learner Darren but I, I looked at our portfolio, and I had about $700 million under management. So we were doing pretty well. But I looked at what our actual rate of return was versus what our platforms were telling our customers their rate of return was. And now you would think those two things would be the same but they weren’t the platform’s were telling my customers and me that they were getting 9.38% over the last 10 years. They were actually there kegger compound annual growth rate was a little over four, after fees, taxes, expenses, etc. It was then that I started to look at all of my clients and how much money or how they made their money, excuse me. And I found that there were two ways, real estate and businesses. Now at the time, I didn’t realize. I mean real estate is a business, right? So it’s real estate and businesses and I started to study real estate and business ownership. And I shifted all of my focus to that and how I was going to help my Customers build wealth in real estate and businesses rather than in the stock market. I’ve been doing that 18 years

J Darrin Gross 5:11

no, I’m I’m interested in hearing more full disclosure here. I’m a son of a banker myself and I’ve learned a few things that just putting your money in the bank because I was told as a kid is not exactly the most prosperous way to, you know, take care of money. But so you were a broker then is that basically are a certified financial planner or what?

Jim Oliver 5:38

Yeah, I was fee-based financial planner, full service, you know, sit down, you guess a little bit I, you know, you I asked you questions, and you guess, and then I guess, and then we hope together that you’re going to build your wealth over a 20 3040 year period. And yeah, at all the all of the terms down, we had, you know, how much you needed to invest? How much time inflation and everything else and look at this and 40 years, you can quote, retire, which means to be taken out of service. And you shouldn’t run out of money based on the Monte Carlo method. That Yeah, I did that for 15 years. That’s all I you know, everybody was telling me that’s, that’s how people make money.

J Darrin Gross 6:28

No, no, it’s it’s to interest am I’m kind of curious, what was the lightbulb moment for you, that caused you to shift gears and, and then quit that?

Jim Oliver 6:42

Yeah, all of my clients that really, you know, that didn’t get lucky, right? They didn’t work at the right company at the right time, or, or something like that. All of my clients that didn’t get lucky, they built their wealth, with real estate, and business ownership. So why would we try to build somebody else’s wealth outside of that, and I really couldn’t find any good examples of somebody, middle income, upper middle income, you know, etc, that had built some great fortune in Wall Street. And it was a mentality of scarcity. And I like to think that I don’t live in that scarcity mindset. And and I think that I realized that the noise out there, that it’s designed to keep us in that scarcity mindset. So that was kind of the lightbulb moment.

J Darrin Gross 7:35

So when you when you realize this as a real estate and business ownership for kind of the path to actually creating wealth? What What did you where’d you go? What did you do? What did you do?

Jim Oliver 7:50

Yeah, that’s a great question, what I did is I started reading everything that I could get my hands on, going again, I was in Denver, at the time going to any real estate, seminar, course, anything that I could, could sign up for, and that I could attend. I started talking to my clients that built big real estate portfolios, or big businesses. I mean, I remember a guy that started a plastics business was a big influence on my next steps. And so I just started interviewing clients and interviewing people that had done it. And I just found, I just found a treasure of information. And then it came down to, it looks simple, might be simple, but simplicity is elusive. You know, it’s not it’s some of these techniques. And some of these systems are tried and true. But they take you know, they take work they take, they take education, so they’re gone from there.

J Darrin Gross 9:00

So what are some of the techniques and I assume that’s how we get to the infinite banking. Is that is that one of the, the concepts or the technique that people were using?

Jim Oliver 9:11

Yeah, I mean, I always ask people is, you know, Darren, if I would loan you $100 million today, and the or only obligation was to give the pay me $5 million of our $5 million of interest, one year from today. So you, you know, I’m going to give you 100 million today. And one year from today, you got to pay me $5 million of interest. Are you going to take the loan? Yeah, absolutely right, because you know what to do with the money. So let’s reverse that for a second. What if you made me the same offer and Darren, if you are making that offer, I’m I’m open to talking after the show. You loaned me 100 million bucks. I’m gonna go to the bank. The seller, and I’m going to get 80% loan to value. So I’m going to get another $400 million, I’m gonna buy $500 million of real estate, my standard, and we’re getting slightly better than this, but is 25% cash on cash. So I’m gonna make 100, I’m gonna make 25 million on because I got your 100 million in it right? And I’m gonna, and I’m gonna call you at the end of the year and I’m gonna say, hey, Darren, I’d like the fly out to Portland and buy lunch and give you a check. And we get together and you say, Jim, hey, do you want to pay any principal? And I say, No, see you next year. Right? That’s kind of how infinite banking works. And that’s what I discovered is people can find deals, I’m not saying it’s easy, but we can find deals, it’s putting the financing together, and it’s managing the debt. So how do we do that? Well, if we can control the banking function, which is what infinite banking concept does, then then we’re way ahead of the game. And what we what we do is we get alone, kind of, like I just said, we use a very special, specifically designed insurance contract that’s designed for cash value, it’s guaranteed, you have a right to borrow up to 100% of the cash value, right? With an interest only loan, and your money never leaves your account in this tax favored account. And the insurance company has to give you their money, kind of like I just said, Now it’s interest only. Now I can take that money, the insurance company’s money while my money is going, they’re growing tax free. And I can go and I can leverage that with the seller is what I would prefer, or a bank that wants to play with me. And I have control over that. More so than if I’m putting my money in, right. And so then as that that property starts to cash flow, I’m going to flow that money back to my insurance contract until my next deal. And then all of a sudden, I have multiple deals that are appreciating in value, cash flowing, I have money in my insurance contract that’s growing tax free, I have a loan against that, right. And when I have windfalls if I sell a property or whatever, I can put that money back into an insurance contract, but all of my cash flows back in there, which reduces my interest expense. And I just do it over and over and over and over again until the policy won’t hold the cash flow.

J Darrin Gross 12:52

Okay, so in a you mentioned, you’re kind of slow learner I challenge you on that because I know I’m a slow skier. But the basic concepts if I understand right, the the insurance contract is kind of the vehicle that provides the the in and out if I have a and I’m assuming these are life insurance policies is that

Jim Oliver 13:15

Yep, they’re especially like they’re they’re, they’re a combination of a paid up additions writer, which is like a one pay insurance policy, and a standard whole life policy. And the reason we use that is because there’s guaranteed growth in the whole life policy in the universal life, there’s not guaranteed growth. So it has to be a very specially designed contract. We write it right up to the mech line, which is the definition of life insurance over the mech line being too efficient means it doesn’t get all the tax benefits. So yeah, it’s a life insurance contract. But but it’s designed like a bank or corporation with design an insurance contract with Boley bank owned life insurance, or Kohli corporate owned life insurance is designed that way, not kind of how normally consumers buy life insurance.

J Darrin Gross 14:07

So so the policy is still underwriting your life presuming you’re, you’re healthy and in the premium amounts. track all that I’m assuming I mean, although it’s paid up policy, can you explain a little bit of that? I mean, so if we, if, if, if I had it, guess what, what’s a minimum amount that people usually start with to make this a viable option?

Jim Oliver 14:36

You know, it’s funny because when we think of buying insurance, we say, okay, we want a certain amount of death benefit, what’s the minimum amount that we could pay for that death benefit, right? But because of what we’re doing, then we people think differently on the funding level, so they don’t really think of it in minimums. They think of it in what cash flow. Do. I have Right now, either from my w two job, my properties or something else, that I’ll flow that money through the insurance contract first, instead of holding it in the commercial bank, I’ll hold it there until I need it for escrow for whatever it is, right? And so people start from 10 $20,000 a year to millions of dollars a year. In fact, let me let me give you an example. And then I’ll go back, there was another part of your question. I’ll remember here in a second, but we have a real estate investor in the Midwest that has about $120 million of real estate, that, by the way, they’ve done that in the last seven years. They, I mean, which is pretty amazing, right? And they’re escrows about $175,000 a month at the time, right? So what they they came back and they said, can I run that 175 per month through the insurance contract, then when I meet need money out for escrow, I’ll pull it out and and every month I just keep putting it back in. I said absolutely. So the difference for them is there’s a point around the fifth year maybe a little bit sooner, it just depends on your age and underwriting. But where every dollar you put in there, Darren, you have more than $1 to use. Right? So like in year 10, I might put if I put 40 grand and I might have 60,000 to use now if I’m running that, if that’s my escrow money, I just got a big discount, right? Because I got more money to use than I put in there. And so normally people buy life insurance where they’re letting it sit there it’s accumulating and again over 2030 years or whatever they say this is how much money I’m going to have. And then they say is that a good rate of return? Is that an adequate rate of return whatever it is, we’re using the money this is you’re exactly right this is just the place we park the money it’s the money pool it’s not infinite banking, that’s a process not a product Okay, so the insurance contract is it’s kind of like cogeneration the think about like up in your neck of the woods you know, you you might have a lumber lumber yard next to a paper mill your or something like that where you you know, you have wood and then you have paper and and they work together and so the insurance contract and then your behavior and the cash flowing assets. They all work together in concert. But now remember that the other question is you can buy here’s the cool thing. Okay, so I’m 56 I have some business partners that are all the way down to 24 that’s my youngest business partner. I can buy insurance on them because I have insurable interest I’m the owner and I’m the beneficiary they’re just the insurance they have no control over the policy but I can find bugs by cells I can you know I can I can make my business and my partners more secure and myself more secure what all while I’m becoming my own banker and controlling the bank banking function in my life.

J Darrin Gross 18:20

So that the vehicle is basically just a vessel quick in and out I mean you have maximum flexibility you put the money in you can take the money out up to 100% is that

Jim Oliver 18:30

Yep yeah and what here’s another thing because when we think of loans we think of approval processes or applications or anything there’s none of that they have to it’s a contractual right that you have to take that loan you literally sign a form and and and we we scan it to them and we literally can have your money I mean I’ve done it the same day but let’s just say by tomorrow.

J Darrin Gross 18:58

So, so Okay, so I get basically the the initial concept is the individual you you created in some sort of like a corporate structure as opposed to just a straight pay down or like a life insurance policy I mean, it’s more like this this vessel that has a maximum flexibility. So if I have a you know, income of 10 and I keep putting that in there eventually that that the the availability can grow beyond the 10 per month to where I can borrow more is that my tracking?

Jim Oliver 19:36

Yeah, absolutely. Because of and and it’s each year as you’re putting money in like so let’s just say that make the math easy, and I can think of the purse, the percentages in my head, if you put 100 grand then in by like the third per year, okay, so like by the third year you put 300 grand in, you’re gonna have a total cash value, but the way We look at it because it’s not sitting there, most of that money is probably borrowed out, is you put in 100 grand, maybe you have 107,000 to use in the third year, right? And it gets better every year. So we use it as a cash flow system, not an investment we’re setting letting the money sit there. So um, you know, this reminds me Darren that it’s it’s, it’s a it’s a mind shift. It’s a, it’s it’s changing our thinking it’s a different paradigm, but it takes a little bit of time for people to change that paradigm, because everybody thinks the life insurance, like other investments or savings vehicles, where you put money in there and let it sit, and then Okay, what’s my rate of return? It’s, it’s, it’s not that it’s, it’s really compared to like your checking account, because you’re gonna flow money in, you’re gonna flow it out. And in, in, basically, you’re like, collateralizing, your checking account, but your checking account in this example, is in a tax favored vehicle. So you can there’s literally, as long as you let Don’t let the policy lapse, you can never pay tax on it, again, on the growth or the access to it, there’s no tax on the death benefit to the next generation. So there’s legacy planning. And leverages, there’s a point in just a few years where you put in $1, and you have more than $1 to use.

J Darrin Gross 21:31

Gotcha. So so the leverage is not a an instant option, it’s, it’s, how long does it have to season before you can leverage that.

Jim Oliver 21:39

So like, I’ll give you an example, if you are a woman under 50, it leverages in the second year, I mean, it’s just crazy, because women live longer than men, right? If you’re, if you’re male, and you’re under, you know, probably 46 47, it’s gonna be right at 100%, maybe 99, you know, percent, some, I mean, right at 100 in the second year, and then the third and fourth year, it’ll start to leverage if you’re in your 60s, and I think our, we had a client that was 85, that started this when they were 78, or 80. On they unfortunately passed away. But if you were in your 60s, it might be the fourth or fifth year, maybe the sixth year before it starts to leverage. But again, if I’m in my 60s, and let’s say that I’m in poor health, but I have, I have a business partner, who’s in their 20s 30s or 40s, I can insure them or their spouse, I can insure my spouse if they’re healthier or younger, or you know, any of those things.

J Darrin Gross 22:53

Got it. And the the, I guess the it’s the end, I mean, if the the policy gets called because there’s a death, then I’m assuming the benefits are less whatever is outstanding, as far as the loan goes?

Jim Oliver 23:07

Absolutely, that’s what’s really cool is, if you wanted to turn this into an income stream, you could and you could take out all of the cash value over your lifetime. And then your heirs get what the policy minus they get the death benefit minus the loan balance. But think about this for a second. If you were going to say write insurance on a business partner, and, and the you know, the business partner dies, you get a tax free death benefit. So you know, there’s a lot of things, a lot of different planning things for everybody’s specific situation. But um, you know, I’ve used it in so many different ways in so many different businesses. And it works with every business, it’s just how does it fit for each business?

J Darrin Gross 24:01

Got it. So okay, so I understand that the basic concepts of the who, the the vehicle and the the opportunity to leverage, you know, after it’s seasoned in a new, you’ve got, quote more than the cash value that you’ve put into the account available to you. So, the in and out thing, if we could go over that one more time. So if, if I’m just again, round numbers, easy numbers, if I’m putting 100,000 a month in, and let’s say it’s, you know, 100,000 a year. So 10,000 in 100,000, you get to the the magical point of say three years, so you’ve got 300,000 in at that point, presumably it’s worth but 400,000 is that too much?

Jim Oliver 24:56

That’s probably a little bit high because we’re in a low dividend because we’re in so It’s a low interest rate environment, but

J Darrin Gross 25:02

It uses the cash I guess what I was trying to figure out. So, yeah, so that so let’s just say two or 300? Because I’ve got three times 300. Yes. But now I can leverage that 300 up to what 400? Are

Jim Oliver 25:15

you? Well, I mean, what I mean, there’s two different languages like there’s, there’s, I could take that 300. And then I could go use that as 20% down payment, go buy some real estate, have that real estate sub, because remember, we’re talking about just the way we design the insurance contract. And that’s just the the money pool, but where the real magic happens, is taking that money. And even if I was going to use, you know, I’m going to go to somebody who syndicates real estate, because i don’t i don’t i want to do it passively. I don’t know anything about it, let’s say whatever it is, I mean, it would work slower. But the way that I would do it, the way that you would do it there is that you would take that 300 grand, and then you would use that as a as a 20% down payment, and you wouldn’t go out and buy. Three, you’d go out and buy, what am I trying to say, but that was 20, what’s 20% 80%, you’d go out and buy one point million, or $5 million worth of real estate, let’s just say, right? Okay, and so then on that real estate, then I would expect to get 25% cash on cash. So I get $75,000. And that would flow back into my system. So let’s say the next year, I put in 100 grand, but I got the 75 to use again, right? And then I’m going to take that 175, I’m going to go buy $2 million worth of real estate or whatever it is. And then I’m just gonna keep on doing that over and over and over again. And pretty soon the cash flow won’t fit in the policy, and I have to have more policies. That’s why it’s important to have the know I mean, like, there’s only so much though right on one person, right? And so then you know, that’s where we, we expand out to partners and everything else, even people are running your property management, because you have insurable interest on them. So that’s how I would leverage it. Now, some people do take that money and they say, Okay, I’m going to take that 300 grand, and I’m going to give it to one of somebody syndicating real estate, and they’re buying assisted living facilities, and they’re going to pay me 20%, you know, over per year over three years, but nothing the first, whatever the deal is right? Then, then I can still draw that out with the cash flow, it just takes a little bit longer, because there’s no seller or bank financed leverage.

J Darrin Gross 27:51

Gotcha. And the the so so as long as you you know, you circulate money through this thing, you keep the policy paid up. The cash is available, or at least a large percentage of it is, and allows you to continue to go out and leverage and create more, is that kind of?

Jim Oliver 28:15

Yeah. So so what we’re kind of trying to do, this isn’t maybe an example that’ll help is, if you think about a mortgage, you know, just are your average everyday American who has a mortgage on their house, right? Let’s say they’re gonna buy a $300,000 house, it’s 5% 30 year mortgage and the payments 1600 bucks a month, right? I’m just making these numbers up. So when you pay that bank that 16 $100, what does the bank do with that money?

J Darrin Gross 28:49

They take most of it for interest and put a little against a principal.

Jim Oliver 28:54

Yeah, but what they do really is they just take that money and loan it right back out. Right, right. And so they’ll take your payment, my payment, the audience’s payments, and they’ll pull them all together and loan it out to somebody else. Now, again, we can’t do fractional reserve lending. But so so sometimes you will jump to that. I’m not saying that. But what the bank does, is they loan that money out every time you make a payment over and over and over and over again, because the asset is the loan. Right for the bank, you know, and you mentioned your dad was in banking, the asset is the loan, everybody that works at the bank, they’re trying to get deposits in so then they can loan those deposits out. Right. And that’s the I own part of a bank in South Dakota. And if we were at a board meeting, we’re not talking about I mean, we’re only talking about one thing, I mean, not really I mean we’re a lot of things but the one focus is our is our loan portfolio doing how our assets doing right and you know, then it’s who’s late was, you know, whatever it is, but but when what we’re doing is we’re turning that liability which most people think of. Most people think that when you deposit money at the bank, that it’s a asset, but it’s actually a liability for the bank, they make it an asset by loaning it out, but loan is the asset, excuse me, sorry.

J Darrin Gross 30:30

No, it is a flip the script kind of a thing when you you realize the value of it is, you know, an asset by lending it out as opposed to the liability of having it on your books or so, so, let me ask you this, I get the basic concept. And this is, is opposed to not having a life insurance policy and just having a mortgage or being limited to, you know, to your, to your own, I guess capital, you know, the ability to go out and raise capital or, you know, say I mean, if you, if you were to put the same amount of money into a savings account and wait until you had the or enough on hand to go buy another property you know, essentially as a similar scenario, the differences you wouldn’t have the protection of life insurance or the, the tax vehicle of a life insurance policy is that my my track and as far as a comparison?

Jim Oliver 31:30

And remember, at some point in time, every dollar you put in you have more than $1 $1 that you can go borrow, because the policy leverages the reason it leverages is because it never leaves that account and it’s accumulating right but and that’s that’s the way people think of life insurance my cash value is going up every year just a little bit by mumbo jumbo but we’re using that insurance company’s money while our money is sitting in there and growing. So it literally gets to where I put that 100 grand in and let’s say at year 10 I can take and go invest 150 grand because my policy is growing by that deposit and I’m and I’m taking and I have all the money borrowed out using it for real estate it’s you know this part of it Darren is a little bit harder easier to to see you know it’s more visual seeing the tracking than it is verbal and I’d be happy to give you some links to videos that we’ve done that literally draw this out so you can see the kind of the how it all works together and in we do have real estate examples in there that again are drawn out and you can see the math and and we we have people that I use 25% cash on cash I have some times people say to me, you know they’re at 27 or 28 or they’re 23 or 20 It doesn’t really matter it still works it’s you know again I’m just for an example I’m just trying to use him Yeah, just for illustrative purposes.

J Darrin Gross 33:12

Gotcha. So let me ask you this so the the the good news if I’m hearing all of this is basically that the you have the the benefit of a life insurance policy you have the ability to leverage the cash value in the policy to where you can go out and create more investments more equity more cash flow so what are the risk of this what’s the what’s the potential downside or something like this?

Jim Oliver 33:43

You know, the the downside really is kind of the same as like at a bank if they have the because of the posits if they’re just sitting there and they don’t use them, then the banks in trouble right now it’s not that harsh here because it would just gain gain that you know just would earn dividends and just kind of chug along like a normal life insurance contract that somebody might buy but it’s not going to give you all of the things that we’re looking at it’s not going to give you all of the freedoms to take over the banking function. So sometimes people just like anything else they they started and then they they don’t take their first loan they don’t go buy their first property they don’t go and and they’re the only risk there is now you have to fund insurance and and you’re not letting in your and you’re using your income to fund the insurance instead of using your assets to fund the insurance and that’s not really the system so that’s that’s a danger it’s it’s something that I would say that wouldn’t be as desirable. I mean it’s not like it’s gonna hurt you but but you’re then you got all this money in the insurance contract that you’re not you But it’s the that’s kind of rare what, what we try to do is when somebody starts, we send them videos, we send them articles and and they figure out what their imagination where their niches, right? So if you and I interview we’re coaching somebody on how to get into real estate, and let’s say commercial real estate, right? And I mean, you, you would say, okay here, here’s what you need the start the read, here’s what you need to listen to, I’m going to coach you, I’m going to do this, this this, and I’m okay now I want you to go evaluate 10 deals or whatever it is, right? I mean, you have a system. And so if that person at some point in time, 90 days, then says, Yeah, I’m not gonna evaluate any deals, well, then they’re not going to get the benefits that you’re trying to show them or buying commercial real estate. Right.

J Darrin Gross 35:54

Right. Right. Right. Now, then it makes sense. I, you know, so the downside is basically for if you don’t do if you don’t take advantage of that’s basically what it means. So let me ask you this question. Because I think that what we’ve certainly learned here in the last couple of years and the potential going forward, nobody knows exactly what’s going to happen. But there’s always a potential for like a change in a law or something. Are there any unique laws that this life insurance takes advantage of that potentially could? You know, change? And this the the ability to use this policy this way change?

Jim Oliver 36:37

Yeah, you know that? That’s a great question there in in the life insurance, whole life insurance has been around since the 1650s. In England, but over 250, around over 250, almost 300 years. In the United States. It was so it precludes they were pre existed. federal income tax, right. So. So that’s one thing, the last time that they changed the law was in 1988, during Defra, I don’t know if you remember those tax changes, but it limited how much money you could put inside the insurance contract for a given death benefit. And they and that was the the Internal Revenue Code 7702 is definite definition of life insurance. Everybody that bought an insurance contract before 1988, they were grandfathered. So if they change the law again, because I don’t know, they would really have no way of undoing all of this right, then you would be grandfathered. The other thing that protects us, in my opinion, is that there are so many people that are elected officials that do this, it’s kind of like the real estate laws, there’s a lot of there’s, you know, it’s that it’s very interesting how somebody can spend their whole life in public service and become a billionaire. But if you look at their portfolio, they invested in this, they invested in this real estate, this property, whatever it is, right. So in my opinion, they’re not going to go and change these laws, and hurt themselves. And then you have the insurance, the insurance lobby, which is very strong, can you imagine if they took away the tax deferred growth and the tax free death benefit inside of an insurance contract? Well, then a lot, then most people would not put money inside of an insurance contract. So if they didn’t do that, then there wouldn’t be any private protection, which means the government would have to protect everybody, again, a negative. And if you go back to before 1974, when the IRA was invented, or roll was introduced, people would put up the 50% of their savings in life insurance contracts, and just let it accumulate, because they could turn those life insurance contracts into the type of pension at retirement. The IRA really took all that money away from the insurance industry, and in and so they did that and people didn’t have private life insurance. It’s getting a lot more expensive for the rest of us.

J Darrin Gross 39:32

It’s interesting to see that history I forgot about the life insurance being kind of the vehicle pre IRA. So definitely, things can change. But like you said, the the fact that the policy makers are the ones that are typically taken advantage of these things, I think that’s some insulation from from change, it would make it punitive to do so. So that’s good. So in summary that is there, is there person you think this works best for?

Jim Oliver 40:08

You know, I think it works for everyone. I really like probably I see people get really excited about it that are real estate investors, business owners, entrepreneurs, you know that I’m not saying that somebody working a W two job doesn’t get it, they do. Okay. And we have lots of clients that are working w two jobs, we have a lot of doctors, you know, attorneys, things like that. CPAs. But it is, it is a paradigm shift for, for them kind of like, if you were looking to get into commercial real estate, it’s a paradigm shift for that w two employee. Now sometimes the most exciting people to work with are those w two employees that haven’t broken out of the rat race yet. And, and because they see this as a vehicle that can accelerate that, that for them breaking away.

J Darrin Gross 41:17

Gotcha. Hey, Jim, if we could, I’d like to shift gears here for a second, absolutely, by damn an insurance broker, and try and work with my clients to assess risk and determine what to do with the risk. And there are three strategies that we typically look at, we first look to see if we can avoid the risk. And if we can’t avoid it, then we look to see if there’s a way to minimize the risk. And when neither avoid nor minimize the risk our options, and 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 own situation. Could be their their clients, investors, tenants the market, however you would like to identify the risk and consider what is the biggest risk? And for clarification, like said, while I’m an insurance broker, I’m not necessarily looking for an insurance related answer. But if you’re willing, I’d like to ask you, Jim Oliver, what is the BIGGEST RISK?

Jim Oliver 42:29

I think the BIGGEST RISK is inflation. And I think that because the dollars in our pocket, are going down in value so fast, that if we have a bunch of dollars sitting around Fiat dollars, then we’re in trouble. I mean, if if you gave your kid $20, to put it in a savings account today, you’d be doing them a disservice. Because that $20 isn’t going to be worth very much as we go along. And my example of that is when I was a kid, we could buy about five candy bars for $1, right? Maybe a few more, and now you can’t even buy one. So if the dollars in my pocket are going down in value, how do I combat that? So my, you know, I could say taxes, but taxes are gonna go up and down. And I believe taxes have to go up based on our that, right? But inflation is really a stealth tax. Because the dollars are going down in value and every time the Federal Reserve prints money, then my value is going down, that’s a threat to me, that’s a risk to me. And the only way to that I know of to well, by the way, you could take all your money and put it in cryptocurrency and get out of the Fiat system, okay. And I’m not discouraging somebody to do that. And I’m not encouraging somebody to do that. Okay, but but you can get out of the Fiat system, which is one of the reasons that these cryptocurrencies these digital currencies exist, right? And then, but, but you could also you can buy assets, because if I own assets, that are appreciating in value that are that I have tenants and in customers that pay me to use my space, if it’s real estate, or if it’s a business, I can raise my prices, if it’s real estate, I can really raise my rent. I can keep up with inflation. So that’s the biggest risk, and that’s the answer and how to mitigate that risk.

J Darrin Gross 44:43

No, that’s a great answer. And I think in the years that I’ve been doing this, you’re the first one that’s actually said that and it seems so obvious. So I appreciate you sharing that with us. Absolutely. Jim, we’re gonna listeners If they’d like to learn more connect with you,

Jim Oliver 45:03

So you can go to Create tailwind dot com. The reason it’s create tailwind is most people are fighting a financial headwind, we show you how to create a tailwind right and push you faster in the airplane. So create tailwind all one word.com. Or you can go to our YouTube channel, which is create tailwind, and we’ve got video resources on there. They’re also on the website, too. There’s links to the videos, but those are the best ways to get ahold of us.

J Darrin Gross 45:37

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

Jim Oliver 45:48

Thank you there and thanks for having me. And I really enjoyed it too. Thanks for all the good work that you’re doing out there.

J Darrin Gross 45:54

Alright, thanks 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. CRE PN Radio.

Unknown Speaker 46:15

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Commercial Real Estate Covid Lease Disruption with Marc Betesh – CRE PN #326

Marc Betesh 0:00

I was asked what did I think was going to happen? Was there going to be any permanent net effect on the on the commercial market? And my prediction was a five to 8% net reduction in demand just because of, of a shift in, in behavior. But looking at it now, I think it’s going to be greater than that. I think it’s, I think you’re looking at an eight to eight to 15%, at least in the office markets, which is five to eight to me was was massive, and eight to 15. Is is whatever the word is, I don’t want to use the word catastrophic, but it’s it’s a it’s a very, very big disruption very big.

Announcer 0:42

J Darrin Gross 1:01

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

Today, my guest is Marc Betesh. Marc is the CEO and founder of Visual Lease, which helps to improve the financial, legal and operational performance of commercial leases. And a former commercial real estate lawyer who has helped companies in fortune 500. Companies navigate and manage their leases.

And in just a minute, we’re gonna speak with Marc about 2022 commercial real estate predictions. But first, a quick reminder, if you like our show, CRE PN Radio, there are a couple things you can do to help. You can like, share and subscribe. And as always, we encourage you to leave a comment, we’d love to hear from our listeners. Also, if you’d like to see how I answer my guest star, be sure to check out our YouTube channel. You can find us on youtube at commercial real estate pro network. While you’re there, we would encourage you to please subscribe as well. And with that, I want to welcome my guest, Marc, welcome to CRE PN Radio.

Marc Betesh 2:29

Thank you. Well, nice to be here.

J Darrin Gross 2:32

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

Marc Betesh 2:40

Sure. I work primarily on the occupant, occupant side, the tenant side, I’m a real estate attorney practiced in New York for a number of years. And way back in 1985 started a business that many landlords hate, which is called lease auditing. I was really the founder of that little mini cottage industry 35 years ago, but I really I got there because I was so frustrated negotiating leases on behalf of my clients. And and realize that the despite all the work that we did at the negotiating table, and both sides by the way, it’s not just one side and all the effort and time and expense going into negotiating leases was often often really not put into effect in real life. The leases ended up in drawers. And nobody knew what they said. And here, I was working so hard to make sure that my client was protected and its interests were protected, especially for large commercial leases, which I worked on almost exclusively. And realize that that despite all the great things that I had negotiated at the at the bargaining table, that our clients, these big companies really weren’t paying any attention after the fact we’re in looking at the clauses when when bills came into them, they didn’t pull the leases out. They didn’t know what the leases said. Basically just paying whatever the bill invoices showed and built a business around going in and trying to help commercial large commercial tenants check their leases to make sure they’re getting the benefit of what they bargained for. We built that business fairly successful, represented a lot of large fortune 50 fortune 100 companies. And after about 10 years realize that the problems still persist persisted we were we were putting a bandaid on it. We were correcting invoices, we were correcting bills, but the underlying problem was that companies really didn’t know what their leases said. And we saw This very pronounced by pulling a file from a client, you know, major company would give us their leases, we’d open up a file and we would read the read the lease, and it would say, for example, the tenant has no obligation to pay for real estate taxes. And then we look on the right side of the file folder, and there’s a stamped real estate tax bill paid. And, and the problem was, they just didn’t know what the lease has said. So we said this could be solved with technology. And we we built a software platform called Visual Lease, to really make leases visible to make them transparent, to bring them to the fingertips of whoever needed to see them. Not just tenants but, but lessors. Lenders, whoever needed to see the leases, we now had them organized, a summarized, plotted out financially, really created a whole ecosystem around keeping control over leases. That system was was successful, we, we, we put it into a number of large companies. And we’ve had some clients now some customers now that have been with us for for over 20 years. The The interesting thing is over the past, I’d say the past eight or nine years, with all of the new talk about the lease accounting rules, there’s been a heavy emphasis on on accounting for leases. And so it’s an area that we have always dealt with with our platform. But now it’s really stimulated the market quite a bit. And we’ve grown pretty substantially over the past five years or so.

J Darrin Gross 6:45

That’s awesome. I can totally appreciate that, as an insurance broker. How many times I’ve seen leases, and I think most often the sentiment, as you get towards the end of a deal is just to get it done. Without totally understanding what’s in that. I’m curious, in all of your experience, is there any one area that you can point to that typically overlooked or is usually a trouble spot for, for tenants in a lease?

Marc Betesh 7:17

We we tend to focus on the financial terms, which are obviously the most important terms generally. The more complex the leases, the more likely it is the practice is to the practice will be to diverge from what the document says. As attorneys, we often work very, very hard to tailor the transaction to the unique situation of our clients. And we so we see two things we see we see, out and out missteps we don’t we don’t often see deliberate over Billings, or things like that, it typically is and the problem, the problem of the complexity is not only for the tenants, it’s also for the landlords, everybody has the same problem, you have a lease, it’s 125 pages long, give or take, it could be 250 pages long. But you have a very long, very complex lease, and everyone took such care to get it to the right spot. The two problems are number one, people don’t read it. And so they don’t know what it says and Miss there. And then the second place is that the attorneys themselves don’t often get it right. They often get it wrong. They often think they’re getting it right. They’re trying to express what the parties all agree to. But like we’ve seen in many contracts, and all of us have seen this, I’m sure you’ve seen it as well. You know what you thought you were agreeing to five years later you go back and you scratch your head? And you say, is that really what I meant? What you know, what, what was it supposed to be capturing? And that’s what I mean when I see the attorney often don’t get it right, because they think they’ve got it. And everyone, everyone at the table knows what everybody else means. Add five years to that equation, and nobody remembers anything. And so now you’re trying to read language in its in its plain form, and trying to decipher what everybody meant. So the more complex provisions, the things that are anomalous that really go off the standard lease clause are the things where people make the biggest mistakes.

J Darrin Gross 9:34

Got it. Well and Visualease, do you are you able to kind of navigate or give more of a rigid framework to that where people know where to look? So it’s not such an abstract or forgotten?

Marc Betesh 9:48

Yeah, the thing with Visual Lease is is that it’s intended to standardize diverse leases. So think about this from a from a lessor perspective. Fa If a landlord has 100 leases, it likely has two or three forms that it’s using across the entire portfolio. You know, when you when a tenant wants to lease space in a building, the landlord gives it its form, not the tenants form. So if you have a building with 20 tenants in it, you have 20 tenants that have, for the most part, the same lease. So if you have 100 tenants, you have 100 of the same or similar leases. If you’re a tenant, and you have 100 leases, you have 100, different landlords with 100 different lease forms. So you can think about how difficult it is to manage this. From a portfolio standpoint, what you really need to do is to find a way to standardize all these leases in ways that are important to you. And so what visual lease does is it creates a framework so that you can you identify what the important things are, obviously, we suggest what we think are the most important things but but the beauty of the of our platform is that it’s very flexible. So if you are, for example, a law firm, and you want to track things that pertain to the way you operate your law offices, the number of partners in number of associates a number of support staff, you can track that and you can track that, think about that, if you have 3040 leases across the country, and a law firm, you’ll track that information. And now it’s usable for you, you can you can see where the where the distribution of the partners and the associates and the support staff are, you can do analyses of the cost per square foot for each of these people. And so you can do all that stuff at a portfolio level. And if you’re, if you’re a if you’re a warehousing tenant, right? You don’t care about partners and Associates, but you care about ceiling heights and number of bay doors, and things like that. So so those are the unique things that you can tailor to but the standard things are, you know, all the insurance provisions or their maintenance and repair provisions. All the indemnification provisions, all of the rent provisions, all of those things, if you can standardize across a portfolio gives you gives a gives a user tremendous power to be able to shape the portfolio move from high cost areas to low cost areas, more efficient areas to less efficient, from less efficient areas. So you can do all of that work. If you have a bird’s eye view. And to create the bird’s eye view, you really need to have a way to standardize this information.

J Darrin Gross 12:35

No. Sounds Sounds great. I mean, I just again, knowing kind of the the challenges that tenants face. And like you mentioned, you know, if you’re a landlord, you have one lease, many, many copies. If you’re a tenant, you have many leases, all all different. Yeah, that’s I love that. Just another couple of quick questions about Visual Lease. So is the what’s the ideal prospect candidate for for working with Visual Lease? Is that a multi location multi tenant? Is there a number there? Is there can you kind of identify who your sweet spot? customers?

Marc Betesh 13:15

Well, anyone that has more than, you know, more than a handful of leases need some way to track them, right? We have, we have some customers that have, you know, 30 leases, 40 leases, we have some that have 20,000 leases. So really, it really varies across industries. You know, some of some of our larger customers are big industries, we have a lot of hospitals, we have a lot of business service entities, banks, mortgage banks, all kinds of companies. But really, if you think about how I always go back to you have one lease, right. So if you’re a company and you have one lease, you can give it to your accounting department, they can pretty much manage it. If you have three leases, they could probably still do it. Get up to 10 it’s starting to take a lot of time, get up to 20 you really need someone dedicated, you get up to 50 and some of these entities like I said have 1000s of locations or 1000s of leases. And by the way, this isn’t just this isn’t just real estate leases that could or this could also also be equipment leases, because equipment we manage equipment leases as well and you could well imagine that equipment leases are much higher volume than real estate, right? You could have a single real estate office with with you know, 100 pieces of equipment in it or you could be a manufacturer and have all kinds of all kinds of manufacturing equipment. So but but anytime you have a quantity of leases beyond, you know beyond 1015 leases, you really need some way to do it. Some people try to do this with Excel And Excel is perfectly fine. If you’re not getting too heavy into the details of these leases, the problem with Excel these days is that because of the new lease accounting rules that are now applied, that have been in place for public companies, and are now going into place for private companies, Excel is very, very tough to use, because there’s so many calculations and so many nuances to the way the lease accounting has to work that to do with Excel will take you 10 times more time than it’s worth.

J Darrin Gross 15:35

Right, right. Now, I love the the sharing kind of ideal and just kind of the how the problem exponentially gets harder to manage. And, like I said, if you have a couple, it’s, it’s something that you can probably on the top of your head, can remember the key points, but as you get into the multiples and stuff, it’s just to get out of hand on and find the same thing, even with insurance, you know, with the clients that have, you know, started out with a couple of different properties, and they’ll have a couple different policies, and then they they just, you know, insurance, billing is so much fun, there’s usually a policy number doesn’t tell you the address or, or whatever kind of thing and it gets a little complicated. So, you know, same kind of thing. The blanket policies or master policies are good idea. But But anyway, the reason we’re talking today and want to get into kind of more the topic of of our conversation is more looking forward, looking forward towards 2022. And and what the commercial real estate market holds. I’m curious, you’ve been doing this, since you said 85. You’ve been in commercial real estate. You’ve certainly seen multiple cycles. You know, highs and lows and the lows are usually referred to as kind of a correction where there’s something economically that happened that that, you know, stopped the progress. Some people lost other people were able to pick up good deals. Since the last crash, the Great Recession, 2007-2009. Maybe we start there and kind of talk about what, what you’ve seen. And maybe if we can talk about some of the things that historically or, you know, the challenges and then talk about what you see coming next year.

Marc Betesh 17:41

So the since since that last crash at the end of the 2000s I think the real estate markets have all steadily improved. They’ve all built over time, its take out, take out COVID for the time being and just think about where the economy was going. Everything was strengthening. I think the I think the the biggest factor was the acceleration of the of the internet economy. It probably did a good deal of disruption in the retail sector. It increased the demand in the office sector for all the knowledge workers that were behind all of the technology. I don’t know if if logistics and warehousing went through I mean logistics grew warehousing, you know, you have the same number of people consuming the same number of goods. You’re just you’re just getting them in a different way. So that’s why I say there was disruption in the retail sector from from the internet economy, but I don’t know if there was a disruption in the warehousing sector. But everything seemed to be moving and improving fairly steadily. Until COVID hit I think we were seeing I remember talking about the about the Dow Oh, I think it was five years ago or so. And people were saying, you know, where do you think the Dow is gonna go and I said to me 20 23,000 24,000 25,000 even and people looked at me like I was crazy. There’s no way it’s going to get that high. No way and they told me and then sure enough, it was it was right there before COVID hit. So I thought I think just generally there was a very steady improvement of the economy of all sectors. Obviously with COVID you know, somebody pulled the plug on the drain and now everything got disrupted. And so what the real predictions looking forward are really going to be around what has the disruption from COVID really caused both on on a temporary basis. And on a permanent basis. I think temporary temporarily. We, you know, the disruptions are pretty obvious, right? office buildings are empty, people are working from home. Logistics is exploding because of the new forms of distribution of goods. Retail is pretty badly impacted. And that’s kind of the temporary thing, the more permanent thing, it’s funny I was interviewed a year ago. And I was asked, What did I think was going to happen was there going to be any permanent net effect on the on the, on the commercial markets, and my prediction was a five to 8% net reduction in demand, just because of, of a shift in, in behavior. But looking at it now, I think it’s going to be greater than that, I think it’s, I think you’re looking at an eight to eight to 15%, at least in the office markets, which is five to eight to me was was massive, and eight to 15 is is whatever the word is, I don’t want to use the word catastrophic. But it’s, it’s a, it’s a very, very big disruption very big.

And it’s really because of the awakening that, that knowledge workers have will come to, and companies have come to, in that people can operate from anywhere. And because they can operate from anywhere, they want to operate from anywhere. And, and if that’s the case, they’re going to be reluctant to go back to the office, we obviously, there are obvious negatives about not working in the office and not working together and not having the synergy. And we can talk about all that. But if you look at the the real behaviors, until those negatives rise up and become significant, which I’m not sure they will, people will adapt. The, the new reality is that is that you don’t need 20,000 square feet of office space, you could do what you could do with three or five, right? Because everyone, everybody needs 100 to 200 square feet of space, right? They all need that. They need space, they needed to ask, they need monitors, they need what they need. But you don’t have to have it in the office, you can have that at home. And so and so the the the need to aggregate 100 people at 200 square foot feet, a person is not there anymore. We see in our own office, how this is working, we have our office open, we are all working from home, and our office is open. And people don’t go in. And so that has led to the reality that people can work from anywhere. The migration then to people working remotely. They can they can so you see this, the great migration of employees. Think about this for a moment. The biggest factor in migration of workers has has been employment over the past 50 years. You get a job in Los Angeles, you have to move to Los Angeles, you get a job in New York, you have to move to New York. Well, now you don’t have to do that. So why would people move to Los Angeles or New York except for other reasons. They’re not going to move because of their work. And if that’s the case, then then people are going to use lifestyle as the primary driver and not their employment situs. And if now they’re using lifestyle, now you’re gonna see migration to more lifestyle, positive environments. But the 100 the 200 square feet of space, that remember you have that desk at home, it’s sitting there in your apartment or in your house, it’s sitting there. You also have another 100 to 200 square feet of space in your office. We no longer need the office at all at all. NET demand is going to drop net demand is going to drop. And,

J Darrin Gross 24:42

yeah, no, I’m just going to ask it. As lifestyle lifestyle becomes kind of the new driver for where people migrate to or locate. And certainly the whole The internet is what makes this possible. How do you see The the net effect on these major markets? Do you see a just a repositioning? Do you see it as a population loss? Do you see, you know, the future of New York and LA, it’s hard to imagine that, that there would be a significant change to where there wouldn’t be people are, you know, they wouldn’t be the the centers, the economic centers that they are, do you? Do you see that changing?

Marc Betesh 25:31

I think you’re gonna see, I love New York, for example, Manhattan is a lifestyle magnet. It’s also and I don’t want to say that, obviously, 100% of the people are not going to leave, but you’re going to have many people that are going to scratch their heads that are living in the suburbs of these metropolitan areas that are going to scratch their heads and say, why am I driving an hour to get to an office and an hour to get home to do an hour’s worth of work. So a one hour meeting becomes a three hour meeting, an eight hour day becomes a 10 hour day. And so it’s just a balance. And this is all possible. Because of the technology. This didn’t exist 10 years ago, but if it existed, hey, it was accelerated by the onset of COVID. And everyone was forced on March 13 2019, they were forced into a new lifestyle. And guess what, it did pretty well. And everyone woke up six months later, or a year later and said, this is pretty good. My lifestyle is improved. I’m just as productive in fact, because I’m gaining two hours a day I’m more productive and more productive. And I have a better lifestyle Why would I go back that’s really the key

J Darrin Gross 27:07

that’s that’s a reality that I’m fully aware of. I personally was always kind of an office guy that went in and, and figured, like technology it was I don’t know really functional I guess we were if I hadn’t fully implemented it but but you’re right I mean, you know, just the commute there the time spent in the race to to and from the office and and you know, even just the the you know, the the appendages to that whether it be the dry cleaner or all these other other things that have lessened their importance is pretty significant. Let me ask you this. So so we identified basically the the office issue, or the office market and how it will be affected going forward. What do you see in in you, you kind of touched on this a little bit when we when we talked about retail, and more of the warehousing kind of thing? Do you What are your thoughts on on those, those markets?

Marc Betesh 28:21

Well, there’s a certain sector of retail that will always be that will always be fairly vibrant. But let’s take one of the most stable parts of retail to use it as a straw man here. Let’s look at grocery shopping, right? You’re going to hop in the car, go to your local market, get fresh groceries, and that really is probably one of the one of the things that you think would never change yet even that even that has has has changed right people are ordering, ordering non perishables from and you know a supermarket has half maybe if you think about the grocery section and that probably has 30 to 40% perishable and the rest of it non perishable, right. So the non perm non perishable portion can be ordered through an app and can be delivered to you in a box. And so even that so I see the biggest disruptors here as being the availability and the ease with which with which you can order and have goods and goods delivered to you. So now you look at so you look at that and all of this is a cost benefit analysis. It’s all imbalance. We all go through this. All of us you may everyone that we know it goes through the same thing, you know, should I order it on Amazon or somewhere else? Where should I go to the store? Right, we all go through this. And you look at the pros and the cons, the pros, and by the way, a companies like Amazon are looking at this just as much as we are, they look at the pros and the cons, the cons are, I don’t have it immediately. The pros are, I can choose from 20 different models. Whereas if I go to the store, I’m limited to three. And so you know, and the cost, the costs are relatively comparable, they might be cheaper one versus the other. So there’s, there’s this real disruption that comes forget COVID COVID, just exacerbated it or accelerated this trend, the trend was already there. Because the I remember when Amazon first came out, I said, this is this is amazing. I can order if I want to, I don’t know, if I want to charge her for my cell phone, I can go to the store and buy one, and they’ll have one, there are two there. Or I can go to Amazon, see the ratings, pick the one I want order the one I want, and I’ll have it in a day. So if I can wait, I will. That’s the cost benefit. That creates a lot of disruption, it makes it very, very difficult for retailers to to compete. And so retail is has retailers have to find new ways to compete with lifestyle with a comparable pricing with comparable availability with just in time. So they have to create magnets and ways to attract customers in order to in order to entice them to use that experience versus the very sterile experience of ordering online. And so it’s just a cost benefit that we all go through. But, but I think retail is is it will reach a new equilibrium. But it is definitely shifting right now. I don’t think we’re at that equilibrium yet.

J Darrin Gross 32:07

In the retail model, I’m curious, you mentioned a little bit about the office, seeing that the space requirements you know, if you had 20,000 square feet, you might need 3000? Do you see something similar in the retail based on you know, more of the shift to the online option? Do you see like the the showroom model being more of a, you know, what’s selling that’s hot, or a place that you can need to see any of that changing?

Marc Betesh 32:38

I don’t know, you know, I often think about this, I don’t know, because the more you, the more you shrink the in store experience, the less of a magnet you have. So the natural tendency would be, hey, I’m not selling as much. Let me reduce my footprint, let me find a way to cut my costs let me not not, I’m not going to stock so many different models of this particular item. But by doing that, you’re basically cutting their throat because you’re, you’re the very thing that might bring people in is the thing that you’re you’re cutting back on. And so but it takes quite a bit of capital in order to compete in that market. And you look at you look at retailers like Costco and you go in there and there are 3040 televisions to choose from. Right? If you’re if you’re a an electronics store with 10 televisions, you can’t compete, you need to have the 30 or 40 you need to have that. And so then it’s the same thing with clothing and it’s the same thing with with with any kind of in store shopping. Clothing, I think will clothing is much more personal experience, I think clothing will will stay I don’t think people are ordering a significant amount of attire through online sources. I just think that’s something that people a like the experience and B get a better result. It’s it’s, it’s it happens but it’s I don’t think it’s that much fun to order 10 dresses or 10 shirts or 10 pairs of pants and then have to return nine of them.

J Darrin Gross 34:25

Right right right now it’s interesting to think of this we’re talking the recent experiences for me and I and you mentioned like the clothing one I can remember ordering some shirts and either they they came in the wrong size or something was wrong or whatever and and the the it was a an online purchase. They directed me to the nearest retail place to exchange it rather than ship it back which I you know in the old days it was shipped back and then they’ll credit your account and you can order something different kind of thing and I thought huh That’s kind of like a different way of moving your inventory around, you know, instead of you having a central place and and then if you apply that forward, I’m kind of curious if maybe more of the, you know, the, the local retail location is not more of a plugged in facilitator of some of the orders, as opposed to that central warehouse model, which, you know, historically kind of a hub and spoke kind of thing. If you think about all of the inventory that these, you know, retailers have to have, if it’s for the in store experience, versus Now a lot of times you’re finding that there’s a delay to get your, you know, your, your size, or whatever it is trying to buy. It’s just fascinating, I think, you know, when you when you look at all of them, you know, all of the technology being applied to all the purchases we make now, and how it’s kind of like, it’s understood, I know, even recently is that they had a Best Buy, you know, and there’s like, one, one piece available for what I need. Normally there’s a there’s a hook or whatever, there’d be like, you know, two or three hooks, and they’d be all this deep, and I was thinking like, you know, or something like that, if you’re only if you’re only selling a few of these, it would make more sense to have, you know, more of a connected database. And I assume that’s what what’s going on behind the scenes of that there’s some some, some sort of a way that when you go and you buy it, it could come from any one of their locations, as opposed to the local one that I went to that was I was hoping to get taken care of right then. But fascinating.

Marc Betesh 36:41

That’s what happens. I mean, the you know, the in store experience is one of smelling, touching, feeling, you know, seeing with your own eyes, not looking at a screen to be able to buy things and that sensory experience is very important. The other thing that’s that will happen with retail if if retailers are smart is they will stress the the in store personal experience that they will get. You know, you we’re all human beings, we’re not robots are not machines. And we like we like the good in store experience. And by the way, these days, and I’m sure you’ve experienced the same thing because of shortages and labor, retailers and everyone else is having a very difficult time staffing and having the proper levels of staff. And so, you know, not only having the right levels of staff, but having the right quality of staff and having the ability to train. So that disruption is occurred in in in both quantitative ways and qualitative ways. And that that creates additional difficulty for retailers, and we’ve all been there. We’ve been in stores, we’ve been in restaurants, where they can’t find it a restaurant, for example. I know I’ve experienced this personally, where where the waiters, the waitstaff are terrible. And if you if you mentioned it to the management, they’ll say, yeah, we had to we had to use our bus staff in order to wait tables because we can’t get waiters. And so you’re This is what’s going on across across all industries, not just There, there. It’s there. It’s you know, it’s something that that we see in touch every day. But this is happening in the back rooms as well. And so the disruption that’s occurred and that disruption, by the way is primarily COVID. Like COVID disruption, not not just pure economic disruption.

J Darrin Gross 38:56

Right, right. Now that that disruption is real, and it’s it is happening everywhere. Speaking of disruption, I’m kind of curious This is a theme that I’m running into everywhere. And it’s just basically the supply chain disruption. How do you see that affecting the real estate market? And if so, how? In 2022?

Marc Betesh 39:30

Well, supply chain supply chain disruption is affecting everything. It’s affecting, it’s affecting everything. Obviously. Companies that depend on supply chain more are obviously more effective, right. So physical, physical delivery of goods. You know, we talked about there are different levels of supply chain disruption to there’s supply chain disruption with the chain itself is disrupted, and their supply chain where where supplies are unavailable, and therefore the manufacturing is unavailable. So I read an interesting article in the Wall Street Journal recently that, that went through an example of a particular manufacturing facility. And the fact that it got goods from that each time it built, I don’t remember what the item was, but each time it built one of these items, it had hundreds of components that came from all over the world. And, and even if you look at at the, at the intermediate components, right, you need a, you need an assembly of something, well, the parts that go in, and so you buy that assembly from a particular supplier, but the supplier can’t get the parts to build the assembly. So you can’t even get the assembly built. And therefore you can’t get the assembly delivered to you. And therefore you can’t produce your your item. Right. So that’s going to affect different industries in different ways. But like I said, obviously the things that are more dependent on physical delivery of goods are going to be more disrupted.

J Darrin Gross 41:17

Right. We talked about retail and kind of the warehouse markets, do you have any thoughts on housing or, or any of the other sectors?

Marc Betesh 41:30

Well, housing, housing, is going through a very high level of disruption as well, too. But it’s not disruption in the negative sense. I think housing, housing is is a is a very hot transactional market right now. I believe that that with the other side of the migration question that we talked about a few minutes ago about offices and about how people aren’t going to need offices as much anymore, or they’ll change the way they use offices. You’re also having people moving from high tax jurisdictions to low tax jurisdictions, from from mediocre lifestyle environments to high quality lifestyle environments. From from high cost environments to low cost environments, you’re going to have all of that go on you you’re also going to see continued disruption of the of the how of the employment market where where you’re going to have some some balancing and rebalancing of wages across across the economy. People that are being hired in one place that work in another place, you’re gonna have some rebalancing that goes on there as well, in terms of in terms of salaries and wages. But I think the housing market from a real estate perspective will continue to be very hot, people are all moving, there’s a lot of Oh, there are quite a few transactions. Right now, I think the real estate, residential brokerage market is probably, in my opinion going to be one of the hottest areas.

J Darrin Gross 43:17

So let me ask you this. Looking forward, the real estate market has been kind of on an upward trend except for as we’ve talked about some of the retail and office as of lay which are more of a COVID kind of onset, do you see a a wrinkle or a reset across the board or do you think that it will be kind of Market to Market asset class to asset class based on any kind of potential correction coming?

Marc Betesh 44:01

First, I think because of the because of two factors because of technology and because because of technology and maybe it’s all because of technology creating the the the aggressive migration of people around the country, quite frankly, around the world, but let’s just focus on the US for now around the country, people are gonna move around your the the, the ability to predict and the ability to understand the uses of each of these. Let me go back. What I see is that the is that you’re going to have a widening of the markets in the following sense you know that you know, longer, we’re going to look at localized markets, you’re going to look at national markets, because people are can move around freely and you have less restrictions, you’re going to see an opening of the markets. The good analogy is, is that of labor that I alluded to a minute or two ago. So let’s say you have a person that lives in, in, in the Midwest, that that earns for their job, let’s say $50,000 a year. And they see a job, a remote job in New York City, the same job, but they can, if they were to live in New York City, and they took that job, that job would be $100,000 job. But because they live in the Midwest, it’s a $50,000 job locally there, well, they’re going to be very attracted to the $100,000 $200,000 position. Now the employer in New York, sees that it has $100,000 position that it can fill for $50,000. And what will happen is, the $50,000 job will be it won’t be it won’t be 100. But it won’t be 50. Either, it’ll be 60, it’ll be 65, there will be an equilibrium that that little sub market will reach. And the employers in New York will be able to hire people for for less, because they’re a high cost jurisdiction. And, and the local people in the Midwest will start flocking to the jobs that are paying higher, just think about this on a macro scale. And you can see all of these adjustments going on and all these little mini markets, where, where it’s almost like a dilution of the concentration of the labor markets, whether they’re low labor, low cost labor markets, or high cost labor markets, you’re gonna see a dilution of that across a wider and broader economy. And that all causes disruption. And it will be asset to asset it will be industry to industry, it will be wherever it is. But the the the the fact that the was, you know, I often think about the development of Europe, you know, and Europe developed the way it did, primarily because of the geography, right, you have very high mountainous, mountainous regions that separate one group of people from another group of people, and they all go off on their own, and they all develop their own unique cultures, right. So if you were to mow down all the mountains, you would see a blending and blending in a migration that would occur that otherwise couldn’t, couldn’t overcome the mountains before. It’s the same thing here the walls between markets are now dropping, technology is causing those those walls to drop, and therefore you’re having more migration, more dilution of concentrated markets. And it’s this is the, this is the biggest disruption that I see. And, yes, you’ll have, you’ll have intermediate disruption in, in, you know, in the office market, the retail market, the housing market, all these things will adjust, and then they’ll reach a new level of equilibrium. I don’t think it’s going to happen for another five to 10 years. But I think over the next five to 10 years, you’re gonna see a real awakening and an adjustment to the economy until we find a new a new normal.

J Darrin Gross 48:37

No, that’s fascinating. You know, it’s it’s one thing to look at the last crash or correction and point to all the factors that cause that and try and look for those in today’s market. But that’s not the that’s not what’s taking effect here. That’s not you know, those aren’t the, the levers in play. And, you know, kind of like what you said I, that whole blurring of the marketplace, and even you know, an example you provided the Midwest employee and then the New York employer. If that, if that new middle ground, it’s a win win for both. That’s right and and i think that’s kind of the I think that’s pretty interesting when you think about that, how that how that will shake out there, but

Marc Betesh 49:28

You don’t have to look at them, you kinda have to look at the trends and just kind of extrapolate them just extend them to their logical conclusions. And you can just see how I mean that that conversation that I just had about 50,000 versus 100,000. Right? That’s that’s going to take some time. It’s not going to happen right away. But you’ll see people the employer will have an employer will have a choice of two comparable employees. One for 50 and one for 100 or one for 60 and one for 70, whatever it is, it’s going to be 50 and 100. And then a couple of you know, sometime later, it’s going to be 60 and 90, and it’s going to be 70 and 80. Right. And so you’re going to see the adjustment happen over time. But you can see the adjustment happening, you can see it, you just predicted,

J Darrin Gross 50:22

it makes complete sense. And again, a win win for both sides, right? The West employee has an increase in salary and the employer in New York has a lower cost. So that’s interesting. Hey, Mark, we could, I’d like to shift gears here for a second. Sure. As I’ve mentioned, by day, I’m an insurance broker. And I work with my clients to assess risk and determine what to do with the risk. And there’s three strategies that we typically look at, we first look to see if we can avoid the risk. When that’s not an option, we look to see if there’s a way to minimize the risk. And when you we can either avoid or minimize a risk. And we look to see if we could transfer the risk. And that’s what an insurance policy is. And I like to ask my guests, if they can look at their own situation, their clients, investors the market, however, you choose to frame this question, but it to see if you can identify what you consider to be the biggest risk. And for clarification, while I am an insurance broker, I’m not necessarily looking for an insurance related answer as risk is everywhere. And so if you’re willing, I’d like to ask you, Marc Betesh, what is the BIGGEST RISK?

Marc Betesh 51:49

I think the BIGGEST RISK is under estimating what’s going on right now, I just think about the discussions I’ve had here and prior conversations about, for example, the office market. If you don’t, we nobody likes to see negativity, nobody likes to predict doom and gloom. But if you’re not fully informed, and understand the trends that are going on, you are going to make bad decisions. And so you really need to look at all the information you can understand human behavior, understand what’s predictable, what’s not predictable, you’re never going to predict things that are not predictable, but you need to be able to understand the things that that are and, and and use your own common sense to determine where you think things are going. The the real estate markets, the one thing we know for sure is that they’re not going to stay the way they are. So now the next step is how will they change? That’s part of this conversation and other conversations and looking at, you know, kind of look in the mirror and try to figure out what would you do? What would you do if you were placed in that position? What decision would you make for yourself for your family? And, and what makes you think that you’re any different than anybody else? These are all human human decisions that we’re faced with in normal decisions. And you know, when you get in the car in the morning to commute to work, and you know, you don’t have to, what’s the human decision you’re gonna make? I hate this. I, you know, before we before we put up with it, it was something that we didn’t have a choice about. When you start to have choices, you start to think about those choices. And so when you talk about risk, the risks to me, I mean, we could quantify all kinds of risks, but the real risk is, is being uninformed. And and and trying to believe series that you don’t truly own yourself. Look at your own behavior. Look at the way people behave. And then you’ll you you, instinctively all of us, all of us instinctively know what’s happening. We may not like it. We may not be used to it. But we understand that and just you have to you have to rely on that gut.

J Darrin Gross 54:41

I think there’s a lot of truth in that. And I appreciate you sharing that. Hey Marc, where can listeners go if they’d like to learn more or connect with you?

Marc Betesh 54:52

So we have certainly our website VisualLease dot com has our product. KBA Lease dot com has our lease Audit Services, I’m on LinkedIn, you can find me we publish lots of lots of articles and predictions we do. You know, we have hundreds of 1000s of leases in our system. We do statistical analyses of trends and things like that. So I would say if you if you if you’re interested in if anyone’s interested in that, go go to the Visual Lease dot comm website. We have lots of content there that I think people will find interesting.

J Darrin Gross 55:33

Awesome. Marc cannot say thanks enough for taking the time to talk today. I’ve enjoyed it. I’ve learned a lot, and I look forward to doing it again soon.

Marc Betesh 55:44

My pleasure. Hope I hope it was informative.

J Darrin Gross 55:47

Alright. 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. CRE PN Radio.

Announcer 56:07

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How to Consistently Make Money in Real Estate with Ken Gee – CRE PN #325

Ken Gee 0:00

I was getting everybody that applied for the apartment, didn’t have good credit. And I thought, oh boy, here we go, this isn’t going to be good because I need someone to pay the rent. And then I met this wonderful woman from the city of Shaker Heights. Her name’s Karen, I won’t say her last name. But she taught me that can if you will make your property nicer. If you will invest in your unit and make it really nice. You’ll be able to collect more rent and guess what the good people will come. And I asked her I remember vividly this conversation. I said, Well, Karen, how much do I need to spend on this unit? She said only about $5,000. Well, the lump came back in my throat. I said, Are you kidding me? five grand, where am I going to get five grand, I just spent all my money to buy the property. So I took the leap of faith, I did spend the five grand and sure enough that rent that I was at 479. I went to 599 because now I had a much nicer unit. And all of a sudden the applications came from really good people. And I thought oh my goodness, this is unbelievable. You know, that was a huge deal for me. And the introduction of the value add concept to me iO iO. Really a good chunk of my career to that that wonderful woman who, who told me to build it, and they will come because she was right.

Announcer 1:16

J Darrin Gross 1:35

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

Today, my guest is Ken Gee. Ken is a CPA and real estate broker. He’s also the founder and president of the KRI group of companies, which he started in 1997 with a purchase of a 28 unit apartment building in Cleveland, Ohio. Since the beginning KRI has evolved into a full service real estate company that specializes in multifamily apartment investment, syndication and property management services. KRI has owned more than 55 million worth of multifamily properties and managed over 15,000 apartment units, collectively worth more than $1 billion.

And in just a minute, we’re going to speak with Ken about how to consistently make money in real estate. But first a quick reminder, if you like our show, CRE PN Radio, there are a couple things you can do to help us out. You can like, share and subscribe. And as always, we encourage you to leave a comment, we’d love to hear from our listeners. Also, if you’d like to see how handsome our guests arm, be sure to check out our YouTube channel. And you can find us on youtube at Commercial Real Estate Pro Network. And while you’re there, please subscribe.

With that I want to welcome my guest, Ken, welcome to CRE PN Radio.

Ken Gee 3:17

Thanks so much for having me.

J Darrin Gross 3:19

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

Ken Gee 3:28

Sure I grew up in Toledo, Ohio, came to Cleveland in the early 90s. where I started, I came to claiming to be a commercial lender spent five years there, transition my life then to be a CPA, went to work for Deloitte for seven years. And then decided that was working way, way way too hard for everybody else and decided that I needed to I needed to get into real estate. When I was at the bank, all I heard was my customers making tons of money in real estate. Then when I went to Deloitte, all I saw was a massive real estate tax practice in our local office. And I said you know what, I’ve got to get into this. So that really was what started this whole process. And I like you said I bought my first property 28 unit building and shaker square, which is in Cleveland, Ohio, and then been going ever since. Well, it’s awesome.

J Darrin Gross 4:26

But and I’m guessing you’ve seen just a few things since that first property that you you. You bought. I’m kind of curious. What do you remember most about that first deal?

Ken Gee 4:39

Yeah, what I remember the most about that first deal was the golf ball that was stuck in my throat when I was doing the deal because it was a huge mortgage. At the time it was $460,000 that was massive. At the time I couldn’t have paid that mortgage off of fighting to save my life. So what I was doing was risking really everything to get started in this business. And it was stressful, even though I’d worked really hard to try to understand the business tried to make sure I knew what I was doing at the time I was a CPA and I had some lending background. So, you know, I felt fairly well informed, but it doesn’t change the fact that you’re not ready for that stress that you get when you sign on that loan. So, you know, I’m happy to say that, you know, it went away very quickly, right after that deal closed, and every new deal that you do, you know, there’s stresses associated with every deal. But you know, it’s been far easier since then. And that’s why I always tell everybody get over that first deal, because that first deal is a big one. And then you’re going to deal with emotions that you’re you didn’t expect and once that’s over, it becomes a lot easier.

J Darrin Gross 5:47

Now that’s, that’s well put the first deal Did you do it solo? Or did you syndicate or have investors in the

Ken Gee 5:54

piano? Great question. So I actually borrowed half the downpayment on my home equity line of credit, and I invited family member in to do the other half. So we kept it in the family, because at the time, you know, I couldn’t with a conscience ask someone that I didn’t know to invest money with me, because I really hadn’t proven myself yet. So my family was, uh, you know, willing to take a risk on me. And I’m thankful that they did, because that’s how we got started.

J Darrin Gross 6:23

And how long did you keep the property?

Ken Gee 6:27

Actually? Three years? Three years? Three years? Yep.

J Darrin Gross 6:30

And in three years, how did the property returns on that first deal?

Ken Gee 6:37

Yeah, interesting. little story, about a couple months in to that deal. I was getting everybody that applied for the apartment, didn’t have good credit. And I thought, Oh, boy, here we go, this isn’t going to be good because I need someone to pay the rent. And then I met this wonderful woman from the city of Shaker Heights. Her name’s Karen, I won’t say her last name. But she taught me that can if you will make your property nicer. If you will invest in your unit and make it really nice. You’ll be able to collect more rent, and guess what the good people will come? And I asked her I remember vividly this conversation. I said, Well, Karen, how much do I need to spend on this unit? She said only about $5,000? Well, the lump came back in my throat, I said, Are you kidding me five grand, where am I gonna get five grand, I just spent all my money to buy the property. So I took the leap of faith, I did spend the five grand, and sure enough that rent that I was at 479, I went to 599. Because now I had a much nicer unit. And all of a sudden the applications came from really good people. And I thought, Oh, my goodness, this is unbelievable. You know, that was a huge deal for me. And the introduction of the value add concept to me, I Oh, I Oh, really a good chunk of my career to that, that wonderful woman who, who told me to build it and they will come because she was right.

J Darrin Gross 8:02

Now I love that, you know, the kind of the experience of you just spent all your money and and I mean, did you have any kind of a plan as far as renovation or it’s more about just Lisa keep the place leased up. So

Ken Gee 8:15

I was pretty, I was pretty naive back then I thought I was just going to buy it, hold it for a while rent would slowly go up. But I would make money. And I actually paid an attorney to sort of advise me and he thought, you know, what, can in three or five years, you’re probably gonna make 100 grand on this. And I thought, Oh, my goodness, that’s, that’s unbelievable. Did I have the same level of business plan that I would have now? No, absolutely not. I didn’t because I didn’t even understand. You know, there was a lot I didn’t understand. So she actually helped me create the business plan on the fly. And we’ve been really implementing that value at concept ever since. And so three years later, you know, I’m happy to say that we sold it. We each put in 35,000 we each got back 100. So you know, in, in, in my life at that time, making that kind of money was just obscene. This was just unbelievable that you could do that in three years. So that’s why that’s why I’m here. That’s why I continued on with with with the process.

J Darrin Gross 9:15

Not I mean, those returns are impressive. anytime they can if you can triple your money and you know, three years that’s that’s just about right. 30 3030 was Yeah, so I think those are respectable I think they today they’d be rolled glass. That’s That’s great. So So your first deal goes, Well, did you do any additional deals during that first three years? Or was that kind of your primary focus, get that one? up and running? You sell what When did you do your next deal?

Ken Gee 9:48

Yeah, that’s that’s a good question. The second deal, it took me a little bit of time. So I did. I did three deals a total of three deals during that three year period. The second one came shortly after I Got my education from Karen. And I did have a plan the second time, and I had the I had my value add plan, I was gonna go in and prove the units, the lender would advance some funds to help me do that. As long as I showed them that I did the work, got the lease rents that I promised that I promised them that I would get, they would then pay for the renovations. So that was deal number two. And then deal number three was just a great, wonderful building in that same area, all these properties were in the same area that I bought, and we all ended up selling them all at the same time. So yeah, I just I kept trudging forward then and just doing deal after deal after deal, because once in this business, once you feel that success, you want it again, I mean, who wouldn’t want to make that kind of money, right? So so you’re going to try to do it again and again and again. So

J Darrin Gross 10:51

got it. So your your first deal you did with family? The second? And third, were those also family? Or did you reach out beyond your,

Ken Gee 10:59

The second and third deal actually was able to do it myself by myself. Okay, I found creative ways to finance it. If you look back at our track record, our track record is actually out on veribest.com. They verified our track record. But it’s so it’s there for everybody to see, those early deals that we did were very highly leveraged. So the returns were just crazy. We don’t use that level of leverage now because we use other people’s money. And you know, there’s lots of reasons why we would do that. But you know, when you’re getting started, you do whatever you have to do to get started. That’s what’s important.

J Darrin Gross 11:33

Right, right. So well, that’s impressive. So the first deal, you did have a partner, the second and third, you were able to do on your own. At what point did you become more of a syndicator? You know, start raising capital?

Ken Gee 11:49

Yeah, good. Good question. So probably in I think we bought our which indicated our first deal in the mid 2000s, early to mid 2000s. And, and, you know, grew slowly during that time. And most of our syndication work has been done, really in central and northern Florida. So the company originally grew up in Ohio, we did a bunch of deals in Ohio, and then about 10 or 15 years ago, I wanted to go to a growth market. So we started investing, or investigating Florida, central and northern Florida. And that was where I think we’ve syndicated out three or four deals there. I can’t recall now. And we currently have a fund that we just finished raising for about $13 million. And we’re out now trying to deploy that that capital. So we did for a period of time between 2000 and mid actually, it must have been Yeah, 2004 we did some deals on our own with with one other partner. And then we really went full boat into the syndication world. Because what we learned was, once we felt like we know what we were doing, we felt comfortable inviting other people into our deal. And then that allowed us to grow even quicker, and allowed us to give them you know, pretty good returns as well. So that’s why we made that transition. And it just made sense. And it’s been going well ever since

J Darrin Gross 13:15

contra. So you mentioned you know, having confidence, or I guess, a proven track record, something that you felt that, you know, you could then I guess provide a story or proof of concept to potential investors and stuff. What were some of the, the keys in that story? I mean, you know, the first one sounds like you’re flying blind, but you you’ve learned the value add concept in some other, you know, keys to create a financing for the next couple of deals. What were some of the key takeaways that you learned that were, you know, purposeful or or helped with relaying your story to to investors?

Ken Gee 14:03

Sure. So what happens as you gain more and more experience in this business, you start to understand exactly what makes real estate investors successful over the long term. Right? So a lot of people can do this, maybe once, maybe twice. But if you’re going to do this over and over and over again, you really need to understand why each deal is successful. So you know, I generally there’s four things that you really got to understand. One is just supply and demand, right? We’re in the apartment world. So the supply of inventory is important, right? If they’re building like crazy in the area that you’re trying to invest in, you need to be careful. You have to make sure there’s enough demand to absorb that. So what we’re looking for is a pat is a is a favorable demand and supply equation. We want demand to exceed supply. That’s what drove us to Florida because that that setup has been in Florida for years and years. decades now. And it’s only been exaggerated by the pandemic, then the second thing we understood is how do we create value in every deal, because every deal is going to be a little different. Sometimes most of the value you create is going to be management related, sometimes it’s going to be physical improvement related. But or most of the time, it’s a combination of the two. But what we learned over the years, so she got to understand exactly how you’re going to create value, and then just get better at executing on that strategy. So that was the second thing that that is the second thing that I think sets long term, successful investors apart from shorter term ones. Now the third thing, and this was really learned the most through Oh, 7080 910. Think back to that financial recession. I mean, that was horrible. And the number one thing you learned through that process is to manage your debt manager maturities make sure that you have planned for the as much as possible, right? apartments generally did well, during that time period. The only reason apartments didn’t do well, is when the loan matured at the wrong time. And then it didn’t matter if the property was a wonderful property, it didn’t matter if it was cash flowing like crazy, the bank had to get it off their books. And at the time, no one was doing no new loans. So people lost their buildings, because their debt just happen to have matured at the wrong time is terrible, there was no reason for that to happen. But again, what that does is that teaches us to manage your maturities make sure you have an out make sure you have a way to continue that debt should you need to just because of a bad timing issue, you don’t want to have have a problem. And then the last thing we learned, we have learned over the years is just watch cap rates, you got to understand cap rates. And, you know, cap rates are fairly predictable, they’re dependent on two things. One is the interest rates on the debt that you’re gonna get. So we always watch that and have a pretty good feel for where we think they’re gonna go. And then the other piece of that cap rate is what investors require for their return. And so that right now, cap rates are compressed, because there’s so much money chasing deals right now that investors are willing to accept smaller and smaller returns. So when we have low interest rates, low investor return requirements, we have relatively low cap rates. So when we do our modeling, this is the long term successful investor concept, you need to make sure that you’re planning your exit at a higher cap rate, because that means the value might go down, if interest rates go up, or not, as many investors are chasing the same deals, they may not be willing to pay as much for that cash flow that that property creates. So you’re gonna want to make sure that you model it in your in your formula, so that you’re prepared for that. And you know, what’s going to happen if cap rates were to move against you? That makes sense?

J Darrin Gross 17:55

Yeah, no, all of that makes sense. It is, you know, especially looking back here and just last 10 years, you can kind of tell, you know, the, or the story, if you look back, you can see how it all, you know, connects I mean from, like you said, Oh, 708 when, when the market was melting down, and and nobody was willing to lend and if you if you did get caught and had to refinance, and there was nobody willing to, to lend. That’s kind of what a great a lot of the opportunity for, you know, newer investors are, I mean, clearly it was it was a it was a problem if you had a property you needed to refinance was an opportunity if you had cash and and had an opportunity to pick up a property cheap from a lender that are you know, not necessarily a lender if you weren’t foreclose, but just somebody that had to let go the property. Yeah, exactly. But But even even having said that, though, I you know, what’s interesting to me is, I’ve been doing this podcast here for, I guess, almost six years now. And in all the time that I’ve been doing this, that the theme has been that, hey, you know, it’s been a good run, we’re probably in the late ending late innings. You know, we expect this thing to have a correction kind of thing. But I, you know, I’d say that, you know, by all accounts were were well into a doubleheader, or, you know, with extra innings, I mean, just based on the run in, in its, I think the other thing is that all of these economic factors that maybe were the cause or had something to do with the last cycle. Everything we’re looking at right now, pandemic, plots of government cash being pumped into the system. You know, investors looking for a return, low interest rates, all kinds of change, anything that people thought might be the case and now it’s it’s kind of Like really it really requires you to be sharp and kind of assess you know like like you were talking about you know supply and demand you know how to manage your debt you know make sure you have some terms that can that can last a while and kind of keep an eye on those those cap rates I mean that’s pretty well that right there I mean I think sums up you know, a good advice for any investor looking at an opportunity and certainly in the last six or seven years

Ken Gee 20:32

Yeah, no, I agree. 100% Absolutely. And when we look you know, I have this conversation with a lot of people all the time and that is are you afraid we’re at the top or are you afraid you’re at the top and I have it with a lot of very smart people because I’m looking for some disagreement. And you know, we’re in we’re in central and northern Florida, the demand supply setup in central and northern Florida has been favorable for a very very, very long time. And I I’m looking one of those two things has to break in order for me to be any really concerned about Florida, we have to have builders somehow figure out how to buy bc class asset because that’s what we buy, right we don’t buy the brand new a stuff because then I’m fighting with supply from New builders right so they’re not building bc stuff they’re just not so I don’t see that changing I don’t see what can happen that can make that affordable for builders to come in and add tons of supply the PC market so now when I look at the demand side what can happen that can erode that demand and you know when I think about why people are moving to Florida, I mean they move there because it’s beautiful whether they move there because it’s a low tax state they move there now because they can live there and still do their jobs because so many more people can work remotely so there’s I’m looking for something to break that demand in order for me to be terribly concerned about investing in central and northern Florida there’s still a plenty of places that are very affordable in central northern Florida and that they’re going to people are going to continue to move to those areas the the coasts will continue to get better up I think and the growth has been between Tampa and Orlando and Daytona it’s been going across that I four corridor for years and it will just continue to do that. And when it gets to unaffordable in one area, say Orlando for example, you just get farther away from Orlando and you can find more affordable housing, more people come in, you see a cycle and I don’t see it breaking so that there are probably some markets that demand supplies setup is different. And if there is an economic slowdown or something changes that might affect them more, but I’m looking for those two things to change in Florida and I just I just don’t see it happening but I have my eyes definitely open looking for any cracks in the dam here to see if see if that is gonna happen and I just don’t see it yet. And everybody I talked to they’re looking for the same thing and they don’t see it either. So that’s why we’re comfortable buying at this point as long as we have the upside and rents which we do because of the demand supply situation.

J Darrin Gross 23:09

Right right now and even you know the kind of lesson you learn from Karen about value add I mean if you can find that opportunity that either the seller hasn’t exercised or hasn’t you know, doesn’t see that you can see there’s always the opportunity to increase the value you know, and I think one of the things I’ve learned is it’s all you can do through the you know, a remodel or renovation or something like that it’s the if it’s only just a management issue where you can raise rents or something like that I mean that’s that’s a pretty sweet little value add opportunity there do you in that marketplace I mean it’s clearly no secret you know, Florida is kind of a boom market I mean, I saw the meme out there that Andrew Cuomo was realtor of the Year for a Florida that was kind of a joke there from all the you know people moving exiting New York moving to Florida right and but but a lot of truth to that just based on like what you were saying just demand and so is you as you look in that market clearly there’s lots of demand for housing. There’s lots of investors seeking the same opportunities you know, one of the things you didn’t say but but you know, I always feel it kind of is part of that cap rate is is you know, if there’s if there’s a lot of investors seeking the same thing that’s gonna you know, push the rate cap rate down as well. do you how do you go about are you just plugged in with the market do You go direct to the sellers? Do you have broker relationships? How are you situated where you find your properties?

Ken Gee 25:07

Yeah, that’s a really good question. So we play in generally the plus or minus 100 unit range. And most people that play in that in that market in that space are syndicators. So that means they’re going to go out and try to get the deal locked up. And then they’re going to spend the next 45 or 60 days trying to raise the money to close the deal. So the seller kind of takes a leap of faith with that buyer. So there’s tons and tons of indicators in that space. Now, we are a fund where a private equity fund so now in the syndication world, the deal comes and then the equity comes in the fund world, the money comes first, then the then we have the money to go get the deal. So now when I compete against a syndicator, in that 100, say, 100 unit property, there’s when we compete this probably 95 90% of the bidders are syndicators. And here we come, we’re a fund we already have the equity raised, the seller knows that we that that equity raise risk is off the table. They know. So they also know that we’re very experienced, they also know that we have a very quick and easy due diligence process that it because we’ve been doing it for 25 years, right, we’re not going to drive him nuts, or her nuts with a retrade or, you know, little silly ass on due diligence questions and things like that, because sellers do like easy deals. So we’re a much more experienced much stronger buyer. in that market. Most fund managers, they don’t attack the 100 unit space, they’re up into three 400 units basis, because they’re trying to deploy more capital. So we become that big fish in the smaller pan, so to speak, which gives us the ability to win these deals. And then Remember, we talked about the fact that we’re a third party manager, so we’re third party managers in that same market. So that gives us another opportunity to integrate with these brokers, because they refer their clients to us. So we have a very unique relationship with the broker community in that not only do we buy and sell through them, but we also help them get deals done because we take their clients run their properties, make them more successful, and then what happens, they’re able to sell that client another property. So we have this really intertwined network that we’ve been able to develop in the central northern Florida market. So that’s how we get our deals. Because the reality of it is in a competitive market like this, the broker really controls who gets the deal. Because when a seller sells that property, he looks to the broker and ask them who is this guy? Who is this guy? Who is this guy? What do you know with him, Have you close with him before, he is using that broker to try to figure out who has the highest certainty a close and who’s going to really get the deal done, so that that seller has an easy sale and that’s critical and that’s why we spend so much time working on those relationships. Really, really super important in a competitive market like this.

J Darrin Gross 27:58

No, I was gonna say I think having the property management company for yourself and others makes a ton of sense. I mean, just in that because the operations of a complex really you know, having the efficiencies in the operations can really you know, make yourself quite a bit more more money I would think as opposed to on you know, unaccounted for or you know, expenses that that aren’t always easy to keep up with or whatever just but just having that that I guess inside track on the management I think it makes a lot of sense. Have you had any opportunities come from the properties you’ve managed were selling her the you know, the owner said hey, you know, Ken, we’re ready to get out of this one you know, is that ever come up?

Ken Gee 28:54

Yeah, you know, we’ve we have those discussions our clients come to us occasionally with those discussions and you know, if you’re a seller what I tell our clients because remember when when you become our client, we have this fiduciary relationship with you, right? I’m I’m your I’m your guy, right. So if you come to me for advice, I’m going to tell you what you really should do. And the reality of selling in a competitive market is you should market the property. If you do a side deal with me, that’s great for me, but I get very very concerned that my client is going to have in the back of his or her mind, you know, he kind of worked me for a sweet deal here and I you know, they kind of get at some point they run the risk that they’re going to be uncomfortable with the advice that I gave them and that was to sell your tell to sell to your friend Ken. Right. I get concerned with that. So our reputation and in all the markets are so important to us that I don’t I don’t even want to take that risk that something could later develop even though you know we’re getting deal done for them, but we get a deal done for us. But I don’t want them to think that I you know, I get it better. deal because because I was able to get to them early.

J Darrin Gross 30:03

Gotcha, gotcha. Well, I think especially if you want to maintain that relationship with the brokers, I would think that would be biased to, you know, not by the end of each week kind of thing.

Ken Gee 30:14

That’s true, too. Yeah, I didn’t, I didn’t talk about that. But you’re, you’re correct. But the real driving force here, when my clients and I have these discussions is I always want to tell them what’s right for them. Right, irrespective of my allegiance to brokers, or to anyone else, my first allegiance is to them. And I want to make sure that no matter what I mean, we go to our clients and say, you know, what, you have worked this thing, we have done a great job, you need to sell this thing, we’ll we’ll go to our clients and tell them that because you know, we know the market, we understand, right? We know what’s, what’s going on. So you know that that’s the real driving force. It’s not protecting the broker relationship, although that’s important. It’s more important that we treat our clients properly.

J Darrin Gross 30:57

Well, makes sense. So how many deals Have you syndicated over the course of your investing career?

Ken Gee 31:06

Yeah, that’s a good question I have to do. Let me do the math in my mind, price service, 678, something like that. We have a deal in process right now. With our fund that we just raised, we accept them get three deals out of that fund. That’s That’s the goal.

J Darrin Gross 31:21

katraj? And of the those funds have all of those gone fullcycle, or not the funds but the syndications have

Ken Gee 31:28

All but one, about one. Yeah, so we have not historically been a unit, some people get in this business to buy unit count, right to get as many units as you can, because that I guess it’s your bragging rights, then right? So we don’t do that we, because of our investors, we want to add our value, we want to leave some for the next guy, and then we want to go ahead and sell that asset. Because then it’s gone full cycle, there’s no way to argue with any valuation. I mean, investor went in, investor got paid investors done the whole deals done, and you know exactly how much you made on it. So we’re down to one soon to have two and, you know, two more after that. I’m sure we’re working on a number of deals right now.

J Darrin Gross 32:10

Gotcha. Well, it’s impressive, the number of of, you know, deals you’ve done and lessons you’ve learned and and the fact that you’ve now got a fund. That’s it. And for the reasons that you did, as far as you know, the opportunities that are going to, or just how you’ll be viewed, you know, in the market, as opposed to syndicators got to go out and raise raise a capital there, I think that’s, that’s a pretty unique and good way to, to put yourself in a competitive market is the capital’s over, already been raised. Right. So that’s good. Hey, Ken, if we could, I’d like to shift gears here for a second. As I mentioned, before we started recording. By day, I’m an insurance broker. And I work with my clients to assess risk and determine what to do with the risk. And there’s three strategies we typically look at, we first look to see if we can avoid the risk. If that’s not possible, we look to see what we can do to minimize the risk. And when neither of those are an option, then we look to see if we could transfer the risk. And that’s what an insurance policy is, it’s a risk transfer vehicle. And as such, I like to ask my guests, if they can look at their own situation, could be their clients, the market, capital raising, you know, however, you would like to frame the question and the answer, but looking to see if you can identify what the biggest risk is. And for clarification, while I am an insurance broker, I’m not necessarily looking for an insurance related answer. So if you’re willing, I’d like to ask you Ken Gee, what is the BIGGEST RISK?

Ken Gee 33:57

Sure, the biggest risk right now as I see it in the market, is it’s very difficult to find deals, that will work. And the reason I call that a risk, is, if we’re not able to make the deal work, and someone else does the deal, it probably won’t work for them either. So the risk here is that people will do deals that they really shouldn’t do, just to get the deal, right. If you’ve ever heard of FOMO fear of missing out, there is a lot of that going on. And if we you know, if we do lose a deal, it’s probably because someone else was concerned about missing out, they’re willing to pay more to make deals that didn’t make sense. A because maybe they’re inexperienced, or B, they just want to get in the game because they’re dying to get in the game. So that’s the biggest risk. I don’t that’s a risk to me, but I think that’s a risk to the entire industry. Because when people do things that they shouldn’t do, you you need to hope you’re in a growth market. That’s going to go fast enough to allow you to grow out of your mistakes. And if you’re not, then you’re going to get stuck with them, and it’s going to impact the market. So that’s the biggest risk. Now having said that, the number one reason we do multifamily is because I can’t find a better risk adjusted return profile. Everybody needs a place to live, they just, they just do, I can’t figure out a way to make that go away, I can figure out how to not need an office, I can figure out how to not need storage, I can figure out how to maybe not need medical, right, think about all the different assets, real estate asset classes, retail strip centers, I can figure out a way for that demand to really significantly decline. But what I can’t figure out is a way for you to not need a place to live. So as long as I have that, I view that as a relatively low risk asset. And then if we’re able to take that asset improves 1525 35% plus annual returns for our investors, I see that I look at risk very similar to the way the way you do, I shouldn’t be able to get those returns with this level of risk. But because we’re good at what we do, and because it’s real estate, and it’s leveraged appropriately, it we really are able to get a significant return. So the number one risk back to your question, is people doing deals that they shouldn’t do, because it’s it’s going to hurt the entire industry as a whole eventually.

J Darrin Gross 36:28

No, I think that’s something we’ve there’s been certainly waited breath, wait, you know, waiting to see, you know, where the correction is coming. So I, I think it’s inevitable. You know, but as long as there’s, you know, lots of cheap money, and, you know, willing willing investors are willing buyers, I guess, sellers are gonna take advantage of that. So we’ll see what happens. But, Ken, where can listeners go if they would like to learn more or connect with you?

Ken Gee 37:00

Sure. So one of the things I wrote I wrote a list a little while ago. Now it’s a it’s a small ebook. It’s called multifamily Real Estate’s a total game changer. If you go to our website, k Ri partners.com. Slash ebook, you can download this ebook. I’ll tell you why I wrote it. I wrote it for two reasons. It basically has two parts. The first part addresses the number one question that everybody has to ask themselves before they get into real estate. And that is, how did they know people are making a ton of money in real estate? They’re just trying to figure out how they get their piece. Right? Should they buy a single family a double? Should they buy an apartment building? Should? Should they go into Self Storage? Should they even do it at all? Should they invest passively with somebody like us? Right? So I helped them through that process? Because it is the question that absolutely everyone gets into this business faces. And I’ve seen it for 25 years, I’ve seen people wrestle with this. They just don’t know how it fits into their life. And so hopefully, the first part of the book helps the reader through that process. The second part, addresses what now now so when I go through that analysis, most people really should be passive investors because they have wonderful full time jobs. They you know, they make a lot of money, they do their thing, and they should truly just invest passively in real estate. Well, now the question becomes, how do you vet the real estate people out there that you can invest with? How can you how do you vet a fund sponsor? How do you give that a syndicator? How do you know that their fund or there’s the investment objectives match up with yours, and the risk tolerance that you’re comfortable with? So I take you through that process, I give you some insight into how our business really works? You know, what makes a syndicator tick, wait, why do they do what they do? And all of that stuff, help you understand the way the business works? Because then, and I also give you some questions to ask, right? So just how do you vet those sponsors, because I feel very compelled to help you, the investor, make a good decision about who you invest with. Because if you do, you’re going to be successful, and you’re going to keep coming back. And that’s what we really want for this whole process is for everybody to be successful because there’s no reason for anybody to fail in this business that we have so that the book is kr I partners.com. Slash ebook and download. It’s free. And you know, hopefully it is beneficial to whoever reads it. So that’s how you can reach us.

J Darrin Gross 39:21

Awesome. I can’t I can’t say thanks enough for taking the time today. I’ve enjoyed our talk, learned a lot, and I look forward to doing it again soon.

Ken Gee 39:31

Well, thank you for having me. You bet. For our listeners.

J Darrin Gross 39:35

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

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