Meg Epstein 0:00
Look at the vacancy of certain asset classes. I’m also pretty dialed in the community here, which is why I decided to focus on Nashville at least until we get to over a billion under management because I think it’s, you know, the most the one of the best markets in the country. So hard to leave when you have sort of boots on the ground Intel and relationships, right. So I’ve focused on different asset classes and how we chose those were just based on you know, pretty or pretty unbiased, just able to look at data as opposed to being focused on one asset class and only doing that one thing.
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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 Meg Epstein. She’s the founder of CA South. Originally born in California, she calls Nashville, Tennessee home now. She’s a real estate developer, and has over a decade of experience creating efficient, modern lifestyles for people where it matters most, their homes and their neighborhoods. And just a minute, we’re going to speak with Meg about it Opportunity Zones, and commercial real estate in Nashville, Tennessee.
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Meg Epstein 2:35
Thank you very much for having me.
J Darrin Gross 2:38
Well, I’m so looking forward to our conversation today about all things you’re doing down there in Nashville. But before we get started, if you could take just a minute, and share with the listeners a little bit about your background.
Meg Epstein 2:54
Sure, I moved to Nashville from California, as you mentioned about five years ago, and I thought my background was in residential construction, actually, in Los Angeles. And when I moved here, I saw, you know, a big gap in the commercial real estate space, there was a lot of development happening. But it was mainly from in hospitality and larger re apartment building. So I started in the condo class, I started a condo platform, essentially, and started with my first condo building back in 2016. And basically just scaled up from there and continue to similar strategy of being data driven. And we do industrial flex office now larger multifamily and opportunity zones, as well as you know, more opportunistic office and residential projects.
J Darrin Gross 3:52
Gotcha. And so you came from California, and you were primarily building in California. Is that right?
Meg Epstein 4:00
Yeah, when I first I graduated in 2008. So there wasn’t a lot of I always wanted to be a real estate developer, but there wasn’t any jobs. And so I went into general, you know, general contracting, essentially, and very high end homes in Los Angeles for a general contractor. So I learned building and, you know, some job sites for for a long time and got into development when the market started to turn around.
J Darrin Gross 4:26
Gotcha. So if I understand, right, you’re from California originally. So what if you’re from there and if you’re not from there, I know growing up in Kansas, that’s all we thought about was, you know, California. What know what was the impetus or the What made you look elsewhere.
Meg Epstein 4:54
I actually met my husband and he was living here. So he was from San Francisco originallyevery day. But just like a lot of people in Nashville that come to visit and decide they want to move, and you know, he said, Hey, give it six months and 2012. And here we are. But I, I’m very happy for it because I, you know, having lived in, basically between San Francisco and Los Angeles in New York my whole life, I was pleasantly surprised getting urine, and I don’t think we’ll ever leave now. So I’m very bullish on the Nashville market and the southeast in general.
J Darrin Gross 5:30
Well, and let’s talk a little bit about some of the attributes that that make it attractive down there. Can you speak a little too?
Meg Epstein 5:39
Sure. I mean, I think now, you know, given given COVID, even having more space and not being in such a dense environment is is nice, of course, but just that economically, I think it’s still going to come Nashville, will still come out ahead, because I’ve seen even more people moving here since then. So from real estate perspective, there’s a, there’s just a lot of opportunity. It’s still a relatively unsophisticated market. So, you know, coming in with outside capital or being, like I said, one data driven, I think, I think is allowed me to scale up very quickly, having started, you know, basically zero when I moved here. And but other than that, just on a personal level, you know, the chat, I hear people complain about traffic at five o’clock came in for 20 minutes of traffic, and, you know, coming from LA, it’s sort of laughable, and people are very friendly. And you know, there’s proper seasons, and it’s accessible to so many things, because you’re so you know, you’re an hour and a half from New York, Boston, Miami, Austin, Chicago. So it’s just it’s a very nice, just overall, I think, place to live. And then I think of why Nashville themes such as a assurgence is the meaning of strong academia, you have a lot of entertainment. And obviously, the healthcare industry is one of the big factors.
J Darrin Gross 7:08
Gottcha. Yeah. And you just barely touched on entertainment, I guess. You know, historically, I’ve always thought of Nashville as being the country music is still the capital. I don’t know if that’s the case, but it’s in the Grand Ole Opry down there.
Meg Epstein 7:24
Oh, yeah. And the music. Definitely. Yeah, definitely. Music City. That’s a big part of the personality, you can listen to live music a lot. I mean, not obviously, not as much now. But you know, last summer, there were concerts in the park every weekend and that type of thing. So it’s definitely add to the cultural, you know, richness of the city for sure.
J Darrin Gross 7:45
All right. You mentioned the opportunities in real estate, and that the the market wasn’t necessarily as sophisticated. Are you seeing? Well, I guess there’s a couple things. One, you mentioned demand sounds like a lot of people are being attracted to the area. Do you have any sense it also you mentioned about data? Is there any numbers you can point to just as far as the Is it the growth rate or the number of people migrating inward?
Meg Epstein 8:15
Yeah, I mean, it fluctuates from what I hear, but I think it’s around it hovers around 100, on average a day, 100 people moving here, and then you have some big relocation, like Alliance Bernstein headquarters. So there’s a lot of high paying jobs, I think they I think they’re 3000 jobs or something to that extent, moving into downtown, right. And then Amazon, of course, is estimated at 7000 jobs. Moving to Nashville, and then Accenture, I think, moved to a headquarter here added about 100 or 1000 jobs. So the data is tend to fluctuate, but I think it stays pretty consistent around 100 people a day moving. And I think with these larger companies moving I mean, there’s rumors of Oracle and, you know, Facebook and things like that, but as these bigger companies come, I think the, you know, the average salaries are, are pushing up the demand for real estate.
J Darrin Gross 9:17
That’s, that’s, uh, you know, always helpful if you have large employers that are wanting to locate in your your area and have their employees locate there. As far as the current or is prior, as you’ve been there since 15. Did you say 16?
Meg Epstein 9:38
Um, yeah, I was still moving from California and they sort of transition but 2016 more permanently.
J Darrin Gross 9:47
Okay. And pretty steady growth since then.
Meg Epstein 9:51
Mm hmm. Yeah. It’s been a lot of Yeah, a lot of growth, a lot of construction.
J Darrin Gross 9:57
Alright. It as far as like, the The cost of real estate, can you make any comparisons like project you would have worked on and an LA as opposed to Nashville just on a side by side comparison from cost, and then also the eventual sale price for rents or can you can provide any,
Meg Epstein 10:22
it is tough because I was only really working in residential in Los Angeles. So, you know, very high end residential, so I can’t really speak too much to that. I mean, the definitely the cost of land since I’ve started developing here has increased, you know, significantly. And I think even before I started, you know, we’re very seem to have doubled or tripled, and a lot of cases, especially in the downtown area, but I can’t really compare it. I know building costs are more affordable here. And obviously, the cost of living is, you know, a third of warming two thirds or so of what it would be in California, I don’t
J Darrin Gross 11:08
No, and I would think that that unless wages are substantially less there would be more disposable income from people to you know, enjoy joy all the area has to offer. Let’s talk about some of the projects you have done in the last few years here. What what’s the Can you describe I guess the first project let’s talk about that.
Meg Epstein 11:37
The first project I did was a 77 unit and condo building. So I chose condos because I was looking for a condo when I first came with my husband’s and a lot of the inventory was you know 10 years old not there really just wasn’t enough condo buildings being built after I think after 2008 the financing options really really you know were less available so apartments in you know family in the institutional markets which tend to focus only on apartments so so I focused on condos and I wanted to do sort of a boutique size project that was 77 unit and it was almost adjacent to downtown but kind of in a residential feeling neighborhood like a urban walkable neighborhood. And we actually ended up converting it or allowing with the HOA and I learned a lot through this experience but allowing it to be owners of Airbnb out there unit so we see a lot of people that split their time in Nashville or they want to invest in Nashville and Airbnb very popular here because the hospitality market isn’t, is under supplied. I don’t think it’s going to be now but with all the construction and obviously the last you know, pandemic but we saw a lot of people and investors wanting to Airbnb so we allowed for that into the documents. So they sold very quickly it was 80% sold by the time we finished for higher than we proformaed it and I think we only have one unit left now. So that was a that was a great successful project. And our sell out was around 36 million or so. And you know, IRR’s were over almost 80% or something crazy but and so it was a good that was a good strong first first project it was a bit of an anomaly but that was the first one I did
J Darrin Gross 13:43
I’m sure that that you know success on a project like that helps you with future projects and and be investors or lenders or or contractors, etc. And you said 80% by the time you were done with the construction
Meg Epstein 14:06
J Darrin Gross 14:06
Meg Epstein 14:08
Yeah it was crazy i think you know they’re just again was in the supply of condo buildings that you could Airbnb in and it really adds a lot of flexibility for people especially if they’re splitting their time or you know a lot of people there’s no state income taxes here. So a lot of people do split their time especially in the entertainment industry. Maybe they go back and forth between LA or you can Airbnb at your condo while you’re gone and let it sort of pay for itself. We had to set up a hold management company on that. To manage you know, give people the option to use a management company to account for bookings and cleanings and things like that, but but it was a that was a whole an odyssey figuring that all out but once we did, it was great. We have a great team and partner. So
J Darrin Gross 15:02
You mentioned its location being close to downtown. Can you speak to the the area? I mean, is there? Is there a transformation going on? Or is there? Are there pockets that are? You know, there’s, you know, the reinvestments going on is that I guess I’m looking also at the Opportunity Zone, kind of a question is are, Are there areas there that you’ve identified that you can? You know, I guess, create a, a neighborhood feel, or there’s, there’s appeal for the location?
Meg Epstein 15:40
Sure. And I’m interested to see how this will change in COVID, if it will, but you know, I haven’t noticed a huge significant shift yet, but you know, people would, or there’s going to be resurgence of the suburbs or something. But what I was seeing, if you look at the Opportunity’ Zone map of Nashville, I mean, it’s really favorable for for our city. I mean, I know some cities like Austin, and it’s much further outside the city, but ours is, you know, pretty much a mile of where the Amazon downtown campus is just about a mile circumference around that is all opportunity them. So actually, my first the first project I mentioned, even though I did it as condos, while I was building it, the opportunities on legislation came out. And and, you know, we looked at possibly selling it was already under construction, but not not far enough along where it would prevent someone but it was pretty new at that time, the whole the whole opportunity zone legislation. So there’s some neighborhoods, you know, we’re Nashville has grown so fast, where it’s been an opportunity down, but there’s million dollar homes in the neighborhood. So it’s a little it’s obviously favorable to real estate investor, I don’t know if it accomplishes the intent of the legislation. But in the neighborhood, I first focused on the edge Hill neighborhood, which is the one I mentioned adjacent to downtown. I’m on my, I’ll be starting my fourth project here. And that’s all an opportunity down to the later one, we’ve taken advantage of the legislation.
But to answer your question, I think that in Nashville, and I’m sure this is the case in other cities is that people don’t, you know, younger people or people in general don’t want to be out in the suburbs in an isolated house, but want to be, you know, in in the urban core, and we’ve seen the revitalization of urbanism and people wanting to be in downtown. But I think the the walkable neighborhoods that are accessible, where you still have some space, and maybe you’re not in a downtown high rise, is are very desirable in Nashville, and those neighborhoods have appreciated, you know, significantly in the last 10 years old neighborhoods like East Nashville, German Town Twelve South, for example, these areas were not not nice at all, and crime ridden and you know, people start flipping houses and becomes a lot more desirable. And I tend to put my buildings in those type of neighborhoods that are walkable and kind of are connecting a gap between the suburbs and high rise downtown living.
J Darrin Gross 18:22
And you mentioned, kind of the the turn of the the the neighborhood. Are there a lot? Is there a character of the older buildings that has been maintained in a lot of those situations? Or is it pretty much where they are they tearing down and building new or?
Meg Epstein 18:41
No, I think as much as people can, I mean, we don’t have a strong historical overlay program here. But with what kind of define some of the architecture Nashville is these old warehouses and a lot of people like that kind of loft feeling or, or old brick, you know, it’s very conducive to Nashville, you know, the music industry and the industrial aspect of it. And the train tracks and things so people do me know, several big, larger projects now where people keep, you know, try to keep the bones of something and either build on top of it or incorporate it somehow. I do for sure, especially if it’s the cool old brick building or something like that. But a lot of times, you know, I’m thinking of the projects I have, they’re pretty dilapidated old retail or warehouses and things like that. and you just demo it.
J Darrin Gross 19:35
Right. And I need some pretty good bones on some of that stuff to make it worthwhile. What you mentioned that your projects aren’t high rises, or are they like, garden style, or how how many stories are you building in some of your projects?
Meg Epstein 19:55
It’s turned out I mean, I’m not opposed to doing a high rise eventually, but would have been you No six, the successful most successful model for me has been, you know, a four or two of podium parking above ground, because nationals all rock, and then four to five and a half stories of framing, stick framing. So it’s not garden style. But it is a, you know, more economical type of construction than high rise. But I think, you know, I also won’t build something that looks like everything else. And I tend to bring, you know, my architectural partner on the first project I mentioned came from San Diego, and you check out the website, I mean, it just looks a lot different than anything here in Nashville kind of, is that for, you know, bringing the California to the south type? aesthetic. So I’ve done that several times and intend to work with architects from California, or at least have them be a design architect and get a more unique, modern, you know, architecture style that appeals to people moving here from bigger cities.
J Darrin Gross 21:08
I love it, you got a kind of your own? Look, I mean, they’re easy, but can people identify your properties from? That’s a CA South property isn’t?
Meg Epstein 21:19
Yeah, I think I think so. I think we’re getting there, especially as we complete more, but I just, you know, and I don’t, there’s definitely a place for it. But I just think that the monolithic institutional apartment is, is probably profitable and work, obviously, they wouldn’t keep building them by the thousands of units, but it just, I don’t think a whole city of that, you know, it’s gonna really shape the built environment in a way that I think is important. You know, I don’t want to just do something just because it makes proforma’s out
J Darrin Gross 21:58
Got it. Now you mentioned, your, your current projects are in the Opportunity Zones is that right?
Meg Epstein 22:06
Some of them. Yeah, I have four projects now. Six projects in Opportunity Zones. And, you know, always counting always adding more, but we will probably structure three of those as Opportunity Zone funds, or four of them as Opportunity Zone funds. So sometimes, you know, it just depends on what capital is available. It doesn’t is the development sponsor, it’s nice to diversify and not get away from a merchant build, model and hold the assets for 10 years, like we typically do. But it just depends on the type of project when you know, it’s 100 million dollars, it’s probably a lot easier to get Opportunity Zone institutional capital that doesn’t have a lot of places to put it right now. Then, you know, a $30 million project.
J Darrin Gross 22:55
Right? And in the different types of projects you’ve got going right now. What are ya?
Meg Epstein 23:03
industrial flex office, and larger tilt up industrial is one. Condo project, mixed use opportunity zone projects, and office.
J Darrin Gross 23:23
All right. And guess where I’m going with it? determining what what to build her? Meaning? What are you? What are you sifting through? How are you determining what, what, what to build? Is there a just a broad recognition of need? or How are you?
Meg Epstein 23:45
Yeah, mainly, they can see I look at the vacancy of certain asset classes. I’m also pretty dialed in to the community here, which is why I decided to focus on Nashville, at least until we get to over a billion under management because I think it’s, you know, the most the, one of the best markets in the country so hard to leave when you have sort of boots on the ground and intel and relationships, right. So I’ve focused on different asset classes and how we chose those were just based on, you know, pretty or pretty unbiased, just able to look at data as opposed to being focused on one asset class and only doing that one thing for decades. There’s something so we tend to be very opportunistic, but in industrial, for example, I think of my husband had a company. He was private equity, but he had a company he had an office where he was renting an industrial flex space and his rent doubled over the course of a couple years from in 2013 to 2016. And we’re going what’s going on and started looking at the vacancy, looking at these old buildings that are 30 or 40 years older. doubling their rents and there’s no vacancy, literally none. And so it started just looking at the market and talking to the brokers. And that’s kind of where we formed that that strategy. And the same thing with condos. And the same thing with opportunity zones. So this is basically, market data. Our office project is a condo project, same thing I looked, looked at the market saw a lot of the older inventory, that’s 10 plus years old trading for what I could sell a class a brand new building for, and, you know, not seeing anything in the pipeline.
J Darrin Gross 25:37
Gotcha. You the condo type projects you build and you sell the units, do you retain any ownership of any of those projects?
Meg Epstein 25:48
Sometimes on one, the one I mentioned, I’ll keep, I’ll keep a unit for myself and rent it out, you know, it’s better for taxes that way, because condo income and ordinary income. But I’ll hold that as an investment property for a few years. I often thought of one of the projects where there was enough equity for me to just keep the office and not pay rent, you know, things like that. So I tried to it just depends on how the sales go and what’s available. But I try to hold on to, you know, some asset
J Darrin Gross 26:22
Gotcha, and try and enter you doing any projects that are more of a long term hold in these Opportunity Zones, is that
Meg Epstein 26:31
All the Opportunity Zone projects we hold for 10 years, the ones that are set up as opportunity zone fund`. So I have one project, two smaller mixed use projects, but it’s in an area that is gentrifying that we’re very excited about and that’ll be a 10 year hold as well as is two others. And then first neighborhood I mentioned. So yeah, we always told opportunity fund, opportunity zone projects, ten years.
J Darrin Gross 26:58
Attracting capital right now. You’ve mentioned a couple times, is it. People saying what do you build next? Are they they? I mean, is there plenty of capital for you to go go go? Or is it been any kind of Have there been any challenges raising capital?
Meg Epstein 27:19
I don’t think I think there’s still a lot of money on the sidelines. And as I said, Nashville is sort of a darling market especially. It’s only it’s obviously been a lot more popular in the last couple years. But with COVID I think a lot of people, you know, in Amazon’s presence here, and I think a lot of people have felt comfortable continuing to place dollars here. And so I haven’t had a problem or, you know, raising capital have raised I don’t know, maybe 50 or 60 million since March. So but it has to be I also focus on that, that classes that are sort of coming out of the pandemic’s shining, which are, you know, not luxury apartments. So the more middle market apartment as well as industrial,
J Darrin Gross 28:10
Not doing the hospitality and the retail there?
Meg Epstein 28:14
Right, no. Right. And there’s a little bit of retail and some of the projects, but just you know, more like, forward facing just as part of an excuse.
J Darrin Gross 28:26
Right? No, I think that mixed use asset classes pretty desirable right now, I would think, based on people’s limited ability or just access to certain things and
Meg Epstein 28:41
Yeah, definitely. Yeah.
J Darrin Gross 28:46
If you were starting today, I mean, you’re not that far. But you’ve learned a lot of lessons. What’s a big lesson that you’ve learned? Just with respect to, you know, development in coming to a new city?
Meg Epstein 29:09
A big lesson I have learned, I think it’s really your team definitely defines you and who you work with. And very important, you know, and I’ve learned a lot of lessons about that as well. as, you know, I feel as though I have a very strong grasp on construction and development, but it’s, you know, running an organization and hiring 10 people in a short timeframe has been a learning experience for me for sure. I didn’t have a form but you know, a lot of formal training when I started, I came in through the construction way. So managing a private equity fund. Raising all the capital I have I didn’t you know, have an MBA or anything, so I just kind of had to learn that by experience. And talking to a lot of investors and a lot of people and, you know, learning the best way to structure deals and say, and now we have a great working framework, but there was definitely a lot of there was a big learning learning. I mean, I don’t know if there’s a huge learning curve, it’s been, it’s been going very well. But definitely, you know, taking on a lot, we started a property management division. When when we started opening the project, because we wanted to manage them. So it’s been a lot of high growth in a short amount of time. So yeah, I guess we just kind of adapt quickly.
J Darrin Gross 30:38
That’s great. Meg, if we could, I’d like to shift gears reverse second. By day, I’m an insurance broker. And I work with my clients to assess risk and determine what to do with the risk. And there’s typically there’s three strategies we consider. The first we look to see is he can we avoid the risk? If we can avoid the risk? And there’s no more risk? If we can’t avoid it, and we look to see, okay, can we minimize the risk, and if we’re not able to avoid nor minimize the risk, then we look to see if we can transfer the risk. And that’s what an insurance policy is. And I like to ask my guest, if they can identify what they consider to be the biggest risk. And this is looking at your clients, the market your business, I’ll let you frame it however you want. But just for for clarity, I’m not looking for a an insurance answer. And with that, if you’re willing, I’d like to ask you, Meg Epstein, what is the biggest risk?
Meg Epstein 31:51
I think in Nashville, I think being only centered on one market. I think I’m you know, I need to closely monitor supply. And it is always unnerving when I drive downtown, and they see 15 tower cranes in the air, right, because we have been able to absorb that supply. But I think it’s a metric we need to watch very closely, especially with the pandemic and how quickly the market changing in ways we haven’t seen. So I think supply as is always going to be a fundamental risk for me. And in which case, you know, I need to change strategies. And hopefully we’re nimble enough to.
J Darrin Gross 32:35
No, that’s a supply and demand is kind of the equation there. Right? With real estate?
Meg Epstein 32:42
Yen, I mean, it’s a simple, simple answer. But sometimes, it’s really just as simple as that is just making sure that you’re monitoring it closely enough before you you know, go start a project because especially with the timeframe of real estate, it can take, you know, two to three years to stabilize something and by the time you get it entitled. So it’s important to look at look at that market data. And I don’t think a lot of people do surprisingly, but you’d be surprised. You’d be shocked.
J Darrin Gross 33:14
Yeah, no, the data doesn’t lie, right? The few books I’ve read recently, just talking about how the bias we all bring to them. The situation. And the data is usually telling you the story there. But depending on how your what your past is, if you’re, if you’re shading that data in any way, you may not see it for what it is so, right. We want to pay attention to the data. That’s good. Meg, Where can the listeners go? If they would like to connect or learn more?
Meg Epstein 33:50
Definitely our website CASouthDevelopment.com. And there’s some contact information there, you can get ahold of my assistant or LinkedIn and we’re pretty, you know, we try to make sure to check messages and whatnot. post updates there.
J Darrin Gross 34:06
All right. Well, Meg, I can’t say thanks enough for taking the time to talk. I’ve enjoyed our talk, learned a lot. And I hope we can do it again soon.
Meg Epstein 34:18
Great. Thanks so much for having me. Have a good day.
J Darrin Gross 34:21
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