Latest / The Hannah Hammond Show / The Exact Framework to Build a Real CRE Business | Gary Linhart

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The Exact Framework to Build a Real CRE Business | Gary Linhart · The Hannah Hammond Show

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  Best advice you would give when it comes to.
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  Calvary, the deal, the market, the team.
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  Get someone interested in those three things.
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  We're always telling a story. When you're raising money or
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  you're getting people to invest or bet on you, learning how to
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  tell a story very tightly is important.
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  Begin with the end in mind. Yeah.
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  And plan for the worst case. Usually when you talk to people,
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  they're like God, you know, never lost.
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  I've never lost a deal or I never lost investor capital or
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  never that it's all sunshine and roses.
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  But I know that that's not just not the case.
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  They say they've never lost. They're they're not humble in
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  facing the things that can inevitably go wrong, wrong in a
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  transaction. If you're the 22 or 3 year old
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  in your office, you should be the tech expert.
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  You should know how to utilize AI.
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  You should be the person who knows all the tech tools so that
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  you get an early seat at the table.
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  If you had to start over today from scratch and you had no
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  network, no knowledge and you had to make your first
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  $1,000,000 all over again, what would you do?
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  Welcome back to the Hannah Hammer show.
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  I'm here today with Gary Linhart, the founding partner of
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  West Hawk Capital and he is a very dynamic entrepreneur and
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  real estate investor who has been involved in over a billion
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  dollars of real estate transactions over his 20 plus
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  years in real estate. And you are not.
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  You've been on the development side and the construction side.
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  You've also been on the capital raising side and you're also on
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  the LP side and Co GP, JV, all the things.
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  So you have seen real estate? All the letters.
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  Exactly, all the all the letters, but it's so cool
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  because I love to see the dynamics of somebody who's
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  literally been on every side of the deal and you still are.
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  You're on you're on multiple sides as AGP and an LP.
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  So happy to dive into your story today.
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  And you're also local here to Arizona, so it's nice to meet
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  you. Thanks for having me.
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  Thanks for coming on. So what mission are you on with
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  W Hawk Capital? So I founded W Hawk Capital
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  little under six years ago after having found Co founded and and
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  built a company up to probably 50 people and so on.
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  And what I realized when I left my prior company was that I
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  loved the process of building the company and starting the
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  company as much as I did the deal side of real estate.
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  And so W Hawk's mission is that this success is achieved by
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  contributing to the success of others.
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  So it's a little bit of a real estate, it's a real estate
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  company, but also I'm kind of like a player coach with
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  emerging managers in real estate and emerging companies in real
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  estate. That's amazing.
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  And we'll dive into some of the projects that you're working on
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  right now, including capital raising for a night golf
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  tournament here in Arizona that you guys are.
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  Expanding. Actually.
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  All right, yeah, a golf course. OK, cool.
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  And then I think you're expanding those to some other
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  states as well, but going back into how you got into
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  entrepreneur in real estate development, can you kind of
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  share what that process looked like for you?
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  And when, when was that like defining moment where you said
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  I'm going to be in the I'm going to become an entrepreneur or a
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  real estate developer? So I actually grew up in the
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  real estate business or around it.
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  My father was in the real estate business and I always loved the
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  combination of kind of understanding populations and
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  patterns of how people interact with the work environment, where
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  they live and so on. But I kind of avoided real
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  estate earlier in my career. And then after having some ups
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  and downs and some other things, but really getting my, I guess
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  cutting my teeth outside of real estate, I gravitated back
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  towards it in like 2002. So like 10 years into my career.
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  And what did you do initially? Were you just like, I don't want
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  to be involved in the family business.
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  I want to do my own thing type thing.
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  Yeah, just sort of spread my wings.
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  So I actually studied. I was an economics major
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  undergrad, but I also studied Japanese.
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  And at the time Japan was kind of taken over the world, much
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  like people fear about China today.
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  And so I spent a year of College in Japan and three years working
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  after undergrad working in Japan in a Japanese company.
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  I was the only non Japanese person in the entire department.
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  And then came back for Business School and was in consulting in
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  New York for media companies. Was at a hedge fund for a while
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  and just sort of realized that that thing that I grew up with
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  was drawing me back. And so I entered the real estate
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  business kind of on my own in 2002 and invested in some deals
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  and then realized I wasn't, I wasn't a lone wolf.
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  And so I sought out a partner and then that's I found a
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  partner and we started by OS Group and I was there building
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  that company over a 16 year period.
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  OK. And then you recently sold out
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  your. Equity, yeah, about six years
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  ago, little under six years ago that kind of had run its course
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  and and so I sold my interest in the company and then I was still
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  in the deals. So when real estate you have the
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  operating business, they call it the Opco and then there's the
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  Propco, which is the individual assets or deals or LLCS that you
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  form for individual projects. So those got those individual
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  projects harvest over time and I get my returns over time on
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  those. But I got bought out of the
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  business about six years ago. And was that your plan or did
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  that just kind of start to evolve?
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  And I guess from a partnership perspective, how did that
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  transition look and how did you approach that with your partner,
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  like maybe it was time for you to?
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  Yeah, I think it was just sort of time and and the things that
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  I was wanting to focus on and they were wanting to focus on,
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  it just made sense at that point and it was about a six month
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  process. And you guys were able to come
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  to an agreement, like what what advice do you have when you for
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  those who are thinking about making a big shift in their
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  business or in their career, Like how did you approach that
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  situation and come up with a agreement that made sense for
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  you and your partner at the time?
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  Well, you have kind of a, there's certain details I can't
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  get into, but you, you have a operating agreement at the
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  beginning and the most important thing in an operating agreement
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  with partners is thinking through a default separation
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  plan upfront. So that is A and often those are
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  maybe more, they call it a buy sell agreement.
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  Those are more draconian than what actually happens, but it
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  brings people to the table to work out something that makes
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  sense. So you've already.
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  Had your plan kind? Of yeah, but you worked through
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  that was a, that's the backup plan.
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  But then you just sort of work through how the there's so many,
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  there's so many specific details on any given business.
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  You have to kind of go through them and it the longer you've
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  been in business, the longer it takes to kind of work through
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  all those details. But yeah, you could go through a
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  process in terms of what advice I'd give people.
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  I think it's really important to seek legal advice at the
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  beginning of a partnership and and have a clear plan for if, if
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  we want to part ways, there is some sort of document or process
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  for for getting out. Otherwise emotions can can, can
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  take too much a part of that. OK.
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  Yeah, begin with the end in mind and plan for the worst case.
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  Yeah. And then that just sort of
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  brings people to the table to negotiate something that's more
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  specific because you can't predict everything upfront.
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  But if you have kind of a a, a, a process laid out at the
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  beginning, it brings people to the table to figure it out.
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  So going back, I know we had talked yesterday, you had
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  mentioned that you had, you said something that I really liked
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  that you said. Yes, you you learn from your
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  failures, but you don't learn much if you lose five times in
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  a. Row Yeah.
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  So people, people always say you lose more from your failures
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  than your. You win, you learn more.
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  But you only learn more from your failures than your
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  successes if you also have successes, right?
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  Like if someone's O and nine, they haven't learned anything
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  from their failures. If someone's 10 and one, they've
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  probably learned a lot from their failure.
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  But you, you know, you want at the end of the day when you're
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  evaluating entrepreneurs, you can kind of break it down to,
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  does a person know how to make money?
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  Do they know how to figure out how to work their way out of a
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  difficult situation? And ultimately we're held
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  accountable to our track records.
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  And so having a successful track record is really important.
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  And as much as maybe the ethos in Silicon Valley as they love
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  that sort of, they had an early failure and it gave them
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  grittiness and they bounced back.
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  And all of that stuff's important.
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  But it's also important to to learn how to make things work
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  and how to choose things that ultimately work and and so on.
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  So I encourage people, particularly in real estate,
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  because I think that we're more in a wealth preservation
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  business in terms of the kinds of returns that one should
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  expect in real estate relative to venture, right?
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  Like you could have 100X on your investment in venture.
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  You're not really going to look at opportunities like that in
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  real estate unless it's some sort of crazy land deal or
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  something like that. But so it's really important to
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  learn how to preserve capital first and make capital 2nd, So
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  if someone's owing 3IN in in real estate deals, there's a
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  problem. Yeah, what is, I think it's
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  Warren Buffett number one rule don't lose money.
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  Yeah, I was just thinking of that before you said it.
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  And you know, it's funny because I meet so many incredible people
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  and you know, a lot of people on the podcast and just in life,
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  and usually we talk to people, they're like God, you know,
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  never lost. I've never lost a deal or I
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  never lost investor capital or never that it's all sunshine and
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  roses. But I know that that's not just
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  not the case. And loss has happened a lot and
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  people have lost investor capital.
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  And I know that you have lost investor capital and I would
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  love to kind of dive into. Only on like one or two deals
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  out of about 90. That's insane, and for you it
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  was early on. Well, we, we started our
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  company, original company in O3. So we were about four or five
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  years in when the great financial crisis hit and we
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  probably had 7 or 8 deals going at the time.
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  And there was one or two that we had to work through with lenders
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  and then there was one that we had to to give back.
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  But we never, there was never anything contentious.
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  There were never any lawsuits. We were always very forthcoming
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  with our investors and with our lenders.
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  And there were a lot of people whose entire companies blew up
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  or they lost tremendous amounts of money.
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  Ours was very much on the margin.
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  And even some of the deals that worked out there were things in
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  retrospect you look at and you're like, whoa, we got lucky
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  there. So I think to your point about
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  people who are all sunshine and roses or unicorns and
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  butterflies or whatever those analogies are, I think it's
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  really important to understand when you go into a deal, there's
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  the how do we make money side of the equation, but there's also
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  what can go wrong. And I think when people describe
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  situations or they've never lost or they say they've never lost,
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  they're they're not sort of open to and, and, and humble in
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  facing the things that can inevitably go wrong in a
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  transaction. And I think if you're objective
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  about looking at that, you're a lot more sort of calmer in how
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  you describe a situation. And when investors or prospects
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  or partners ask about a deal, you're very transparent about
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  here's why we like it, here's why we're doing it, here's the
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  things that maybe keep us up at night or concern us, and then
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  here's our plan for mitigating those risks.
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  But you can never get it to 0. Right, because then you might
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  just not, you're just, you might not play the game at all.
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  If you you get, there's always a level of risk.
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  There's always a level of risk, but but you know, and I'm more
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  focused on the investment side of the business currently than
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  the development side. There's a lot of things that can
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  go wrong with development, but if it goes well, the returns can
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  be very high in my current. So within W talk we have, I have
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  a, as I mentioned, it's kind of like a player coach.
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  One of my affiliated company is Alignment Realty Capital.
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  We're primarily focused on buying existing buildings at
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  below replacement cost where there's upside to rents if the
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  tenants leave in really good locations.
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  We own some buildings here nearby in the Scottsdale
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  Airpark, for example. So we go into it with a lot of
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  risk mitigation, but there's always things that can go wrong.
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  What is your advice when it comes to risk mitigation?
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  Well, I think having processes in place and having resources
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  that you can tap that are experts.
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  It's good to have a lot of expertise internally.
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  But knowing what you know and sort of having a process for
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  finding out what you don't know and then assessing those risks
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  very objectively. Not falling in love with a deal.
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  You can be enthusiastic about it, but really open minded to
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  what can go wrong and making sure that you've got all the
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  different bases covered and you're always adding things to
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  your due diligence list because there's all, there's a million
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  different things that can go wrong.
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  There's probably a few things that can go right.
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  So it's really important to at least know how to look under the
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  hood and be really eyes open when something comes back.
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  Never negative in a report. And then I think the other
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  thing, the flip side to that is not over weighing a risk.
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  Like we look back on some deals that we should have done.
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  Maybe we we overestimated how much that risk really was.
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  Now it's easy to Monday morning quarterback, if there was a 20%
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  chance of something going wrong, but it would have blown up the
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  deal and that thing didn't go wrong and the next person bought
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  it and they ended up being successful.
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  You go shoot, we should have we should have done that deal.
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  Well, well, there was there was still a 20% chance it could blow
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  up. So I think you have to, you have
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  to understand what your risk tolerance is and then you have
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  to be really good at getting to where you've uncovered the
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  risks. And then you look at it, eyes
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  wide open and say, OK, we're comfortable taking that, or
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  we're not comfortable taking that.
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  Right. And how do you evaluate your
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  risk tolerance, like what you know, when you're competing with
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  other offers? And like, I was talking to one
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  of our clients at HP Capital the other day and he's like, God, I
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  just can't believe I'm losing these deals.
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  I can't believe these, you know, REITs or institutions or any
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  other buyers are paying these prices still for these deals.
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  So like how have you navigated that tolerance for risk and
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  knowing where to set your parameters of, OK, are we
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  actually going to win this deal or is this deal too much risk
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  for us to take on? I think that's where a lot of
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  the art of the business comes in, right?
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  Like the science is maybe putting the spreadsheet together
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  that shows you the IRR and, you know, multiple uninvested
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  capital at each particular price point.
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  But I think a lot of the art is when to actually step up outside
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  of your comfort zone to buy a deal because of some feel or
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  understanding of where the market is or where the markets
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  going and so on. And I don't know if there's any
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  textbook answer for that. I think there are some people
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  who could just stay by the spreadsheet and say we're never
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  going outside of this and we're going to have to look for off
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  market deals or we're going to have to find some alternative
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  way to source something. I think if you're competing in
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  the open market with really there's really good brokers in
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  this market and it's broadly marketed, you're going to be
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  competing with everyone who has all the information.
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  So you have to believe something that other people don't about
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  where things are going. And I think over time you learn
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  what are the seasons in the market, when it it's OK to step
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  out and when are the seasons where you're like, I don't think
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  we should do it. And generally, you know, if
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  things have fallen a lot in pricing and you start to see
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  things, the early signs of things improving, it might make
• 16:15
  sense to step up. If you're in a pattern of the
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  last year, people have just been bidding crazy amounts for deals.
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  We haven't gotten anything. You know, you're losing sleep at
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  night because you haven't won any deals.
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  That's when it gets dangerous to step up because that's probably
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  a sign that things are beginning to get overheated, right?
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  That's probably like the apartment business three or four
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  years ago before interest rates went up, the kinds of numbers
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  that people were buying, paying for 50 year old apartment deals,
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  it just didn't make any sense. And a lot of really
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  sophisticated apartment people pulled back.
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  And those same people in the last year or so have re entered
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  the market and pricing is down 20 or 30% from where it was.
• 16:58
  Yeah, What is I was going to ask you what's your favorite asset
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  class is looking for, but we'll circle back to that.
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  I want to dive into your biggest failure as an entrepreneur.
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  You know, when when you were launching your startup back in
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  the day and you it didn't go well, What did that process look
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  like? What what business did you
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  start? How were you raising capital and
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  how did you emotionally handle that failure so early on when so
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  many people might not have the confidence to try again or, you
• 17:30
  know, get burnt out of even taking on that kind of risk?
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  So about a year after I graduated from Business School,
• 17:37
  I was in consulting in New York and a buddy of mine was a year
• 17:42
  behind me at Business School and I were, we had the
• 17:46
  entrepreneurial itch and through a, a series of events, it's a
• 17:50
  long story that I'll just, we'll just sort of take it at face
• 17:53
  value. We were, we ended up looking at
• 17:55
  doing a roll up or a consolidation of independent
• 18:00
  auto recycling facilities in the Southeastern United States.
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  And as we were doing that, it's like 1998, there was also all
• 18:12
  these marketplaces were forming on the Internet that are were,
• 18:16
  were buyers and sellers could come together in previously very
• 18:19
  inefficient markets and get some transparency into pricing.
• 18:22
  And so we said, hey, why don't we look at instead of doing a
• 18:26
  roll up of these automotive recycling facilities, salvage
• 18:29
  yards, maybe there's a opportunity for an online
• 18:32
  marketplace. So we pivoted to that.
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  We ended up raising about 7 and a half million dollars of
• 18:38
  venture capital and, and built up a company.
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  We had 30 people. We were in New York City and
• 18:45
  then kind of the bell rung on the Internet one point O and I
• 18:51
  remember it was like pets.com had a really bad Christmas and
• 18:55
  that was kind of like the Canary in the coal mine of things
• 18:58
  falling apart. And so we ended up selling to a
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  traditional player in the recycling business and then he
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  ended up going under and our investors ended up losing their
• 19:11
  money. And it was very, very difficult
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  thing to go through. And I think in retrospect, I was
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  probably a little early in my business career to do something.
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  I didn't have a tech background. And I think we were exposed on
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  that front. We, you know, we brought in some
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  tech people, but it wasn't the same as having like a tech as a
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  tech person as part of the, the founders.
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  And I don't think we understood or appreciated the power
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  dynamics of the industry and how hard it would be to accomplish
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  certain things. So I developed definitely a
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  sense of assessing where the power levers were within a
• 19:51
  particular market. And do you have a plan?
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  Can it be disrupted? How hard is it and so on.
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  So I kind of, I call it like looking through lenses.
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  So like, I have that lens now. And then from the emotional
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  standpoint, you know, I went O and one and you talk about
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  learning from your losses. I think the thing that going O
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  and one, what it does is it, it can be a real confidence killer
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  and, and, and what it probably did is it it probably swung my
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  risk tolerance way that I was risk tolerant.
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  And then I went way, maybe way to the other side and I ended up
• 20:28
  turning down some opportunities in my bounce back that would
• 20:32
  have been very lucrative because I didn't want to take this risk
• 20:35
  or that risk. And I ended up going a little
• 20:39
  more traditional route. And that really didn't make
• 20:41
  sense for me. So I ended up making mistakes
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  because of my failure, because of an emotional response to it
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  and kind of had a little bit of a, a reset after that of like,
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  hey, I, I developed and I learned, I had developed an
• 20:55
  understanding and learned a lot about myself.
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  And, and I, that's advice I give to people is like you're really
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  in the business, particularly early in your career, but really
• 21:05
  continually through your career, through your career of
• 21:07
  understanding who you are and you understand who you are and
• 21:11
  your strengths and weaknesses and blind spots and, and all
• 21:14
  that you can start to kind of navigate your own path through
• 21:19
  the world. And how did you have the
• 21:22
  awareness of, OK, I have an emotional reaction to this fear
• 21:28
  of failure that I had in the past.
• 21:30
  So I'm not taking on maybe any risk or hardly any risk to be
• 21:34
  able to take advantage, to really grow and continue to
• 21:37
  develop as an entrepreneur and a leader.
• 21:40
  When did you recognize like because I know for me, I've had
• 21:43
  so many self sabotaging patterns that I've developed in my life.
• 21:47
  And the difficulty was even getting the awareness that I had
• 21:49
  them right. It's like, oh, these beliefs
• 21:51
  that I have aren't actually serving me or these aren't
• 21:53
  actually a fact or reality. It's just what I'm perceiving to
• 21:57
  be true from my previous experiences.
• 21:58
  And how do I rewire my brain to to move forward and actually
• 22:02
  grow from this experience? So like how, where, what was
• 22:05
  that process like for you to come really come back from that
• 22:08
  and start to take on a level of risk that you were comfortable
• 22:11
  with, but weren't letting go of opportunities?
• 22:12
  Yeah, I think it's, it's probably like when you hear
• 22:16
  about people who go through a A and 1st you have to admit that
• 22:20
  you have a problem. I think that's what it the first
• 22:23
  step is. So I think it's, it's a process
• 22:26
  like that and, and I think that ultimately the world's going to
• 22:31
  give you feedback and the feedback can continuously be
• 22:35
  failure if you're not listening. Now, if you take risks, you can
• 22:41
  do everything right and still fail and, and hopefully that
• 22:45
  doesn't knock you down. But I think in every win and in
• 22:48
  every loss, there were things that we could have done better
• 22:50
  and we can learn. So I think the earliest stage is
• 22:53
  just sort of removing the ego layer and making myself open for
• 23:00
  both direct feedback from people and then just sort of feedback
• 23:04
  from the world about whether things are working or not
• 23:07
  working. And then learning how to quickly
• 23:10
  adjust whatever it is that I'm doing or however I'm approaching
• 23:13
  something, realizing that it's not going the way that I want it
• 23:18
  to. So I think it's sort of an
• 23:19
  openness and a removal of ego. It's like it's OK for us to all
• 23:23
  kind of learn and ultimately run this long journey.
• 23:28
  And when you realize too, as you achieve some successes or
• 23:32
  hopefully as you achieve some successes along the way, that
• 23:36
  those successes are just a point on a path that includes ups and
• 23:40
  downs and that you're ultimately on just this, this journey.
• 23:43
  Yeah. And what did you do after you
• 23:47
  that company was a failure? How long were you like?
• 23:49
  You're really grinding on that, yeah.
• 23:52
  But I mean, like what was the the that transition, you know,
• 23:56
  for to come back or to shift into real estate and start to
• 24:01
  get some optimism of a new. Venture.
• 24:03
  So I did a couple things in between that I don't, you know
• 24:06
  need to go into the detail. One was a big company, 1 was a
• 24:09
  smaller hedge fund investment firm.
• 24:12
  And I think what I realized in both cases was as much as my
• 24:17
  first entrepreneurial venture didn't go as planned, that I
• 24:21
  would rather be grinding it out and maybe not making much but a
• 24:26
  chance to kind of carve my own path as my journey than working
• 24:32
  for someone. And so I went off and, and
• 24:37
  because I had kind of grown up around real estate and I knew
• 24:40
  people in the business and some of the people who had invested
• 24:44
  in my Internet startup, we're still willing to invest with me
• 24:48
  because they like the way that I handled things through that
• 24:51
  rough period. So that maybe is the silver
• 24:54
  lining of that is if you, no matter how hard things are, if
• 24:57
  you are transparent and, you know, deliver both good and bad
• 25:00
  news and don't surprise people late in the process, like be
• 25:05
  upfront and get ahead of stuff that people will trust you.
• 25:08
  And so I had a combination of things that enabled me to get a
• 25:12
  start in the business. And so I moved back here in O2.
• 25:18
  And as I mentioned, I was on my own for about a year.
• 25:21
  But I also realized that again, with the learnings about
• 25:25
  yourself, I'm not a lone wolf, that I like the process of
• 25:28
  collaborating with partners. I see myself as someone who's a
• 25:32
  generalist, but I have some areas where I'm very strong and
• 25:35
  some areas that I'm not as strong, and I need someone at a
• 25:39
  partner level working with me on those maybe weaker points of my
• 25:44
  skill set than someone who's an employee that might be more
• 25:49
  inclined to say yes to everything.
• 25:51
  So that's kind of how I charted that path.
• 25:54
  I was on my own for a year, realized that wasn't for me, got
• 25:57
  a partner, we had a great 16 year run and now I've got
• 26:00
  partners again. And what would you say your like
• 26:04
  unique gift and ability is? And it because it sounds like
• 26:07
  you've had multiple partnerships, you have a lot of
• 26:10
  trust and you've raised a lot of capital and trust is the
• 26:13
  foundation of all that. So like, how would how have you
• 26:15
  identified good partners? How did you find them and seek
• 26:18
  them out? And what kind of questions do
• 26:19
  you ask or what does that conversation look like to get a
• 26:21
  feel for if it if that could be someone you actually want to
• 26:24
  partner with? Yeah, I think, I think there
• 26:26
  were people who were like born with incredible natural talent
• 26:30
  and the world seems like an easy place to them and they just sort
• 26:34
  of see a little opening in the door and they go through it.
• 26:37
  And then there were those of us. And I put myself in the second
• 26:39
  category of people who maybe have certain natural talents,
• 26:43
  but they don't necessarily all come together at an early stage
• 26:47
  or early part of your career. And as I've kind of put built my
• 26:52
  skill set and my network and my knowledge base and, and and so
• 26:57
  on that, you know, a lot of the greatest coaches aren't
• 27:01
  necessarily weren't necessarily the best players that they had
• 27:04
  to kind of grind and, and and work it out and be very
• 27:07
  objective at learning their own skills.
• 27:09
  So I think that that call it talent scout or assessment of
• 27:14
  strengths and weaknesses in both myself and in other people has
• 27:18
  come to be the thing that I'm, I'm, I'm good at.
• 27:22
  And so when I'm seeking out partners, I'm looking for
• 27:25
  certain things that are complementary, certain things
• 27:28
  that are overlapping because it's really important to have
• 27:31
  shared values and complementary skill sets and and so on.
• 27:36
  So that's kind of the process that I go through.
• 27:38
  Or what are the pieces that are important for this in particular
• 27:41
  venture or team to be successful?
• 27:44
  And then how do I put those pieces together?
• 27:47
  And do you throughout your organizations or you know, do
• 27:52
  you guys, do you believe in certain personality assessments
• 27:56
  or certain interview type questions or are you more like
• 28:01
  intuitional about your, your kind of gut feel or?
• 28:04
  I think it's, I think it's a combination of I, I first of
• 28:07
  all, I, I like to look at those things.
• 28:12
  My current organization isn't big enough for that to kind of
• 28:16
  matter where you have 20 different people in a role and
• 28:19
  you've really sifted through what does and doesn't work.
• 28:22
  I think I use those more for a going in understanding of how
• 28:27
  this person works in general and how this person might work work
• 28:31
  with me. And then there are obviously
• 28:34
  some red flags on some of these things.
• 28:36
  I've, I've gone in and out of asking certain types of
• 28:40
  interview questions and at times thinking they work and at times
• 28:43
  thinking they don't work. Ultimately in a big or like in a
• 28:48
  big organization, you have just statistically, you know that
• 28:52
  you're going to go through, you're going to come up with the
• 28:53
  process and then some percentage of the people are going to work
• 28:57
  out and some percentage of the people aren't going to work out.
• 29:00
  Right now I'm in a much smaller organization and to the degree
• 29:03
  that we're hiring people, there's not a large enough
• 29:07
  sample set of people for that to necessarily apply.
• 29:11
  And ultimately you're not going to know until you work with
• 29:14
  someone in a smaller environment.
• 29:16
  So I tend to do like now if I'm going to hire someone, I try to,
• 29:21
  if it's an early in the career person, I might do an
• 29:24
  internship. So get someone while they're in
• 29:27
  school and they can do some work with me while they're in school.
• 29:31
  And then by the time they graduate, I'm going to know
• 29:33
  whether they're a fit. I think if you're getting
• 29:36
  someone mid career, it's going to be, I think at this time of
• 29:40
  at this point in time, if I hired someone mid career, it's
• 29:43
  probably someone I'm going to have worked with or maybe they
• 29:45
  were on the other side of the table or something like that.
• 29:47
  Because it's the smaller you are, the higher the cost.
• 29:52
  The cost isn't just money but time of someone not working out.
• 29:56
  Right. Yeah.
• 29:57
  And it really take, you know, because I'm going through that
• 29:59
  in my organization of growing and scaling and all that is it's
• 30:03
  hard to, I want to get better at vetting upfront, you know, put
• 30:09
  potential talent and, and partnerships.
• 30:12
  And it's really hard until they're working with you and you
• 30:15
  see, it's kind of like dating, right?
• 30:16
  Their profile can say anything. But to really understand
• 30:19
  someone, to get to know someone, to take some time.
• 30:21
  And sometimes that cost can be a lot, especially if you're
• 30:23
  working with recruiters or different things like that.
• 30:25
  And so trying to really get that clarity sooner.
• 30:29
  I would imagine AI is going to have some really cool stuff over
• 30:32
  the next five years on on creating processes to simulate
• 30:38
  working in the interview process so we can get more clarity than
• 30:41
  these kind of off the shelf tests.
• 30:45
  I really like that idea. Yeah, you actually just gave me
• 30:47
  idea right when you said that. We can work on it offline.
• 30:50
  Yeah, that's perfect. That's really cool.
• 30:53
  OK. So shifting into capital
• 30:55
  raising, I'm in the capital markets, you've been heavily in
• 30:58
  the capital markets. What are the most important
• 31:03
  things when it comes to capital raising?
• 31:05
  If someone's going to go out there and try to raise money for
• 31:07
  their real estate development deal or their their business
• 31:10
  ventures, you know, venture capital, startup, anything like
• 31:13
  that, What would you best advice you would give when it comes to
• 31:15
  capital? Raising, well, I think
• 31:16
  ultimately in real estate, I mean we're in a less complicated
• 31:20
  business than a lot of the venture stuff out there, but
• 31:24
  there's still a lot of complexity to decision for an
• 31:27
  investor to invest in a deal and it's going to in some order of
• 31:31
  the following the deal, the market, the team, right.
• 31:36
  And you're, you're trying to sell those sell for lack of a
• 31:40
  better term or get someone interested in those three
• 31:44
  things. And I think as it pertains to
• 31:46
  the team, I think it's starting, it starts and ends with trust
• 31:50
  and building trust and deserving and earning trust.
• 31:55
  And then there's sort of the, do they know how to assess
• 31:58
  opportunities and can they can they execute on opportunities in
• 32:04
  terms of the market, whether it's a geographic market or a
• 32:07
  property type market? I think from a there's telling
• 32:12
  the story and I think storytelling, the positive of
• 32:16
  storytelling, not they all that he's just a storyteller, not
• 32:18
  that we're always telling a story.
• 32:20
  When you're raising money or you're getting people to invest
• 32:22
  or bet on you, whether they're betting time or investing time
• 32:26
  or they're investing capital, learning how to tell a story
• 32:30
  very efficiently, effectively, tightly is important.
• 32:36
  We used to. We realized that before Phoenix
• 32:39
  is now most of our current deals are in the Phoenix market and
• 32:43
  that they were initially in my prior company as well.
• 32:45
  And what we learned over time as we were raising money, we raise
• 32:49
  money both from individual investors for certain types of
• 32:51
  deals and then institutional partners who are looking for
• 32:54
  local operating partners or sponsors as they call them.
• 32:57
  And what we found is we would talk to certain groups and they
• 33:01
  were either in New York or San Francisco or in LA and they'd
• 33:04
  say, Oh yeah, we're interested in Phoenix.
• 33:06
  We haven't really spent any time there.
• 33:08
  When you have a good deal, show us a deal.
• 33:12
  And we learned over time that if someone hadn't invested the time
• 33:15
  to come out to the Phoenix market to understand the market
• 33:19
  and do their homework and meet with the right people to know
• 33:23
  what a good deal is going to look like when they see it, they
• 33:26
  didn't have the time. Really good deal.
• 33:29
  The better the deal, the shorter the fuse.
• 33:31
  It's sort of like, you know, if every, if you have a lot of
• 33:34
  time, it's it and it's going to be a much more competitive
• 33:39
  thing. If you find a situation and it's
• 33:43
  a really good opportunity, you probably don't have a long time
• 33:45
  to make a decision. It just sort of works out that
• 33:47
  way. So if someone hasn't done the
• 33:49
  homework, an investor hadn't done the homework at an
• 33:51
  institutional level. So this is someone investing
• 33:54
  other people's money that they've raised to then go, they
• 33:57
  have a fiduciary to their investors and they're going to
• 34:01
  have to go through a process and they're going to have investment
• 34:03
  committees and so on. So in vetting an investor, for
• 34:07
  example, this may be a long answer, but it's understanding
• 34:10
  if the person is actually in a position to say yes to an
• 34:15
  opportunity, because all you have is time when you're raising
• 34:20
  funds. And so assessing whether
• 34:23
  someone's going to invest in the market is important and do they
• 34:26
  understand the market? So we talked about the trust and
• 34:29
  the track record and the execution of the sponsor.
• 34:32
  And then there's the market. Is someone going to to some if,
• 34:36
  if the person is investing, are they and you're raising money
• 34:40
  for an apartment deal? Do they understand the apartment
• 34:42
  market? Do they need to understand the
• 34:43
  apartment market? Are they an individual investor
• 34:47
  who can make a quick yes or have they invested in real estate
• 34:49
  before? So sort of filtering out the
• 34:54
  investors to understand if they can assess a market is important
• 35:00
  and how do they do that? And then in terms of the deal,
• 35:02
  it's really have you, do you put the story to the financial
• 35:08
  analysis component of the storytelling together?
• 35:11
  Do you know the numbers? Have you diligenced it properly
• 35:14
  and so on. And a good, a sophisticated
• 35:17
  investor is going to know how to poke through that.
• 35:20
  An unsophisticated investor and and or an experienced investor,
• 35:25
  they may not know how to Pierce through those numbers, but it's
• 35:29
  really still your responsibility of it as a sponsor to to have
• 35:34
  done that homework. Yeah.
• 35:35
  So those are sort of the three pillars.
• 35:36
  Sorry the long answer, but the market, the sponsor, the deal.
• 35:41
  And have you found it to be or I guess do you think like when
• 35:47
  does it make sense for you to go retail investors versus
• 35:52
  institutional capital? Because I know different people
• 35:55
  have different preferences. And it also depends on the size
• 35:57
  of the project or the size of the company or the, you know,
• 35:59
  amount of capital you're looking for.
• 36:01
  But some people say like for instance, we, we're, we're not
• 36:04
  broker dealers, we're a capital advisory firm.
• 36:06
  So most of the Capital Partners we have, they're look, they're
• 36:08
  institutional PE firms, family offices, they're looking to JV
• 36:11
  or Co GP. They want control rights and
• 36:13
  voting rights and things like that, larger projects, right?
• 36:16
  But then the retail investors, you have to go find, you know,
• 36:20
  5000 investors that are doing $100,000 checks and they don't
• 36:23
  want it, the control and it is passive.
• 36:25
  So what is your opinion on if people should go retail or
• 36:29
  institutional or both? And and some of the lessons
• 36:31
  you've learned from working on both sides.
• 36:34
  Yeah, I think it's very deal and sponsor specific.
• 36:38
  So I don't necessarily it's hard to paint it.
• 36:41
  I have an opinion of what someone should do globally.
• 36:44
  It really comes down to the situation and we're not a group
• 36:46
  that's heavily self promotional. So for us like getting 5000
• 36:51
  retail investors and doing a, a, a video that they're, that's not
• 36:57
  really who we are, but it might be the right thing for other
• 37:00
  people. I think as it pertains to us and
• 37:03
  the opportunity set that we look at, I think it's, it relates to
• 37:06
  the size, the complexity, the time horizon and maybe the
• 37:13
  nature of the return. So when I say the nature of the
• 37:17
  return, we have cash flow and we have appreciation and then we
• 37:22
  have do you fund all the money upfront and then you buy it and
• 37:26
  you're never going to have to make another capital call.
• 37:27
  Hopefully that's one way or you know it.
• 37:31
  The deal could go in four or five different directions and
• 37:34
  that pivot point isn't until three years in the future.
• 37:37
  And in one scenario we won't need any additional capital and
• 37:40
  another we might need millions of dollars.
• 37:42
  That's complexity and it's also sort of a time it impacts the
• 37:47
  timing of the capital calls. So I say the more complex, the
• 37:50
  larger and the more time related sort of forks in the road there
• 37:57
  are, the more likely it's better to be a have institutional
• 38:01
  partners. So you're only needing to kind
• 38:03
  of explain this complexity to 1 group as opposed to if you have
• 38:09
  100 investors in a deal or 50 investors in a deal and you got
• 38:13
  all these different forks in the road and complexity happening at
• 38:16
  different times or that may or may happen at different times.
• 38:19
  That's a real complicated situation to navigate.
• 38:22
  So I would say syndication is where is the term that you use
• 38:27
  for like where you have a bunch of private individual investors
• 38:30
  that might be 50,000 or $500,000 a check for.
• 38:34
  So I would say smaller deals where it's one capital call and
• 38:39
  it's cash flowing out the door right away where you're going to
• 38:42
  have like we do monthly distributions on our cash
• 38:45
  flowing properties. That's a plain vanilla kind of
• 38:48
  deal that's more suitable to an individual investor.
• 38:52
  It may not have the same kind of upside, but it also doesn't have
• 38:56
  all this different stuff that could go right and wrong and
• 38:59
  would be you'd be managing the emotions of 50 different people
• 39:03
  that may not have really understood the nuance of what
• 39:06
  could happen in the deal. Right.
• 39:08
  And what about how do you, how have you identified who to reach
• 39:12
  out to as far as capital goes? So you're like, OK, we have to
• 39:15
  raise. I don't know what what, what's
• 39:17
  an average deal size that you would have to go?
• 39:19
  Raise, I mean if we're doing a syndication, I would say 5 to 10
• 39:22
  million is probably normal for us.
• 39:25
  If it gets larger than that and the and the fuse on how quickly
• 39:29
  we need to close a deal gets shorter, we'll go more an
• 39:32
  institutional partner. Sorry, can you repeat the
• 39:35
  question one more time? How do?
• 39:36
  You. Yeah.
• 39:37
  How do you identify who to reach out to for?
• 39:38
  Capital. So we've, we've done it more
• 39:40
  organically. Again, everyone does it
• 39:42
  differently. And in this, this social media
• 39:44
  world, there's a lot of people who've expanded very quickly
• 39:48
  from nothing over the course of a few years by doing a very
• 39:52
  broad reaching marketing. That's not really how we've done
• 39:56
  it. We've just sort of done it
• 39:58
  through organic word of mouth overtime and and repeat
• 40:03
  investors and that kind of keeps us honest.
• 40:06
  I mean we were honest anyway. But I mean when I say keep you
• 40:08
  honest, it's sort of like accountability.
• 40:10
  We're relying on repeat business and we have we're repeat
• 40:14
  business minded people. So it's really going back to.
• 40:19
  The same people and they refer people and so on.
• 40:21
  OK, cool. And are these mostly mostly
• 40:25
  institutional capital or? Or again, it depends on the
• 40:27
  deal. I would say we'd probably do a
• 40:30
  third of our deals have an institutional partner and 2/3 of
• 40:33
  our deals are mostly private investors, but that could change
• 40:37
  through the cycle depending on the size of deals.
• 40:39
  Right now, we've been, we've really found a liking to some of
• 40:44
  these smaller industrial flexi kind of buildings that have like
• 40:50
  a little bit of a retail, can have a little bit of a retail
• 40:52
  component or a little bit of a office component and industrial.
• 40:56
  So kind of playing in that space.
• 40:59
  It's been smaller deals, so they're smaller capital raises.
• 41:03
  So we go to individual investors, but if the
• 41:06
  opportunity set starts to evolve and we also, you know in our
• 41:12
  venture, we're now 5 1/2 years in.
• 41:14
  As we continue to build track record, bigger deals may come
• 41:17
  across our plate and that percentage of it private
• 41:21
  investors versus institutional could could change and and sway
• 41:24
  back and forth. Right.
• 41:26
  And I really like Small Bay too, especially in the Phoenix
• 41:29
  market, it's a great asset class.
• 41:32
  What so 'cause you are you still actively investing as an LP in
• 41:36
  people's deals as well? Yeah, there's a few property
• 41:39
  types that I like the investment profile and opportunities, but I
• 41:45
  don't have the expertise in and, or the scale.
• 41:49
  So for example, I have a cousin who's a senior executive at one
• 41:53
  of the larger data center investment firms.
• 41:56
  And so I'm I've invested in a couple of their funds, one's
• 42:00
  domestic US, one's Europe and it's data center growth and
• 42:03
  they're a global leader. And like I would never get the
• 42:06
  opportunity to do that on my own.
• 42:09
  And and then I have a friend who's a real specialist in a
• 42:12
  very capable firm in the self storage and they do development.
• 42:16
  It's very data-driven and how they do their site selection and
• 42:18
  they're in some very unique markets like Nantucket and Maui.
• 42:22
  And that are once you get the entitlements done, you've sort
• 42:26
  of you're half the battles one or even more.
• 42:29
  And I'm getting to invest once those milestones have been
• 42:33
  achieved. Yeah, yeah.
• 42:35
  And it's, I love that because some people, you know, they're
• 42:38
  either like, oh, I'm just the sponsor and they don't invest
• 42:40
  anywhere else. And then some people are just a
• 42:42
  passive investor, but they're never the sponsor.
• 42:44
  So it's cool to be able to really have your hands in all
• 42:46
  areas and understand the scope and scale of it's not that easy
• 42:51
  to just go enter a new market or go build a massive team or
• 42:54
  develop, right? But there's good opportunities
• 42:57
  there. And so sometimes it makes sense
• 42:58
  to allocate a portion of your capital.
• 43:00
  In my opinion, I think it always makes sense to allocate a
• 43:02
  portion of your capital to other investments.
• 43:05
  And when you're making those decisions though, because
• 43:08
  there's so it goes both for raising capital or choosing A
• 43:12
  sponsor to invest your capital in, right?
• 43:14
  How, what questions are you asking or what process are you
• 43:17
  going through to identify is this a good investment that I
• 43:20
  actually want to make on the LP side?
• 43:25
  Yeah, I, I guess it's interesting, depending on where
• 43:28
  you come from, those three things we talked about like
• 43:32
  market, which it could be geographic, geography or
• 43:35
  property type, sponsor and deal. I probably go sponsor first.
• 43:45
  If I, if it's someone who knows their space, has a track record
• 43:50
  of success and they're trustworthy and they report both
• 43:54
  good news and bad news, then that's kind of the first filter
• 43:58
  for me. If you don't get through that
• 43:59
  filter, I'm not interested in the deal or the market.
• 44:03
  And then I probably look at the, I've probably had a sense of
• 44:09
  it's a market that I'd want to be in.
• 44:11
  So then I probably look at the deal level thing and then I go
• 44:13
  step back and look at the market.
• 44:15
  And is the, the intuition that I had about the market or what I
• 44:18
  had read about the market still hold true and I might do a
• 44:21
  deeper dive on the market. So that's probably my order with
• 44:25
  a third party LP investment is sponsor deal and then a relook
• 44:30
  at the market. Yeah, I talked about this with
• 44:33
  one of our clients, but we say that the jockey, the horse, the
• 44:37
  racetrack and then the grooms, the whole team right around it.
• 44:41
  And so the jockeys, the sponsor, and you have to, you have to bet
• 44:45
  on the jockey for just like in PE, right?
• 44:47
  They're betting on founders. Then you have the horse, which
• 44:50
  is the actual deal, and then you have the racetrack, which is the
• 44:54
  market and the overall macro economy.
• 44:56
  I mean, even go one level higher.
• 44:58
  I was with a friend who's in the real estate fund business.
• 45:02
  So he's a $650 million fund. And then there's even, do I want
• 45:08
  to be betting on horse racing? So he's talking to global
• 45:11
  investment firms and pension funds and so on who are saying,
• 45:15
  you know, do I want to be investing in real estate right
• 45:18
  now? Is that an allocation that I
• 45:20
  want to go deeper or shallower, I guess move the dial down or up
• 45:28
  And that that's an issue too. And I think the bigger you get,
• 45:31
  the more you, you face that, that you're having investors
• 45:35
  who've been investing in AI stuff and they're like, I don't
• 45:40
  need 14% IRS in real estate. I'd rather get, I'd rather be in
• 45:45
  cash or I'd rather, you know, go for 10X stuff and AI.
• 45:49
  So I think I've had a couple people say that to me, yeah,
• 45:52
  that have had exposure to some interesting AI opportunities.
• 45:55
  So I think you always have to be aware if you're in the capital
• 45:58
  market side of the business of all the different alternatives,
• 46:01
  right, And that the capital you're talking to has in terms
• 46:05
  of investments. Yeah.
• 46:08
  How do you diversify your portfolio?
• 46:13
  Do you follow like a set, you know, 10% goes into cash and 15%
• 46:19
  goes into LP or this goes into AI or this goes into P or this
• 46:22
  goes into real estate or like how have you created a
• 46:25
  well-rounded investment portfolio?
• 46:26
  Obviously, you're very successful investor in many
• 46:28
  areas. I try.
• 46:32
  I don't do it as methodically probably as some other people,
• 46:37
  whether they're family offices or just sit in front of their
• 46:42
  computer looking at their assets every day and their allocations.
• 46:46
  I have what I think is a reasonable percentage of my, my
• 46:54
  net worth in, in the stock market.
• 46:58
  I try to then within that I, I, I like investing and sometimes I
• 47:03
  can maybe with my own money that that risk aversion because I'm
• 47:08
  not accountable to someone else can go away.
• 47:11
  And I know that about myself. So I try to have a certain
• 47:14
  amount of my money in like just the indices where I'm just
• 47:19
  playing, yeah, the S&P low cost ETFs and most of my retirement
• 47:26
  funds are in those kinds of things that I'm not looking at
• 47:29
  it every day. And then I have some allocation
• 47:32
  to things that I'm hearing about or reading about or researching
• 47:36
  myself or have some instinct, but I try not to make that
• 47:39
  portion of my stocks too much so that if, if I'm wrong, I'm not
• 47:43
  like changing my lifestyle. And then, you know, being in
• 47:48
  real estate where things the market can, can change, it sort
• 47:53
  of goes up slowly and goes down quickly.
• 47:55
  And so I have a very conservative perspective on
• 47:58
  personal debt. I have a primary residence and a
• 48:02
  secondary residence. I have a very small mortgage at
• 48:05
  a very, very low rate on my primary residence and I have no
• 48:08
  debt on my secondary residence because I don't want a the
• 48:13
  pressure of a loan changing that thing that I worked so hard to
• 48:16
  be able to have in my life. So I put 0 sort of risk on that
• 48:21
  that thing. So I look at things in terms of
• 48:24
  that and then in terms of my private non direct investing,
• 48:29
  we're in the GP in real estate. It's probably pretty small
• 48:32
  because I feel like as a practitioner in real estate, I
• 48:36
  should mostly be in my own deals.
• 48:37
  And then I probably am over allocated to private business
• 48:44
  deals because I'm a little bit of a business junkie and I need
• 48:48
  to kind of slap myself on the wrist once in a while and say
• 48:50
  it's enough for now. And I'm I'm right there right
• 48:52
  now. I've made some private business
• 48:55
  investments recently. I really thoroughly enjoy that.
• 48:59
  But I'm not at that expertise seat at the table every day kind
• 49:05
  of on the board or whatever of those companies.
• 49:08
  So I need to kind of make sure I don't over allocate to that.
• 49:12
  And this is just like private equity.
• 49:13
  Private equity venture, yeah. So I and I make sure even within
• 49:17
  those spaces, I've got some money with a couple funds so
• 49:21
  that the people who are really doing it every day are investing
• 49:25
  for me. And then through my business
• 49:27
  contacts and and such, I'm investing directly in some
• 49:31
  deals. And I do, I do that a lot of the
• 49:33
  direct investing, whether it's in the stock market or whether
• 49:36
  it's in the private market. I feel like it, it keeps me
• 49:39
  sharp by having made some decisions on my own.
• 49:43
  It's kind of call it like pointing the compass and and it
• 49:48
  it keeps me a little bit more alert, but I just going to need
• 49:51
  to make sure I don't over allocate on those things because
• 49:53
  I'm not in it enough every day to consider myself a pure
• 49:57
  expert. Right.
• 49:58
  And so I mean, you've been playing this game for over 2
• 50:01
  decades now. So you've been through market
• 50:03
  UPS, market downs, both on the venture side and the and the
• 50:07
  real estate side. What patterns do you continue to
• 50:11
  see repeat in the market? Like when you're making these
• 50:14
  decisions, how are you taking into effect where the market is
• 50:18
  today and the past, you know, the past cycles in the market,
• 50:23
  Do you think about that in any specific way or well?
• 50:26
  I think the first thing I think about along those lines is just
• 50:28
  keeping a certain percent of my net worth in like super liquid
• 50:35
  stuff so that if the, you know, proverbial shit hits the fan,
• 50:40
  that it, I'm not under, under pressure.
• 50:44
  And so I think that's the most important thing is to, is to
• 50:48
  have sort of a comfortable level and very, very low risk assets.
• 50:54
  And then I, I think that it's also important to realize that
• 50:58
  anything can happen. And I think we're generally like
• 51:03
  particularly in real estate, if you look back to kind of
• 51:06
  starting in the 80s and, and, and, and onward, there's been an
• 51:12
  increasing trend of institutionalization of real
• 51:15
  estate. Like the, the real read, the
• 51:19
  readization of real estate happened to post SNL crisis.
• 51:22
  So in the early 90s, a lot of these master limited
• 51:26
  partnerships went limited partnerships went public as a
• 51:32
  way to recapitalize. And then you had publicly traded
• 51:35
  real estate and the big like the Black Stones and the Goldman
• 51:39
  Sachs and the Sam Zales created their Odyssey funds and they
• 51:43
  brought a lot of large capital to real estate.
• 51:47
  And then pension funds started investing through those vehicles
• 51:50
  and now you have a much more professionally managed real
• 51:56
  estate industry. So the bottoms of the cycles are
• 52:00
  higher each time. So while there may be ups and
• 52:02
  downs, it's generally on an upward trend.
• 52:06
  There's more liquidity in real estate.
• 52:07
  There's more money on the sidelines, there's more
• 52:10
  analytical expertise, there's more research tools, whether
• 52:14
  it's costar and so on. And so I think the ups and downs
• 52:17
  are less harsh than they used to be in the bottom feeding is less
• 52:23
  obvious as maybe it used to be. But realizing that still things
• 52:28
  can, things can go wrong. But I think what that's created
• 52:31
  is back to a question you asked earlier about boy, it's getting
• 52:34
  hard to buy things and so on. I think the margin, the the
• 52:40
  opportunity for outsized returns, I think over time thins
• 52:45
  out because there's just more players in the market and more
• 52:47
  information and more capital. Right.
• 52:50
  And how do you stay? I don't know if you've read the
• 52:56
  book Who Moved the Cheese? But like how, how do you decide?
• 53:00
  Because I know so many people right now in, in real estate and
• 53:02
  we're starting to kind of make a turn with rates starting to have
• 53:06
  some relief and things like that.
• 53:07
  But the past 2-3 years have been a rough patch in real estate
• 53:10
  because we're still prices are high, but deals are really hard
• 53:13
  to find and capital is more expensive.
• 53:14
  But the market didn't crash either, you know, drop it, all
• 53:18
  these things. So like, how do you decide when
• 53:22
  to cut your losses? Like when when it's time to make
• 53:24
  a pivot, either in an asset Class, A market, or an entire.
• 53:27
  Industry cut your losses in terms of this deal isn't going
• 53:30
  well or I'm not getting enough opportunity, I need to look at
• 53:33
  something else. I'm not getting enough
• 53:35
  opportunity. I need to look at something else
• 53:37
  versus sticking it through and staying the course and staying
• 53:40
  committed versus realizing, OK, I need to shift my strategy here
• 53:44
  and well. I think that's a very, I think
• 53:47
  it depends on sort of where you are in your own business, right?
• 53:51
  Like if you're a multi generational multifamily
• 53:55
  investor and you've got a portfolio that sustains you and
• 53:59
  you don't need to do a deal and you don't necessarily need to
• 54:03
  pivot. I think like I was, I have a
• 54:06
  investor friend in the real estate business and they're in
• 54:09
  the third generation of the business right now out of
• 54:11
  California and they're sticking to their core.
• 54:14
  But they're also looking at adjacent stuff, maybe a property
• 54:19
  type that they hadn't hadn't done before and they're open to
• 54:23
  it because the next generation wants something to do as well.
• 54:28
  So it makes sense for them. I think if you're look, if
• 54:31
  you're getting started in the business and you only know one
• 54:34
  property type and that property type has a three or four or five
• 54:38
  year window where there's not really good opportunities, you
• 54:42
  have to either pivot or you have to either begin.
• 54:45
  What I see people starting out and we did this a little bit
• 54:48
  too, is you may need to do some advisory work to stay in the
• 54:52
  game and keep the lights on, right.
• 54:55
  So if you're, if you know how to do, you know, small retail part
• 55:00
  like a parcel development of coffee shops and, and
• 55:05
  chick-fil-A's or whatever, but you can't find the deal, but
• 55:08
  there's someone who's doing it that you might advise to them.
• 55:11
  So I think it just depends on what your staying power is and
• 55:15
  what your urgency and need to do things are.
• 55:19
  And then you can pivot either where you are like vertically
• 55:22
  and do a different service in the space or you have to look
• 55:26
  for something different. I mean, if you, if you need the
• 55:30
  money, what you don't want as an investor is be investing with
• 55:34
  someone who if they don't get this deal done, they can't put
• 55:37
  food on the table. Then they have it.
• 55:39
  They have their own bias in terms of selling that deal.
• 55:42
  They're selling it out of desperation and pitching it out
• 55:46
  of desperation at rather than because they think it's a good
• 55:49
  deal. Right when Speaking of pitch,
• 55:53
  what are you, What do you think is like a red flag when
• 55:56
  someone's pitching you a deal that immediately turns you off?
• 56:00
  They don't know what can go wrong if someone's overly
• 56:03
  optimistic and they can't even tell a compelling story.
• 56:05
  I call it the bear case, not I call it the bear case.
• 56:08
  It's called the bear case. Like what's the bold case?
• 56:10
  Why is this a good deal? And what could go wrong?
• 56:12
  And, and I think when people are unable to articulate sort of
• 56:17
  transparently, truthfully, objectively what can go wrong, I
• 56:23
  get very nervous. And I think the more
• 56:27
  sophisticated people can present both cases now, obviously if
• 56:31
  they're moving forward with something, they like the bold
• 56:33
  case more than the bear case. But I think you really have
• 56:35
  blind spots if you're not willing to accept and search for
• 56:40
  and and sort of digest the what can go wrong on a deal.
• 56:44
  Yeah, yeah, yeah. And what when, what advice do
• 56:47
  you have for those who maybe they're newer investors that
• 56:49
  have only seen a bull market like maybe if they don't know
• 56:52
  what can go wrong? Investing in someone else's
• 56:54
  deals or doing their own deals? Which which group are you?
• 56:57
  Talking about doing their own deals, yeah.
• 57:01
  Boy, I mean, the magic is really in getting those first couple
• 57:05
  deals done And, and you know, I think there's a difference
• 57:09
  between people who are doing their first deal who are coming
• 57:12
  from the industry or someone who's doing their first deal and
• 57:16
  they're not coming from the industry, right?
• 57:18
  Like I have a mentee of mine and she and her partner, business
• 57:22
  partner were brokers for small retail and now they develop
• 57:29
  coffee shops for a particular brand.
• 57:32
  So they knew it, they have a trusting relationship and they
• 57:36
  got friends and family money and they're off and running and they
• 57:39
  got, you know, 5 or 6 deals going at a time.
• 57:42
  So that doing what you know and having a real sharp focus
• 57:50
  initially is very good. If you're coming at it and
• 57:53
  you're new to the business, it's a tougher, it's a tougher
• 57:56
  equation if particularly if it's tough to get a deal.
• 58:01
  But I mean, I but the advice when people are kind of talking
• 58:05
  about leaving whatever they're doing and it's not right and
• 58:08
  they can't move up or activity is slow and I want to go do
• 58:11
  something and what it Gary, what do you think I should do in our
• 58:15
  business? I mean, what's great about the
• 58:17
  real estate business is there's always going to be local young
• 58:22
  up and coming entrepreneurs who are hungry and they can go find
• 58:26
  a deal. And it's like, go find a deal.
• 58:28
  People find a good deal, but they need to know how to find
• 58:31
  it. And then they need to know how
• 58:32
  to assess that it's a good deal. Don't just throw spaghetti at
• 58:35
  the wall and hope it sticks with someone.
• 58:37
  Like, go find a good deal. And you got to know why it's a
• 58:39
  good deal. And then, you know, pound on the
• 58:41
  table. Yeah, my, my best friend and,
• 58:44
  and one of our clients, he, he made his first $10 million by
• 58:47
  just being a dirt dog and sourcing deals for a experienced
• 58:50
  sponsor and learned how they underwrite and what they look
• 58:52
  for and kind of got to see their process and their mistakes and
• 58:56
  their wins and all that and then took that equity and then
• 58:58
  started his own development firm ultimately, but.
• 59:00
  When I look at the people that I know who've kind of started from
• 59:04
  nothing and bootstrap and then and then grew, they either like
• 59:11
  the example I just gave you of the woman who had a client that
• 59:15
  was, that was a coffee shop and they just wanted a trusted
• 59:19
  developer. So that's a real in, call it an
• 59:22
  in. And then I think, you know, if
• 59:26
  you look at the different skills that complete a skill set for
• 59:30
  real estate, where there's analysis and due diligence and
• 59:32
  execution and development and management and so on.
• 59:36
  I think the real lone wolf entrepreneurial skill is is
• 59:42
  finding unique or off market transactions for whatever
• 59:46
  magical way that that person does it.
• 59:49
  That seems to be like the the best go find like you, you
• 59:55
  you're able to find a deal or you see something differently
• 59:58
  than someone else or you see the sort of unlocking of value
• 1:00:02
  opportunity in a particular asset.
• 1:00:04
  When I think of the people who started from nothing that were
• 1:00:07
  able to ham an egg it and and get sort of.
• 1:00:09
  Get going. It was those two things seem to
• 1:00:12
  stand out. They had a real in or a real
• 1:00:14
  trusted source of opportunity for them or they had a real
• 1:00:17
  unique way of being able to uncover and originate deals.
• 1:00:21
  And the analytical stuff, the analytical skills and those
• 1:00:24
  other skills you can hire more than like really unique
• 1:00:29
  origination. I think really unique
• 1:00:31
  origination is a magical skill. Yeah, it's hard.
• 1:00:34
  I mean, I think he he who controls the deal controls, all
• 1:00:37
  right. And because if you have a great
• 1:00:39
  deal, it's get the capital that I would say the capital is the
• 1:00:42
  next hard piece. But the deal is always like the
• 1:00:44
  the main piece because you don't have anything without the deal.
• 1:00:47
  Yeah. I mean, you have to solve the
• 1:00:49
  capital problem. And we had a situation recently
• 1:00:53
  where we had a really interesting deal, but there were
• 1:00:57
  two very binary outcomes for what could happen with that
• 1:01:02
  deal. And we couldn't find a potential
• 1:01:06
  investment partner that was willing to live with.
• 1:01:09
  Even if it was a 5% chance or 10% chance outcome, it would be
• 1:01:15
  at a low return over a very long period of time where there was a
• 1:01:19
  big upside. But it might be 25 years because
• 1:01:21
  there was a lease in place with renewals.
• 1:01:24
  But we were, we would have been buying the property at like 30
• 1:01:26
  cents on the the dollar. Like we knew if the property
• 1:01:29
  were vacant. And usually you want a tenant in
• 1:01:31
  the building. But in this case, if you have a
• 1:01:33
  really far below market rent on a building and that lease has a
• 1:01:38
  very long term or options to renew, you could end up, you
• 1:01:44
  know, 30 years out a triple on your money IRR wise isn't that
• 1:01:47
  attractive. So we are actually unable to
• 1:01:50
  find the right capital that would partner with us.
• 1:01:52
  And we ended up selling it to a family office that was OK with
• 1:01:56
  either outcome because they didn't mind the lower return
• 1:01:59
  because they have, you know, they're already thinking for a
• 1:02:02
  generation out and they understood the value of the
• 1:02:04
  property. They owned other properties
• 1:02:05
  nearby and if the tenant left, they had a use for it.
• 1:02:09
  So that was a really unique situation.
• 1:02:11
  So the money isn't always there for good opportunities.
• 1:02:18
  So finding the money is important and hard, but I think
• 1:02:21
  finding the deal for an entrepreneur is really
• 1:02:25
  important. And then if I were to give
• 1:02:27
  advice to an entrepreneur that maybe doesn't know the money but
• 1:02:31
  is really good at at at finding opportunities, is to go find
• 1:02:36
  someone who has access to the money and partner with them as
• 1:02:41
  opposed to finding a deal and then scrambling to raise from
• 1:02:44
  friends and family, particularly if you're not connected to a lot
• 1:02:48
  of wealthy individuals. Right.
• 1:02:52
  Yeah, it's so important your capital relate all your
• 1:02:54
  relationships. Do you know who your net worth
• 1:02:57
  really is? In my opinion, a reflection of
• 1:02:59
  your your network and the quality of those relationships
• 1:03:02
  and your trust within that network.
• 1:03:03
  Because 7° is separation. And that's why I'm in so many
• 1:03:06
  masterminds and things like that.
• 1:03:07
  Because if you, you know, need anybody that you really want to
• 1:03:10
  trust and you can have that that resource to go to, to get people
• 1:03:14
  that you can trust and that get those good advisors to help you.
• 1:03:18
  I'm friendly with a gentleman named Harvey McKay who's written
• 1:03:21
  a bunch of business books, and one of his books was Dig Your
• 1:03:23
  Well Before You're Thirsty. And it's kind of about
• 1:03:26
  networking. And so I think it's important
• 1:03:29
  for people to be parallel processing and looking for
• 1:03:32
  deals, but also building those relationships when you're not
• 1:03:36
  necessarily when you don't necessarily have a deal.
• 1:03:39
  Because once you have a deal, if you're meeting someone for the
• 1:03:41
  first time, it puts a very transactional nature on the
• 1:03:44
  relationship. So I encourage people to go out
• 1:03:48
  and network, but you have to really create a context for
• 1:03:50
  networking, right, if you don't have a reason.
• 1:03:53
  So I think there's industry organizations that you can join
• 1:03:57
  and mentorship organizations that people can join.
• 1:04:00
  I'm very involved with the Urban Land Institute and I've been a
• 1:04:03
  mentor for their Young Leader program for the past 12 to 15
• 1:04:08
  years. And each year I get a dozen new
• 1:04:11
  mentees. And those people are me and we
• 1:04:14
  bring in speakers every month. And those people are constantly
• 1:04:17
  meeting influencing influencers in the old school sense within
• 1:04:22
  the within the industry. And then if they have an
• 1:04:24
  opportunity, they've they've gone and got an outlet to get to
• 1:04:28
  the capital. Right.
• 1:04:30
  And what, what are you most excited about in 2020?
• 1:04:34
  I guess 6 we're, we're going to be nearing the end of 2025 here.
• 1:04:37
  So what asset classes or business opportunities, you
• 1:04:40
  know, whether it's in real estate or or AI or the other
• 1:04:43
  things like that or what are you excited about or where do you
• 1:04:45
  think the trends going moving forward?
• 1:04:47
  Boy, that is the the $1,000,000 billion dollar question right
• 1:04:53
  now. You know, we continue to like
• 1:04:57
  the asset class that we're mostly focused on within
• 1:05:00
  alignment Realty Capital, which is a small Bay industrial and
• 1:05:04
  kind of flexi where there's like we have an office in Old Town
• 1:05:09
  Scottsdale where we, we office, we have a like an executive
• 1:05:13
  suites on a second floor. And then we have a, a, a woman
• 1:05:17
  who's got 100,000 followers on Instagram who does hair
• 1:05:21
  extensions. We have a woman who does Botox
• 1:05:24
  and health and Wellness things. We're getting a coffee shop in
• 1:05:27
  there, so it's quasi retail. We bought it as an office
• 1:05:31
  building and it's kind of morphed into both.
• 1:05:33
  We're buying some office buildings right now, single
• 1:05:36
  story office buildings that we can make a kind of industrial
• 1:05:42
  flex by adding some grade level doors and so on.
• 1:05:46
  So we like really well located real estate with a good basis IE
• 1:05:51
  price per foot and either a good going in yield or we can see a
• 1:05:55
  short path to getting to an attractive yield.
• 1:05:58
  So that key metric that we look at is a stabilized yield to
• 1:06:02
  cost. So that's an unlevered net
• 1:06:05
  operating income divided by your all in cost.
• 1:06:08
  To us that's the magic metric. It doesn't take into account
• 1:06:11
  that and it it, it sort of accounts for any short term
• 1:06:15
  releasing. So it's stabilized yield to cost
• 1:06:18
  at year one or year 2 or year three or whenever it is that you
• 1:06:21
  get to that stabilized. What is there a certain yield
• 1:06:26
  you're you're looking for for it to meet?
• 1:06:27
  Your I think it just depends on the risk and the day one, like
• 1:06:31
  we might buy an asset that doesn't require any work that's
• 1:06:34
  a 7% yield to cost day one and the rents are way below market.
• 1:06:40
  They may be longer term leases, but we know that at some point
• 1:06:43
  in the future or we have a high level of confidence at some
• 1:06:46
  point in the future that it'll be even higher.
• 1:06:48
  But it's a good enough going in return that that everything else
• 1:06:52
  is gravy. If it's something that we got to
• 1:06:54
  do a lot of work for and it's a smaller deal, we got to make
• 1:06:58
  sure the juice is worth the squeeze and you know that
• 1:07:02
  there's enough upside worth the work where it might be higher,
• 1:07:05
  where we're looking to get to a nine or a nine and a half two or
• 1:07:08
  three years out after repositioning the property and,
• 1:07:12
  you know, new painting and and converting some suites from
• 1:07:18
  office to flex or industrial and redoing the parking lot.
• 1:07:21
  It's a lot of work. And particularly on a smaller
• 1:07:23
  deal, you want to make sure you get to something that's juicy
• 1:07:26
  enough. But if something's kind of plug
• 1:07:28
  and play day one and it's just a good basis by with good yield,
• 1:07:31
  we might have a little bit of a lower threshold.
• 1:07:33
  So some sort of work return Yeah matrix.
• 1:07:37
  So you guys are more stay on the course of your expertise and
• 1:07:40
  what you know look for opportunities but don't go too
• 1:07:43
  far. I think it's.
• 1:07:43
  Kind of like an 8020 rule, like 80.
• 1:07:46
  It should be 80% focused on I, I call it the grass is green,
• 1:07:50
  right? Not the grass is greener.
• 1:07:51
  You want to be 80% focused on the grass is green and 20%
• 1:07:55
  focused on the grass is greener. And that might lead to another
• 1:07:58
  opportunity I'm involved in that I've been involved in for a
• 1:08:01
  little under three years, which is the night golf course at
• 1:08:06
  Rolling Hills, which is my partners in the deal are grass
• 1:08:08
  clippings. So it's the grass is green there
• 1:08:11
  and the grass is greener. So they had worked very hard for
• 1:08:14
  three years to prompt and then win an RFP to convert the
• 1:08:21
  executive golf course within Papago Park in Tempe right next
• 1:08:26
  to the Phoenix Zoo into a night golf kind of entertainment and
• 1:08:32
  and golf venue. And we've been doing that for
• 1:08:35
  since we took it over in July of 2023.
• 1:08:37
  And now it's, it's a real unique asset both to this market and
• 1:08:44
  it's kind of one O 1 nationally. And so we're hoping to take that
• 1:08:48
  and maybe potentially do more of those.
• 1:08:50
  So that's a, that's a little bit more of an entrepreneurial
• 1:08:54
  outside the box type opportunity.
• 1:08:56
  But what I brought to the table to these young hungry creative
• 1:09:00
  entrepreneurs was some institutional processes of
• 1:09:04
  investment, private investment management and, and, and what we
• 1:09:09
  call asset. The difference between asset
• 1:09:11
  management and property management is property
• 1:09:13
  management. You're managing like the very
• 1:09:15
  specific day-to-day things at a property and asset management is
• 1:09:18
  kind of the strategy of a property and the investment.
• 1:09:21
  So that's kind of my expertise is more on the asset management
• 1:09:24
  side, strategic direction and allocation of capital and things
• 1:09:28
  like that. That's yeah, that's I want to
• 1:09:32
  talk to you more about that offline, but OK, so couple rapid
• 1:09:36
  fire things. If you had to start over today
• 1:09:38
  from scratch and you had no network, no knowledge, and you
• 1:09:41
  had to make your first $1,000,000 all over again, what
• 1:09:44
  would you do? Boy, you got to think it'd be
• 1:09:47
  something in AI that that from everything you're hearing it
• 1:09:50
  this is another industrial revolution.
• 1:09:55
  And I have two sons and one of my sons had that insight.
• 1:09:59
  He was in consulting in Chicago. He got a job in AI because he
• 1:10:02
  didn't have like a software or tech background.
• 1:10:05
  He went into sales and he's working in sales for an AI
• 1:10:09
  customer service company. My other son went completely the
• 1:10:12
  other way and he's working for an office read in Atlanta.
• 1:10:16
  So we'll see who gets to $1,000,000 first.
• 1:10:18
  Yeah, I wonder how that office office read is going.
• 1:10:22
  Yeah. Well, it's a great company, well
• 1:10:24
  established company in Atlanta that has a great history.
• 1:10:26
  And I think look there, there's a lot of, there's a lot of
• 1:10:32
  carnage in office. So one would think if you're a
• 1:10:35
  contrarian, there's going to be a lot of opportunity as well.
• 1:10:37
  And one of my mentors, super smart guy who's done very well
• 1:10:41
  in both office and industrial has been buying office buildings
• 1:10:45
  the last few years as a contrarian play that you just
• 1:10:49
  look at the basis, it's so far below replacement cost and he
• 1:10:52
  has some belief that people were going to be coming back to work.
• 1:10:55
  So building an expertise in that space, I think it translates to
• 1:10:59
  other property types, but it may also lead to opportunities.
• 1:11:03
  Right. So I have I have someone who's
• 1:11:07
  riding the wave and someone who's riding against the trend
• 1:11:09
  and my two sons. So I'll come back in five years
• 1:11:12
  and tell you who's closer. I love it.
• 1:11:13
  It's perfect. You may you know, one could make
• 1:11:16
  make millions in in AI and then the other one can invest in real
• 1:11:19
  estate to save on taxes and preserve cash.
• 1:11:21
  There you go. Preserve wealth.
• 1:11:24
  And what what? What's the best piece of advice
• 1:11:26
  you've ever heard or received? Best piece of advice look, I
• 1:11:32
  think that I think expertise and focus works any stage of the of
• 1:11:43
  your career. And so I think that, you know,
• 1:11:47
  focus on, focus on a, on, on a particular type of opportunity
• 1:11:53
  as opposed to trying to have exposure to 10 different things
• 1:11:58
  and hope that one of them hits. You can maybe as an investor
• 1:12:01
  allocating, allocating a portfolio, you can take that
• 1:12:05
  approach. But I think if you're early in
• 1:12:06
  your career, getting an expertise and getting a focus
• 1:12:10
  and developing skills, it within that focus I think is is really
• 1:12:15
  important. Yeah, stay the course.
• 1:12:18
  Yeah, stay the course is, is, is almost like a, an add on to that
• 1:12:22
  in terms of resiliency. But I, I think that it's, it's
• 1:12:27
  having an expertise in something that's valuable and advice that
• 1:12:33
  I give the. So that's sort of maybe what
• 1:12:35
  I've what I've gotten. And then in terms of, of what I,
• 1:12:39
  what I give it, particularly the young people is the earlier you
• 1:12:47
  get an important seat at the table, the better.
• 1:12:49
  So bring a seat at the table that's needed that the incumbent
• 1:12:53
  people are less likely to have. And I think that usually,
• 1:12:56
  particularly in real estate where we're not really tech
• 1:12:59
  experts, is if you're the 22 or 3 year old in your office, you
• 1:13:04
  should be the tech expert, which means that you should know how
• 1:13:07
  to utilize AI within the context of real estate.
• 1:13:10
  You should be the person who knows all the tech tools and the
• 1:13:14
  the level up tools so that you get an early seat at the table.
• 1:13:18
  So I think it's, it's really for the young people is figure out
• 1:13:22
  what expertise is needed on your team that is new and growing and
• 1:13:28
  important and, and go after it. Don't lose sight of your 80,
• 1:13:32
  which is the job that's on your plate, but focus your extra
• 1:13:36
  time. You're not going to be
• 1:13:37
  successful working 40 hours a week in that extra 10 or 20
• 1:13:42
  hours or however many hours more you're willing to work, work on
• 1:13:46
  The X Factor stuff that's outside the the the core to
• 1:13:51
  bring to the table. So you're kind of pushing your
• 1:13:53
  team and raising the level of your team, but you're earning a
• 1:13:56
  seat at the table early. I love it.
• 1:13:59
  Well, thank you so much for coming on the show.
• 1:14:01
  It's been great to. Get thank you for having me.
• 1:14:02
  Sorry for all the rambling but hopefully there's some Nuggets
• 1:14:04
  in there that. Was excellent.
• 1:14:06
  Thanks, Gary. Thanks.