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Daniel Klein- Building a Family Business to an Institutional Quality Firm (#118) · Icons of DC Area Real Estate

• 0:09
  Speaker A: Hi, I'm John Koh and welcome to Icons of DC Area Real Estate, a one on one interview show highlighting the backgrounds and career trajectory of leading luminaries in the Washington, DC area real estate market. The purpose of the show is to highlight their backgrounds and their experiences and some interesting stories about their current business as well as their past, and to cite some things that you might take away both from educational standpoint as well as lessons learned in the industry and some amusing and sometimes interesting background stories. So I'm hoping that you will enjoy the show. Before I introduce my guest, I'd like to share that both this podcast and the community I started in 2021, called the Iconic Journey in Cretever, is now part of a new nonprofit organization with that same name. The new company will offer opportunities for sponsorship to grow the community, both in membership and in programs. It also allows you as listeners to show your appreciation for this podcast, which has delivered episodes twice monthly since August 2019 with a charitable contribution. Transitioning the community and podcast into the nonprofit organization is underway. The community, which is open to commercial real estate professionals between the ages of 25 and 40 years old, is currently up to 65 members and growing. If you would like to learn more about either joining the community or contributing to the podcast, please reach out directly to me at johnterprises coenterprises.com, separately, my private company co enterprises. Now we'll focus only on advisory work for early stage real estate firms and career counseling. If you have interest in learning more about its services, please review my website@coenterprises.com. dot thank you for listening. Thank you for joining me for another episode of icons of DC area Real Estate. I'm so pleased to introduce my guest for today's show, who is Daniel Klein. Daniel is the president of Klein Enterprises, a family based company in Baltimore. Daniel is the fourth generation leader of the firm and very enthusiastic young man. Actually, he's only 43 years old and has done quite well in building a traditionally retail company into now an institutional enterprise with several different asset types, including multifamily office, retail and self storage. So Daniel, as I said, grew up in Baltimore in a family. His father passed away when he was four. His mother was institutionalized early in his life, so he was moved in with his grandparents. His grandfather was the one of the original founders of the firm and a very savvy real estate guy, and he grew up in that environment, learned about the family business, etcetera, went on to school at park, which is a local Baltimore private school, Merchersburg Academy for a year and then on to Boston University. While at Boston U, he became a real estate broker and very successful. He had an interesting meeting with an attorney who said, go into real estate, go become a broker. You got that kind of, you know, outgoing personality. And he did extremely well there. In fact, invested in a couple of multifamily projects while he was there. But his grandfather called him and said, please come back. And he did. He came back and helped his grandfather transition to run the company eventually with his uncle originally, and then went on on his own and started building the firm and starting to diversify beyond the retail space into multifamily and basically move pretty much towards an institutional type of firm. The big pivot deal was a joint venture with JBG companies of Washington on developing a build a suit for the Social Security Administration in West Baltimore. And they were involved. They brought the site. JBG had the experience to develop it. He talks about that. And then that kind of opened his eyes to those types of opportunities. So he decided to diversify the firm into multifamily and other opportunities and went on that mode. And then once he saw some very large opportunities, he needed strategic capital and was introduced to Almanac Realty, which is a strategic real estate investment company that invested in his firm and that really transformed the company into what it is today, which is a fairly significant institutional quality sponsorship firm in some ways analogous to my earlier interview with Dave Bramble, as well as far as his company's growth. So without further ado, please enjoy this wide ranging conversation with Daniel Kleinhouse.
• 5:30
  Speaker B: So, Daniel Klein, welcome to icons of DC area real estate. I overviewed your biography in the introduction, perhaps share your role at Klein Enterprises and your day to day activities. And then we'll go into your background, including your four generations of the Klein family client real estate family. Thank you.
• 5:53
  Speaker C: Absolutely, John. First and foremost, thank you very much for having me on the podcast. You're an old friend and I've been a fan of your podcast for five years now, listening to a lot of my other friends and peers in the community share their stories. So I'm honored to be here today and hopefully I can meet the high standard that you've set for your listeners here. I am the president at Klein Enterprises. I've been the president for almost 15 years now, which is surprising to hear me say that because I'm 43. So I stepped in the role at a young age, and my role has evolved in that time in terms of what I focus on and what I do on a day to day basis. I'd say today my primary role as president of the company is to think not just about who we are today, but who we'd like to be tomorrow, and what we need to do as an organization to get us there. I focus a lot on long term strategy as it relates to both the capital markets, both debt and equity, but also portfolio composition, geography, and sort of what we want to be as a company five or six years down the road.
• 7:04
  Speaker B: So you said you started young, so let's go back, even before that, if we can, to your origins and talk about your youth and the influences of your family, if you would.
• 7:18
  Speaker C: Sure. So I probably had more of a non traditional childhood than what most people would expect, looking at us being a multi generational real estate firm, and sort of expectations that people generally have about what my life was like. I experienced a lot of family trauma throughout my childhood. My father passed away when I was four and a half, and then I lived with my mom up through 8th grade. But she had a. Some mental health issues that probably weren't as understandable as they are in the world today as they were then. And so I moved out from my mom's house and moved in with my grandparents my freshman year in high school. And it had a big impact in terms of who influenced me, how I was influenced, and sort of how I view the world. Not to get true dreary, but not long after I moved in with my grandparents, my sister dusty passed away in a car accident. She was my oldest sister. I was 15, she was 25 years old, and had actually worked in the family business prior to her passing. And I think that more than anything impacted how I viewed the world and what's motivated me in terms of how I approach dealing with people and what I wanted to do with my life and how I wanted to be remembered. Right. So after she passed, I lived with my grandparents and her passing clearly impacted them a great deal. My grandparents I lived with were my late father's parents. And my grandfather, Phil Klein, was the one who really started the real estate firm Klein Enterprises, as it's known today. And so, wow, there were a lot of unusual things that took place that led me to live with my grandparents in high school. I think in the long term, it was the greatest thing that could have ever happened to me. I had structure. I had one of the brightest men that I could imagine around every single night, sitting at the dinner table with me, teaching me about life, teaching me about not just his successes and failures, but what he saw in other people that made them successful and what caused them to fail. And so while I absolutely enjoyed my youth a lot more than a lot of other people, I was also always taking a long term approach to thinking about my future and what type of future I wanted to have for myself and how I wanted to create it in my own life.
• 9:50
  Speaker B: So I think I met your uncle, I believe Michael. That was the first exposure I had to your company. Talk about his relationship to your grandfather and to you. Little bit, and how that, you know, transfer of power from the company went through. Assuming he was the next CEO after your grandfather.
• 10:14
  Speaker C: Yeah. So at one point another, you know, my father was one of four, was one of four sons. And at one point or another, my father and his three brothers all worked in the family business at different junctures. I think what happens. I think what happens when you have family businesses and you have different personality types is sometimes the strongest voice in the room is who sort of lasts the longest. And that was my uncle Michael. John, if you met him, and Michael passed away October 2020, but if you met him in person, he was a big, gregarious guy. Yes, I remember six foot four, north of 350 pounds, and he captured your attention when you walked into a room and when you had a meeting. Right. So when I moved back to Baltimore in 2004 to work with the family, at that point in time, my grandfather was 86 and Michael was 50, and they were equal partners in the business. And my grandfather still worked every day. And Michael would always tell me that if it weren't for me coming back, he probably would have been closer to retirement, but he was going to stick around for me. And so I think there were sort of different generational approaches to work. And one of Michael's lines he would always use when we talk about it was, my grandfather's generation lived to work, while my uncle's generation just worked to live. And I always thought that was interesting because I don't think you could sum up the entire work ethic of a generation by looking at it that way. And I think it's more different individuals have different philosophies on what they want their lifestyles to be. And I think based on that, we sort of had a solid family business. Michael and my grandfather worked well together. They had different skills and different strengths. My grandfather was sort of a math wizard. You'd be in a conference room with a dozen people, and eleven people would have their calculators out trying to come up with the answer. My grandfather would have already had the answer and was telling everyone what the result is. Whereas Michael was a tough negotiator. He knew what he wanted. He had an ability to really sort of cut to the chase on an issue and not beat around the bush, which could save a lot of time on the positive side, and could also create some issues, sometimes on the negative side, if people didn't understand who he was. But the two of them, I think, complemented each other nicely. And when I moved back, we were just sort of. We had a twelve to 15 asset portfolio of mostly grocery anchored shopping centers in a ring around the Baltimore Beltway. And we were mostly just managing those assets, not necessarily looking to do things, looking to do new things. And I think it worked out well for where both my grandfather was at that stage of his life, and where Michael was in terms of where he wanted to be at that stage of his career.
• 13:34
  Speaker B: So where'd you go to high school?
• 13:36
  Speaker C: So I went to a school called park school, which I actually went to for twelve years. And I think going to Parc was also one of the greatest influences on my childhood because it was a place where I had amazing friends who came from really stable families. And for me to see how, quote unquote, a normal family operated, given some of the things that I went through, also allowed me to create a vision for myself, for the future. Park was a small, liberal, private school that was very fortunate to go to maybe 75 kids a grade on a beautiful campus in Baltimore county. You knew everybody in the school. When I was in 6th grade, I knew people who were in 10th grade. And when I was in high school, I knew my friend's siblings who were in second and third grade. And there's a very high level of comfort at the school that allows people to be who they are and who they want to be. You didn't really have cliques in the same way that you had in other types of high school environments that I didn't really appreciate till I was out of the school. But it was a great place for people to discover who they are in a very safe and comfortable environment. At least it was for me.
• 14:55
  Speaker B: Did you play sports there?
• 14:57
  Speaker C: I did. Sports was a big outlet for me. So my main sports were basketball and lacrosse. I was captive both the basketball and the lacrosse teams when I was at park, and wasn't the most challenging athletic environment compared to some other Baltimore area schools, to put it lightly. But sports were a wonderful outlet for me as an escape and as a place to sort of see the direct results of working hard and seeing the fruits of my labor.
• 15:31
  Speaker B: Did you compete with the Gilmans of the world or were they in a different league than you guys?
• 15:37
  Speaker C: They were in lacrosse. We were in the B conference. Gilman was in the A conference. The way I sort of explained it to people is the real difference at the end of the day between a good B conference team and the A conference schools is schools like park. A few of us could have played at the A conference schools, but the A conference schools had 20 of us. They were a lot deeper, and it was a much bigger focus. But our basketball team was in the B conference and played some of the. Played some of the better schools, and we had a decent basketball team my junior year.
• 16:14
  Speaker B: Mm hmm. That's fun. That's cool. So then you went on to Boston University. I understand. Talk about that experience. Why'd you buy there? And what was your experience like? Sure.
• 16:26
  Speaker C: I actually had. I actually had an interim step along the way. Oh, did you? Which, you know, I sort of joke around in that I have two high school diplomas because I did a postgraduate year at Mercersburg Academy.
• 16:38
  Speaker B: Oh, sure.
• 16:39
  Speaker C: High school. And I did that year. It was two pronged. A really good friend of mine who was a year older than me was an excellent basketball player, a guy named Keith Gansen Mueller, who, senior year probably averaged the senior year, probably averaged 33, 34 points a game the same year that Carmelo Anthony was a senior. You'd open up the Baltimore sun newspapers and you'd sort of see Anthony and Ganzen Mueller as, like, the top two scorers in the city, of course, playing different levels of competition. And Keith ended up going to Loomis Chaffee for a postgraduate year. And Keith was a good friend of mine, and his father was also the college guidance counselor at Parc. And my advisor named Paul Ganzen Mueller, who was a really great influence on me in high school as well. And both Keith and Paul, in the first few months of my senior year, would talk to me about how great the experience was for Keaton and having this. Having this interim year to get ready for college to sort of, you know, prove himself out on the basketball court and simultaneous. My junior year in high school, about four games into the lacrosse season, I got mononucleosis, and then I couldn't play the rest of the season, and so I didn't know if I wanted to play college lacrosse or not. I had good SAT scores. You know, back then it was on the 16 hundreds. It was a 1600 scale, and my sats were in the 13 hundreds.
• 18:06
  Speaker B: That's good.
• 18:07
  Speaker C: But based on a lot of my sort of volatility in my home life, I wasn't very focused on academics or my grades. And so my grades really didn't match what they should have been based on my test scores. And so it was probably the first of a lot of responsible decisions when I was mostly an irresponsible kid, I, and I decided I would do his postgraduate year to create some structure in my life before I went off to college. And I said it would give me some time to decide if I'd like to play college lacrosse. And at the end of the day, when I'm 40 years old, I'm not going to remember that I did this extra year. So I went to Mercersburg, and it's a boarding school. It's a boarding school. It's just past Hagerstown, the third exit of the Pennsylvania library. It's, you know, the campus is nicer than most liberal arts college campuses. Wonderful environment.
• 19:05
  Speaker B: Two podcast guests of mine have been there.
• 19:08
  Speaker C: Really?
• 19:08
  Speaker B: Yes. Fred Klein and Lacey Rice. I don't know if you either want them.
• 19:13
  Speaker C: I know either one of them. I do. And I don't know Fred well, but I know that he went there because of the same last name, the Mercerburg connections. Somebody once asked me if he was my dad. You met Fred if you met him? I met him a while back in passing, but we don't really know each other well. Merserberg was a, was, it was a very interesting year for me. When you go to boarding school as a postgraduate, all of your friends and peers are experiencing the freedoms that come along with being a freshman in college. And I had more roles put in place at boarding school in that year than I had had throughout my entire high school experience. And so, you know, I had to adapt and I had to learn and I had to recognize that, you know, how great my, what I call my true high school experience was. And it gave me some real perspective. Interesting. And it also gave me some perspective. You know, I'm jewish, and park school was probably over 50% jewish when I was there. And at Mersenberg, I was one of maybe three to 5% of the jewish population. I experienced some anti semitism from people, from friends of mine who never even met, never had a jewish friend before. And it also gave me some perspective on being in different environments and becoming resilient in that way, and it also helped influence where I wanted to go to college. I decided being on a beautiful campus in rural Pennsylvania was great for the year, but it made me recognize that I wouldn't want that experience for four years of college. I needed more activity. I needed to have more sort of non academic options and pursuits. And so by being in Mercyburg, I decided I wanted to go to school in a more urban environment. And that's sort of what led me to Boston, which is a school, ironically enough, I got into when I finished at park, but I didn't know what I wanted to do then. So that year at Mercersburg ended up being very valuable for me.
• 21:18
  Speaker B: Why Boston? I mean, why not New York or Philadelphia?
• 21:23
  Speaker C: Yeah. So my grades weren't good enough in that one year at Mersensburg to get into Penn, and so I didn't really have another option that I was familiar with in Philadelphia, but I looked at Emory, in Atlanta, looked at Tulane, in New Orleans, looked at George Washington University, looked at NYU, looked at BU. And from the time I was a teenager, I always had the expectation that I would move to New York City after college. And so I decided for college, I'd like to go somewhere else first because it was a default in my mind that I was going to New York City no matter what. So I thought, you know, Boston, when I visited, seemed like bu especially, kind of has its own campus in the middle of the city. Not really, but kind of. They've done a much better job from an urban planning perspective on improving it in the past 20 years, but was also close enough to downtown Boston where I could get some exposure to sort of, you know, having that urban experience. And the other great thing was, there are so many colleges in Boston that, you know, it's, you're not just being surrounded by students from your school. You have exposure to people at a dozen colleges within 30 minutes of you and took a flyer and said, boston's where I'm going.
• 22:39
  Speaker B: That's cool. And what was your experience like there?
• 22:43
  Speaker C: Well, I'll be honest in that my year at boarding school taught me how, taught me that I could thrive academically, but when I had the freedoms of being in college again, I didn't do that. When I arrived, I think I was very focused on what happened. You know, I'm sort of maximizing my four years in Boston to the best of my abilities, you know, across the spectrum, which included, you know, you know, which included socializing, included work, included expert making amazing friends, and just experiencing life with, with people from all around the world, which is what being going to college in Boston is. I joined a fraternity when I was there and ended becoming president of the fraternity when I was a sophomore in college and was president for two years.
• 23:31
  Speaker B: That's unusual.
• 23:33
  Speaker C: It was very unusual. And I guess it also was sort of representative of other people seeing something in me that maybe I didn't see, whether it's responsibility or leadership and choosing me for a position. Same way in high school, when I was voted captain of basketball and lacrosse teams, I was surprised whether it was self doubt at that stage of life or just not being aware of what my skills were compared to other people's. And if you ever want to talk about a very difficult leadership position, it's trying to get a bunch of 19, 2021 year old guys organized and listening to you and fulfilling responsibilities. But it was worthwhile. And then while I was in Boston, also, I had the opportunity to get into real estate just through serendipity, not through design or plan. My freshman year, I was looking, you know, looking for an apartment off campus towards the end of the year. And my experience was that most of the residential brokers that I would call or come across seemed like they were being a little bit predatory with college kids, right? Not taking. Not taking them serious, you know, maybe not being forthright or honest. And unlike most of my friends, I had to find my apartment myself. I had to do all this on my own. I didn't have parents to help me. And I said, this just doesn't feel right. Everybody, similar to other urban schools, everybody moves off campus and rents apartments. There has to be a better way. And we discussed earlier, before the call, the analogy of throwing pebbles and the ripples that result. An older friend of mine from. I was talking about it with an older friend of mine in our fraternity, a guy named Sam Grossman. I said, I don't understand these guys. They don't seem like they're professionals. I don't get it. He goes, well, I have my real estate license. You could get your real estate license. Really? I said, isn't it like 100 hours in school, in class, and all these complicated tests? He said, in some states, but he said, in Massachusetts, you do a weekend class. You know, it's 09:00 a.m. to 09:00 p.m. for two days, and you go take the test. Because in any of these brokerages would love to have a college kid, because all of your friends are going to rent apartments. So I said, okay, I'll do it. I'll try it out.
• 26:01
  Speaker B: That's excellent.
• 26:02
  Speaker C: So I went and I got my license still with no intent to really do anything with it. And then I don't know if it was that summer or the following summer, I was looking for a job. And at that point in time. My plan was to go to law school after BU, and not that I wanted to be an attorney, but I just, I told myself the story that if I got an advanced degree and I had a basis in law, because I'd read about some really successful real estate developers and business people who went to law school first, that, you know, I'd be armed with the knowledge to go do whatever I want. I went and interviewed at a law firm that was, I don't know, 40 to 50 person law firm in downtown Boston that I got connected to through a friend at BU and the managing partner. There was a guy named Corey Cutler, and he sat with me for probably 2 hours when I went in for this interview, just for a summer job. And by the end of it, he looked at me and said, I would hire you to work here all summer long, and I would be very happy with that decision. He said, but I'm not letting you go to law school, and I'm not letting you become an attorney, and you're not working here this summer. I said, what are you talking about? I need a job. Do you have your real estate license? You've never met me before, and you just came in and talked to me for 2 hours, and we had a great conversation. I'm calling my friend who owns a real estate brokerage in Brookline, Massachusetts, and I'm going to tell him to give you a seat in his office. He's only going to pay you by commission anyway. But he said, but I promise you're going to make more and learn more working in that office than you would be at this law firm.
• 27:48
  Speaker B: Isn't that something?
• 27:50
  Speaker C: So he caught up a guy named Rick Gomolka who had a company called Ringo Realty, and the next day, I went and set up shop. And working as a residential broker for a few years in college gave me a lot of confidence in terms of dealing with people in the real world. Most of my clients were people 510, 20 years older than me. I had to lie about my age sometimes because people, I'd be brokering a condo sale at 20 years old, and people, it was the biggest purchase of someone's life, and they're trusting a kid who's a sophomore, junior in college. And I ended up being able to sort of marry a lot of my skills in terms of having a deep network of relationships and the ability to work hard and control my destiny. And I ended up having a great brokerage career while I was in college, and I even bought my first investment property my junior year in college.
• 28:44
  Speaker B: That's cool.
• 28:45
  Speaker C: I ended up buying a two bedroom condo in Austin, Massachusetts, that I ultimately sold when I finished in Boston. But having those life experiences before I quote unquote, went out into the real world were unparalleled.
• 29:03
  Speaker B: I want to ask you if you ever went back and sat with that attorney again after he gave you that advice and find out why he said what he did.
• 29:16
  Speaker C: Just out of curiosity, you know, I've reached out to him here and there over the years, probably not in the past five years, but reach out to him and it's, and you even bring it up is going to provoke me to make a more concerted effort to track him down.
• 29:31
  Speaker B: Well, it just, you know, it seemed like he has this wisdom about people, even a young person like you. You were what, 1920 years old? And he said, I mean, that's a pretty incredible talent to be able to look at somebody after a meeting for a couple hours to say you don't need to be, you don't need to go to law school, you need to be a real estate broker. He just knew your personality after learning that. That's interesting.
• 30:00
  Speaker C: Yes. And the fact that he took the time to even sit with me. How valuable time is today?
• 30:07
  Speaker B: Yeah, he probably billed at dollar 300 an hour or more.
• 30:11
  Speaker C: Well, yeah. The one good thing for him is I used his firm when I bought that condo. So he did get some business.
• 30:18
  Speaker B: Okay, that's interesting. So you were a real estate broker through your pretty much your entire college time?
• 30:27
  Speaker C: Yeah, and I actually, before I finished in Massachusetts, I actually had my actual broker's license. You know, there's the two levels. You have your salespersons.
• 30:35
  Speaker B: Sure.
• 30:35
  Speaker C: And then you go to brokers. And I think after two years there, you were eligible to get your broker's license. So I got that before I finished college.
• 30:44
  Speaker B: Well, you're all set. So why did you go back to Baltimore then after that? I mean, you could have said, I'm gonna stay in Boston, I like it here.
• 30:52
  Speaker C: That's a great question and I'll answer it quickly, but I'll tell you, I made more money in college than I did my first year as a salaried employee for my family. I took a pay cut of proudly. 40% is my guess, maybe 50%. And I think the easy answer is, as I was doing this work, and I was actually, it was a great way for me to bond with my grandfather and connect with him. I would finish a day, I would have rented three apartments. I'd call him, I'd tell him about it, and we'd talk about it. And all the while I was doing this. I didn't think he would hear this and think that I had a future coming back and working with him in Baltimore. I just thought I, you know, he was my mentor, my best friend, and I was sharing my experiences to have someone to talk to about it. I guess in his head he was saying, okay, he's doing this on his own. This could be good for him to come back and work with the family. And I guess, summer going into my senior year, he sat me down and had a conversation and said, we need to start thinking about what you're doing when you finish next May, and what are you thinking? And I said, I don't know. I could stay in Boston. I could keep trying to buy some properties here, and I could keep expanding my brokerage relationships and make this a full time thing, but I said, but I don't really want to stay in Boston. I said, I think I'd like to go to New York City. And ironically enough, keep talking about these pebbles. One of my friend's parents, who I helped find an apartment for their, you know, for their child, was best friends with the owner of a very large brokerage firm, an office brokerage firm in New York City, and said, they'd like to offer you a job if you want to come. And so it's interesting, I haven't even applied for positions, and I have people telling me they can help me get jobs in New York City. I'll be okay. And my grandfather said, well, why would you do that when we have a family real estate business, I'd like for you to come back and try working with us. And I tell everybody, if he had asked me to go move to Botswana and live in a tent by myself for a year, I would have done that. He did everything for me to put me in a position where I could be successful in life. And so it was never anything I thought I would ever do. I really thought once I was out of Baltimore, I would never come back at that point in life. And when he asked me, I said, I said, of course. But we sort of talked about it conditionally. And it was not a commitment that I would do it for five years or for ten years. It was, we'll come back and we'll see how it is. And after a year or two years, if it doesn't feel like it's the right thing for me to be doing, I can go do something else. And that was now we had that conversation probably around this time 21 years ago. And I moved back to Baltimore, started working with the family may or June of 2004.
• 34:05
  Speaker B: So, as I referred to. And I sent you my questions in advance, so you know where I'm going with this. But I interviewed Toby Pizzuto, who you may know, who runs the Pizzuto group now, and he followed his father's footsteps. Tom founded the company back in 1987. I interviewed both of them, and Tom told him when he got out of school, he was interested in music at the time. But he pivoted and said he wanted to go into real estate after his music career didn't quite get off the ground. And then he went to Tom and said, I'd like to join the company. He said, no, no, no. I think you should go get. Learn real estate at another place first, and then come over at some point. And then I'd like you to move into senior management here. So that was his thought process, because Brazzuto company was pretty large, and for him to come on, it was kind of like, not so sure this is the right time and place for that. So with that in mind, I'm curious how you see yourself differently. Perhaps maybe the scale of the companies were different and the situation was different, but I just like your take on that analogy.
• 35:29
  Speaker C: You already partially answered it. Toby and I have been close friends for a long time, and we discuss a lot of things that we probably, you know, couldn't share openly on a podcast like this with each other. And I'd say the two immediate, distinct differences that come to mind are, number one, time was not on our side. My grandfather was 86 years old when I finished in Boston. And I. And I think that even if he were 75, you know, I personally would have viewed it differently. My grandmother passed away spring of 2001. So he had this conversation a little more than two years after my grandmother passed away. So he's kind of by himself to a certain extent. We had a lot of family in Baltimore, but he's living by himself in Baltimore. He's 86 years old. And at that point in time, I didn't know whether he was going to live for another 15 years or another year. So I think that's the first distinct difference, is his age, probably relative to when Tom and Toby had their conversations. And then second, our company in 2004 didn't resemble the current version of client enterprises in any way, shape, or form. And I think even in 2004, if I would have said to anyone at our company that we are going to be like Bosuto in ten years, I would have been laughed out of the office, and people would have said I was crazy. Zuto, when Toby was like, come in. Was already an institutional quality firm. Yes, with high quality reputation and name brand, not just in the mid atlantic region, but people beyond the region still knew who they were with a number of partners, institutional, incredible processes in terms of how they ran the business committees, all the things that our company did not have. And so I think it's really important, and I respect how Tom approached it with Toby. I think it's very important as companies evolve from a family business to a business that may have a family name, it may be influenced by the family, but is really an institutional quality firm to act like it's an institutional quality firm. And nepotism doesn't really have a place in business when you have a lot of fiduciaries and a lot of stakeholders and a lot of shareholders that you're accountable to. And so I think we've all seen too many situations where families didn't adapt or didn't treat the business like a business, as opposed to just a place for the family to go. And I think our company, it was a great nucleus of people. There were only six non klein family members in the office back in 2004. So there was no size, there was no scale, there was no strategy. There was no thesis. There was no plan other than we were really just operating what we had. And that takes work, it takes effort. But we were just sort of operating what we had. And the focus that we had at that point in time was more about just preserving what we had, as opposed to trying to figure out how to grow the pie.
• 39:01
  Speaker B: Okay, that opens up the door for my next question. So when you came back, what was your thought process? You looked around and said, hmm, I think we can make some changes here. So talk about how your thought process evolved.
• 39:19
  Speaker C: You know, I didn't think that way at first. You know, I'm the type of person who. I have a lot of patience and I have. And one of my strengths is I can generally see the forest through the trees. And whenever I do anything in life, I want to get acclimated and understand what my surroundings are before I really push for change. And there were times in my first year or two when I was back in Baltimore when I was saying to myself, what in the world am I doing here? None of my best friends are here. Most of my friends were in New York City. I was going up probably two weekends a month to go see my friends. You know, we. You know, I was. I was doing Erlone I was mostly doing leasing, and I was learning a lot, but I didn't really love leasing, you know, and. But I was just sort of stuck in that role. I was trying to get exposed to reading financial statements, to learning to learn how to model. I was kind of doing a little bit of everything while, you know, getting a lay of the land as to sort of what the business climate and the real estate community was like in the mid atlantic region for the first. For the first few years. And at the point in time, I didn't really know yet what the future held. And I really. I don't know how confident I was that what we had was sustainable for the long term. But like everything else in life, I sort of told myself, it's early, like, you'll figure it out. I think me coming back energized both my uncle and my grandfather, you know, in ways that maybe like they hadn't been energized in a while, you know, to. In terms of, you know, educating me on, you know, assets in our portfolio, the background, the stories behind them, who the partners were in those assets, how we look at deals. And, you know, someone told me early on that, you know, you can learn as much from people about what not to do as you can what to do. Yes, and I think there was a lot of that, but I think it's also good to remember that where we were in the economy moving back in 2004, it was a very frothy time for years, and we would look at an asset, and I'd convince us we'd put a bid in. It would be a shopping center that we knew well. And I'd sit with my grandfather, we'd run the numbers and the analysis, and he'd explain to why we could afford to pay x. We put the bid in for, you know, for x. Let's just say hypothetically, it was $10 million, and we'd find out that the property sold for 14. And the real benefit of coming back during that time was because we weren't looking at 100 deals and because my grandfather had the time and because my uncle had the time, we would talk about what they were, you know, what the buyers were doing to be able to pay 14 million, whether it was inflated rent growth, inflated occupancy assumptions, interest only financing at 75%, leverage, everything that was going on back then that we fortunately weren't participating in. And so it was difficult, but it was a great time to learn through what felt like our failures. By not winning, kids were recognizing, especially four or five years later, the mistakes that others were making, the failures that people were making, winning. And so, and I had, you know, to be able to have my grandfather as a resource whenever I had any questions on anything, you know, and he was really, I'd say, 100% there mentally my first three years. And to have those three years, I wouldn't trade for anything in the world.
• 43:23
  Speaker B: So he taught you the discipline of the business, some, at least from his perspective, and he wasn't going to overpay for something. And he probably told you, there are lots of ways to look at this business. You can go out there and take incredible gambles, but here's how I've had success in building my portfolio. And so what, two or three things would you say were the things that he told you that you should and you still probably have in the back of your mind when you look at a new deal or consider an acquisition. So out of curiosity.
• 44:03
  Speaker C: So I think one of my main takeaways was that real estate can provide cash flow and wealth without a lot of assets and for a very long time if the owners are prudent and responsible and disciplined. And I say that because even. 20 04 20 05 20 06 we had assets that my grandfather had developed in the 1960s where it would be a lease renewal that would come up, and he'd be laughing in his office, and I'd say, what's going on? He goes, I can't believe this. I've been telling you for ten years that whenever this gas station lease came up and we'd be able to take the rent from $30,000 to 100,000, guess what? He goes, if the rent's going to go to 150,000. When I built the shopping center, the entire rent roll wasn't 150,000. So even then, we're in a world where so many people focus on instant gratification, it's worse now. But even then, people were focused on how quickly they could turn a profit. And I had an 86, 87 year old man who I deeply respected, sitting there sharing stories from when he built something 30 years earlier, still providing cash flow today. And so it helped me recognize that even in my early twenties, that time flies. What might feel like a really long time when you look ahead, when you ultimately get there, didn't take as long as you thought it would have taken. And so that helps give me the perspective of patience and taking a long term approach to real estate. Early in my career, very smart. And I think that was a big, positive takeaway from those years. It's outstanding I'd say a negative. During those years before we sort of got to when everything crashed in 070809, that when I moved back, we got involved in two large projects. One was a land development at the Mark train station in Odonton, Maryland, on a land assemblage there that, when we started, was just going to be a small strip center. But then they passed town center zoning. We did the land development for 232 units with ground floor retail. And that was my first real entree into development. And I got thrown into the fire on that right out of college. And the second deal was a 50 acre piece up in Bel Air and Hartford County, Maryland, that we had under contract that we're going through rezoning on. So what also happened during that time, we call it zero four to zero seven, was whenever, because we were working on these two big projects, whenever any opportunity I brought to our family that we should look at, the response from my uncle, my grandfather, was, we don't have the money to do it. We already have these two big projects, and we don't know how we're going to finance them. We can't look at anything else. And so being constrained from a capital perspective also helped us by. We just had to say no to things. And then what ultimately happened were these two big deals, which is all I worked on from a new deal perspective, for three years, four years. One of them, we ultimately sold the Odin project. We sold to the Dolben company, who we had been talking about doing a joint venture with, but then they had a 1031 exchange or something along those lines, and they said, well, what if we just buy the whole project? And so we got out of that may of 2007, June of 2007, and it ended up being a great deal for us from a land development perspective. So it taught me about the value of creating value through entitlements, and it was a great financial outcome. But we sold it, and I got a nice check for 26, 27 years old. I had a 5% stake in the deal. But then I said, I just spent all my time on this deal. We said we couldn't do anything else because we were doing it, and now we just sold it. And then we had the second deal in Hartford county that we were going through rezoning on, and our zoning got appealed. We had Wegmans teed up we were going to do a Wegmans out there to a big retail development. We ended up in zoning battle for years until the market turned and the seller wouldn't drop the price. So we dropped that as well. So I'm sitting there in 2008, and my first four years have had amazing learning experience on these two deals, but they were all of a sudden not in our pipeline. So I said, I moved back here with the prospect that we'd have these two big projects and that we were going to work on, and I get the experience and the benefit and get some small pieces of, and now neither of them exist, and we have the same portfolio we had in 2004. And I kept thinking, what would I have been doing otherwise, right? And the market. And the market was turning, and I kept saying, there's got to be a better way. And some of what was going on also was that anything that wasn't true gross ranked retail development or retail development, we would just pass on, and we couldn't compete with the reits or the institutions buying an undeveloped piece of land during that time. And so we really also then just. We weren't looking at things. And I said, okay, we're gonna have to figure something out, because my grandfather now is turning 90. My uncle is, you know, four years further into a career where he said he'd stay along as he'd work as long as I needed him around, but he wasn't looking. He had done well, and he wasn't looking for the next 20 years of his life. And I said, you know, we need to be prepared to think about what model works if we're going to have this company and we're going to make it successful. And I'm going to get married and raise a family, and I'm not going to. Nothing against people who come in and take over family businesses and just sort of maintain the status quo. But I'm not the type of person who ever wanted to just maintain the status quo. So I had to think about what we would do to change our model. And fortunately, the downturn hit, and it allowed us to really transform ourselves as an organization and think bigger and do new things.
• 50:36
  Speaker B: You said fortunately, so, not unfortunately. So normally people say unfortunately the downturn hit, but you said fortunately, so talk about why it was fortunate.
• 50:48
  Speaker C: Yeah. So the same discipline I referenced, 2004, 2005, led us to be in a position where we were relatively, I'd say we were modestly leveraged across most of the portfolio, and we didn't have a whole slew of problems. And while we lost seven figures on that Hartford county deal when we got stuck in the rezoning battle, if we had achieved the zoning in early 2007 and had to close on a $25 million piece of land, we would have been carrying that in the middle of a downturn when rents dropped by 40%, we ended up not having to do that. The R and D money that was lost working on that transaction hailed in comparison to the damages that could have taken place if we had actually had to close on that land and try to get a project developed, you know, between, you know, zero eight and 13.
• 51:48
  Speaker B: Right? Yeah.
• 51:50
  Speaker C: So, and we saw because the land came back to us, you know, in 2010, 2011, and the Loi numbers that retailers had given us in 2007, it literally dropped in half frequently. Wow. So that was another big lesson of, you know, a small mistake might hurt, but it's a lot less painful than a concentrated large mistake. And that formed a lot of my worldview in terms of having a more diversified portfolio with a lot of different sources of income and cash flow, which we've been able to achieve over time. I think once we got into zero nine and ive been working for five years and I felt like I understood the dynamics of the marketplace, we sort of said internally, this might be the best buying opportunity that I will see in the next 20 years. We need to be positioned to take advantage of opportunities and we need to be more flexible in how we see things. We need to recognize what our skills are and our strengths are as a company. And its nothing as a retail developer, it's as a developer with local knowledge and expertise. The same land use attorneys are going to be involved in a rezoning for a multifamily project as they will for a retail project. The same civil engineers, the same architects, the same land developers, the same brokers. And so instead of saying just no to anything that wasn't retail, I said we just have one of our best transactions in the history of our company on a land development deal in Odonton. On the multifamily side, how can we say we only do retail when that's financially one of the best returns we've ever had? Let's look at where the opportunities are, and let's be prepared to think differently about things. And instead of focusing on what can we capitalize internally? Because in the grand scheme of the real estate ecosystem, we had very, very scarce resources. We had enough to put deposits down. We might be able to buy a small shopping center by ourselves, but we couldn't go fund three, four deals at a time. And I said, we need to leverage our intellectual capital and whatever actual monetary capital we can put into transactions and then use that and go raise capital from people outside of our family. Part of it was self preservation for me also, we got to 2009. My grandfather was turning 91. He was frail. He wasn't in the best health, and I had power of attorney for him. And I never wanted to be in any type of position where someone could say, oh, well, you did this transaction because you had power of attorney. So I was forced into a position to say, you know what? Let's do deals with no family capital. I'll put in whatever I can put in. Michael could put in whatever he could put in. But we're not going to do deals that are reliant on the internal bank. We need to focus on improving our external materials, how people view us and perceive us, how we operate as a company. And if we're going to be sustainable over the long term, we have to bring in external capital as well. So we did that. The first deal we did that on was the grocery anchor shopping center in Glen Burnie, Maryland, called Burwood Village Shopping center. We talk about the pebbles. We did that at 50 50 jv with Katz properties out of New York, and the two main principals there, Dan Kaftal and Dan Katz at that time were both a year older than me and went to the same high school as my college roommate and as my, as my now wife. And we had a lot of mutual friends. Dan Capps actually went to college with a good friend of mine from Baltimore. We met at an ICSC show, you know, months, you know, six months before we did a deal together. And we. And it was one of those conversations of, oh, yeah, yeah, everyone says we should meet, like, let's, you know, let's talk. And we ended up buying a shopping center together, 50 50 from Prudential. You know, they were starting to know to sell because they were getting into a downturn and they needed to get some liquidity. And that was the first indication deal that. That I ever did. And it wasn't a bit. It was a very small one. It was, you know, I think we bought the shopping center for 13 million, something like that, and we put 4 million of equity in. Bill Liberty actually helped source the. Help source the debt.
• 56:39
  Speaker B: Oh, good. Okay.
• 56:40
  Speaker C: Yeah. Or maybe we put four and a half million of equity in each side, put 2.25 in. I had a little bit of cash. I didn't have a lot. I put $100,000 in. But I told everyone I went to that we were raising capital from, this is what I can afford to do, and it's a lot of money for me at this stage of life, and raised the money and ended up selling that center two and a half years later for 17 million. And that was the first in a series of syndication deals that we got into where we expanded the capital base and brought in really more friends and family investors at that time to allow us to grow as a company and to get involved in the new transactions in a different way.
• 57:17
  Speaker B: Was that a grocery anchored center?
• 57:19
  Speaker C: It was a grocery anchored center. Food lion.
• 57:22
  Speaker B: Oh, okay.
• 57:23
  Speaker C: And we did something there that we did a lot of as we grew as a company in that we partnered with great people who shared our worldview and shared our strategy and what we wanted to achieve. That brought different skills, brought different skill sets to the table than what we brought. We brought the local knowledge, we sourced local financing. Cats at that point in time had already done a half dozen acquisitions, probably in the prior twelve months. So they had the due diligence down, they had the processes down, and it was a good merger of skills, and that was a catalyst for going on and doing more syndication deals.
• 58:00
  Speaker B: So how did your product type growth occur and diversification, and then moving that beyond that into geography, going outside the region, that kind of thing?
• 58:12
  Speaker C: Yeah. So really from zero nine to twelve, we probably still focus within the region. But we bought our first flex park in April 2010 in a 50 50 jv with caps, also from First Potomac Realty Trust, if you remember them. Oh, sure. So we bought a business park in Randallstown, Maryland that we would have never looked at if it weren't for a relationship that said, listen, there was a guy that we looked up to who said, if a REIT is selling in this market, they're selling. So take a look at it because there aren't a lot of buyers and you're local and you might be able to do something with it. So we bought, you know, I don't know, it was 35% vacant and we expanded five tenants in the first six months just by returning their phone calls. We did pretty well with that. And probably the biggest deal we did during that time was a joint venture with actually with JBG on a large building for the Social Security Administration. That was a.
• 59:11
  Speaker B: That's in Baltimore? Yeah.
• 59:13
  Speaker C: Yep, that was in Baltimore. It was an RFP. And, you know, I think this is a good example of being bold when other people would probably tell you not to, I guess 2009 RFP came out, maybe I was 28 years old and a friend in the office brokerage community in Baltimore said, here's a link to a website, a government website that's public and open, and go click on that link and then call me back and I went on this link, and it was an early analysis of different sites or where SSA was thinking about doing north of a 500,000 square foot build to suit. He said, okay, now you see that there's another link. Go click on this other link. And this other link actually was the second study that had just been posted that day or something like that, and identified the site that they wanted to do the building at, and that there was going to be an RFP coming out. And it was, you know, I don't know, a 10th of a mile from one of our shopping centers in northwest Baltimore city, in our backyard. Sure. So I started to look at the RFP, and I, we were unqualified in every way possible to bid on it. Said you had to have built a class A office building in the past seven years. We hadn't done that. That you had to have developed a lead over a greater building in the past seven years. We hadn't done that. That you had to have, you know, done a 500,000 square foot building in the past seven years. We hadn't done that. But I said, okay, well, if I'm looking at this and it's not in the papers and it's not out there, it means a lot of other companies that are qualified probably aren't looking yet. And we had a relationship with JBG. So I called up David Jacobs at JBG, and I said, you guys do these government buildings. There's opportunity that is in my backyard, it's not in DC, but this is a 500,000 square foot build to suit for the SSA with the 20 year lease. It seems like this is something you should want to pursue. So he came to Baltimore with a guy named John Simeon who worked at JBG then. John's a great guy, sort of the GSA expert at that time. And they got approval to pursue a deal in Baltimore. We pursued it as a joint venture, and we ultimately ended up winning. Probably 15 companies probably went after it. They narrowed it down to five. And out of five, we ended up winning it. It was a multi year process, and we had no place being in the room other than me making a phone call and saying, let's pursue this together. And we ultimately wondez. And seeing the quality of people from JBG at that point in time, across the board, in terms of intellectual capacity, determination, work ethic, it didn't matter who I came across. They were high quality people. And I developed some phenomenal relationships with people from JBG at that time. Rob Lawrence was the partner who was sort of tasked with Lawrence project, Tony Greenberg.
• 1:02:36
  Speaker B: I know Tony Jordan, Rich Jordan.
• 1:02:40
  Speaker C: So a lot of great people that we had the opportunity to work with, and we ultimately won it. I drive to northern Virginia every Wednesday for design meetings. I didn't miss a meeting. I felt like being the small minority lp in the room. I had to work harder to prove our worth. Things that we did that absolutely proved our worth in the partnership. But people in the office, when I said we were pursuing this, thought I was insane, and ended up being the largest private deal in Baltimore City history at that time and $200 million project. And that deal gave our company a lot of credibility in the broader real estate markets, because when people would say, so, what other deals have you done? I could say, oh, we just did a half million square foot build to suit with JBG in Baltimore City. And so both the size and scale of the job and having partner with the institutional quality, reputation went a long way, even on little deals that we were going to do. There was a good lesson also on sort of reach beyond what people think you can achieve, because you never know what happens in terms of how you get there. That was a great example of the evolution of our firm coming out of the downturn where we said, we are a real estate firm. We're not a shopping center developer, we're a real estate firm. And that's just one example of a lot of things that we did to evolve ourselves to the point where we could be recognized as a credible firm, not just in Baltimore, but in the region.
• 1:04:31
  Speaker B: While that was going on, you learned a lot, obviously, about institutional real estate and investing and what you're doing. So you looked around the landscape when this was going on, and what, what was your mindset at that point?
• 1:04:49
  Speaker C: So I recognize a few things. One thing I learned, and I give Rob Lawrence a lot of credit for this, is he would always talk to me about when investing in people at my company. As we're growing, invest in people who have the financial analytical capabilities to do really difficult work. Right. Because real estate was only getting more complicated and the financials buying real estate transactions were only getting more complicated. And if you hire a few extra people that you think you might not need, you never know you're going to end up needing them, because as you grow, you grow. I like to hire people ahead of needing the roles because you need to have the infrastructure in place. And I also learned that the big companies aren't that much different than the small companies, and a lot of it is how people present themselves, the confidence that they have in their ability is to get something done. And if you work hard and you have a vision, companies change and evolve all the time. And I would hear these stories also about how JBG, it went from x number of employees down to nine or ten when they sold their whole portfolio the first time around. And then they grew back, they grew again. And so this is not accepting the status quo, I think, was a big takeaway for me. And also recognizing that as smart as the team was, there were times where our company solved problems in the partnership that weren't that complicated just because we had different types of experiences they had, and never underestimate who brings what to the table, especially in a partnership.
• 1:06:44
  Speaker B: That's cool. You learned a lot then. So then, corporately, how did you change your pivot, your strategy? Once you had that SSA deal underway and under, how did you look at the market differently than you had before? Because before you were building or looking at smaller shopping center deals, maybe 25 million was probably the largest deal you had, I imagine, before that, roughly, I don't know. And so now you're. Now you're. At least your thought process is in a different place. So how did you take it from there, and what did this inspire you to think about going forward?
• 1:07:27
  Speaker C: So I think 2012 was probably the real turning point. And that's the year that we got into multifamily.
• 1:07:33
  Speaker B: Yep.
• 1:07:34
  Speaker C: And we went from zero units in our pipeline to 750 that year. And we stepped into three multifamily projects throughout that calendar year that had been started by other people. And for whatever the reason, whether it was capital markets, issues, concern about financing, whatever it might be, we had the opportunity to step in. And we did. The first two with Dolben, who have been great, longtime partners of ours. Drew and Dean Dolben are close friends of mine. And we developed probably north of 1000 units together in 50 50 joint ventures. And they do a lot of third party management for us as well. And we stepped into two deals with them, one of which was a land development deal where we were selling them land and they thought they were going to get it financed under a HUD 221 D four. And HUd ended up saying for one reason or another, there was too much supply in that market. And so the land closing was being deferred. So I said to Drew, I said, why don't we just partner with you on it? Same concept. I'd never done multifamily before. I didn't have the money around. I had no idea what I was doing. But we had a relationship, and we trusted each other, and we figured it out. So we did that deal, and we did a deal in Fells Point. And then after we had those two and I realized that we didn't have the development capabilities in house, we hired a guy named Matt Allen, who had been running bowler engineering's office in Towson, Maryland. And Matt is still with us today as our director of development. And when Matt came in, said, all right, Matt, you have no preconceived notions that we do retail or multifamily. We just do real estate. So let's go. Let's go find some more real estate opportunities. We end up doing a third multifamily deal that year as a pathway to get some diversification in our portfolio. So we weren't as reliant on just retail, knowing that it was a really tough time for retail. And multifamily always, always had a perception of stability much greater than retail at that point in time. We really pushed in that direction, and we continue to hire really good people as we diversified our portfolio.
• 1:09:46
  Speaker B: It was about that time that I brought an opportunity to you as well. The project in Pasadena, Maryland. So talk about that project a little bit.
• 1:09:57
  Speaker C: And that was probably, what? 20 14?
• 1:10:00
  Speaker A: 20 13.
• 1:10:01
  Speaker B: 20 14 20 13.
• 1:10:02
  Speaker C: I think we probably closed in 2014. Yes. That's where we first methadore, although we may have first met on an opportunity in Beltsville that you. That we spoke about but didn't come to.
• 1:10:12
  Speaker B: Actually, that was after. I think that was after that. And actually, I might have met you when you first started, when I had a meeting with Michael.
• 1:10:20
  Speaker C: Okay.
• 1:10:21
  Speaker B: In your office. And we were talking about Odenton at the time. So you might have just started at that point, because I remember talking about that deal with Michael. That's what I was.
• 1:10:33
  Speaker C: Was Michael nice to you?
• 1:10:35
  Speaker B: I remember him being very sharp, very smart.
• 1:10:38
  Speaker C: Yes.
• 1:10:39
  Speaker B: He didn't stand up much. He just sat at his desk. I remember he stood up and introduced himself, and we talked. But he was very smart. I can't remember what. Whether it was a financing. I think it was a financing. He was looking at debt on the project at the time, and I presented my wares to him.
• 1:10:59
  Speaker C: Yep.
• 1:11:00
  Speaker B: I may have been in partnership with Dole Liberty on that deal, possibly at the time, because I know you. That's how you met him.
• 1:11:06
  Speaker C: Yep.
• 1:11:06
  Speaker B: I'll be through. Michael.
• 1:11:08
  Speaker C: Yeah. So the Pasadena deal, and we did the reserve at Stoney Creek was a good example of the types of deals that we were getting involved in. One of the things I recognized also in 2012 and beyond was that there was going to be all out for a long time from the GFC. And just because things were falling apart in 0708 didn't meant that Humpty Dumpty got put back together in 2000 920 ten.
• 1:11:37
  Speaker B: No.
• 1:11:38
  Speaker C: And I recognized that we probably had five years of potential opportunities, but we had to be creative in our problem solving and creative in our approach to deals. In the same way, when the capital markets were flying high in zero 44050 six, we couldn't compete with larger institutions. We still couldn't compete with larger institutions in trying to solve problems from zero nine through 14. So we had to really get creative in terms of approaching these. I think that was a good example. We had to assume a HUD 221 d four loan. There were an immense amount of outstanding payables from the original developers. Wasn't even clear at times who was owed what or who was even in the partnership. And a lot of. I think there were a lot of people who couldn't spend the bandwidth or the brainpower to try to figure it out. And we ultimately did, and also had a phase two development opportunity that we liked there. And we ultimately developed that phase two through a hublot. And it's been a good, solid, performing multifamily asset for us since then.
• 1:12:48
  Speaker B: It's great. That's a market rate deal, is that right?
• 1:12:52
  Speaker C: Yeah, everything. We have our multifamily portfolio today we're up to 2800 units, and all of those are class a market rate.
• 1:13:02
  Speaker B: That's great. So let's talk about strategic growth. I mean, it's one thing about product type, but what about geography and also the type of real estate? So, for instance, some of your projects are developments, others are just straight acquisitions repositionings. Is it fair to say that everything you're looking at is either value add or opportunistic? Or do you look at core deals at all? Core or core plus deals?
• 1:13:31
  Speaker C: Yeah, I think given our cost of capital as a company, core deals are very difficult for us to look at. So we, we might be able to dabble in core plus depending on what the asset is. But generally, value adder opportunistic is where we've had more success over time and geographically. We're now located in five states along the east coast from New Jersey south through North Carolina. I'd say probably half of our assets are outside of the state of Maryland. Now we have close to 20 assets in Virginia. So we have more assets in Virginia now than we had total assets when I moved back to Baltimore in 2004. I think in terms of how we view our portfolio, given our corporate structure is more of an open ended fund that mimics a private REIT. Having more strategic diversification both through asset class and geography continues to be something that's significant for us and important as we look to the future. And I think we'll continue to expand along the eastern seaboard as we see opportunities that make sense, that fit in our capital structure.
• 1:14:52
  Speaker B: So what is your lens right now? Is it different for each product type or how are you looking at new deals?
• 1:15:01
  Speaker C: So I guess let me give you the general scope of what our portfolio composition is today. It'll help to understand again where we're going to the future. Let's take your gross asset value. Today we're probably approaching 1.5 billion, including cleaning projects that are under construction. And that breakdown by gross asset value is roughly 50% class A multifamily, roughly 40% grocery anchored retail, and the other 10% is a blend of light industrial, flex self storage, some land holdings and a very little bit of office. And we have about 6 million space in total and about 3.5 million of that is commercial. As we look ahead, I mentioned we had about 2800 class a units. We were trying to build our portfolio up to about 5000 class a units in five years and get up to about 5 million commercial space. And what we've done in terms of expanding geographically is as we look at, as our portfolio has grown, assets that were once a sizable part of our portfolio become a lot smaller. So we've sold those off and done 1031 exchanges. And that's a lot of how we've gone into new geographies is through that strategy. But we haven't said we're going into this geography to do multifamily but not retail. We find that the uses can be complimentary in areas that we're looking in and it's helped us in terms of finding opportunities by being more flexible on the asset class as we're looking.
• 1:16:41
  Speaker B: So listening to what your portfolio makes is you have different disciplines you need on the asset management side. So apartment assets are different than retail assets and managing and operating and strategic thinking on a day to day basis and a long term basis. Do you have separate asset management teams for each asset type?
• 1:17:05
  Speaker C: We don't. So what happens is on the commercial portfolio, on the retail and flex portfolio, we generally property manage that ourselves. On the self storage and multifamily portfolios, we outsource that property management. So our asset management is all blended. I think when we get to a certain size, it probably makes sense to have a dedicated asset manager just for multifamily dedicated. We have a head of asset management now, a guy named Devin Gerhart, who actually once upon a time worked at JBG and got introduced to me through a mutual friend, probably been with us for ten years now, and he does a great job of doing asset management across the entire portfolio. I think given that we have such high quality property managers on the multifamily side, that we have close relationships with the asset management component hasn't seemed to be as essential to have someone that's dedicated there. I think when we get to the size and scale, if we have 20 communities, we probably need someone who's dedicated.
• 1:18:13
  Speaker B: Interesting. Well, it also depends on the quality of the assets issues too, and also the capital markets, the way you've structured that equity on each project, and whether you're going to hold or sell what your strategy is. From holding standpoint, I'm gathering that you're in the accumulation stage and you're not in the merchant building type structure where you're selling properties frequently, but maybe you are, I don't know.
• 1:18:42
  Speaker C: So our portfolio has close to 60 assets today, so we probably sell anywhere from five to 10% of the portfolio annually. So that's selling more than you would think. But we want to have net growth on an annual basis. Or if we're selling a $10 million asset, the net transaction that's new that we're doing is probably a $25 to $50 million transaction. So we still have overall portfolio growth even when we're exiting out.
• 1:19:15
  Speaker B: So why sell anything?
• 1:19:19
  Speaker C: That's the age old question, right? We still have, from an asset management perspective, assets that are of a certain value or less than a certain value take up more resources than they do offer up benefits for us to own under our holding company structure. And our holding company equity is north of 400 million today. If we have a $5 million asset, the cash flow on that asset annually, if it's 50% leveraged, and we have 2.5 million of equity, even if we're getting 8% cash on cash on that $200,000 of cash flow a year, I think fine enterprises in 2004, that's a number that's meaningful and significant. The way we're structured in 2024, it doesn't necessarily move the needle enough. We have to think differently in terms of how we operate the portfolio today. Again, tied into thinking about not just who we are in 2024 but who we'd like to be in 2029.
• 1:20:24
  Speaker B: Interesting. So let's pivot to some of your projects, if we can.
• 1:20:28
  Speaker C: Sure.
• 1:20:29
  Speaker B: I have a few listed here. The marketplace at Fells point. Talk about that one.
• 1:20:34
  Speaker C: Yeah, that one always receives a lot of attention because it's in the core of Fells point. The third block off the water. It's actually one that we finished now, nine or ten years ago, I think back maybe early 2015. So 160 apartments, over 30,000, ground level retail. It's a.
• 1:20:54
  Speaker B: Was that a ground up development?
• 1:20:56
  Speaker C: It was. It was actually sort of a distress deal that we came in with Dolbedon in summer of 2012. We bought the. We bought the note from a Baltimore bank. A prior developer had assembled something like 48 individual properties with 30 property owners and got stuck in the GFC. And we bought the debt and did a deed in lieu of foreclosure and bought the final remaining pieces and did a really cool redevelopment where we preserved the facades of these historic row homes in Baltimore City like a movie set, and built all new structure behind, and did low grade parking. And did, you know, class a, 21st century, multifamily housing. That project could never, cannot be built today. They actually made the entire district a historic preservation district, even in a different way, where I think we're four stories high and you can't go higher than three stories now. So we have some great rooftop views. And I actually lived in that project for two years with my family early on. Yeah.
• 1:22:00
  Speaker B: Did you get historic tax credits on that one?
• 1:22:03
  Speaker C: We had Brownfield's tax credits. Historic tax credits.
• 1:22:07
  Speaker B: There it is. Okay, so that was a creative deal.
• 1:22:11
  Speaker C: That was a creative deal. Yep.
• 1:22:14
  Speaker B: And it's operating well now.
• 1:22:16
  Speaker C: Yeah, listen, the apartments are always fully stabilized. The retail ebbs and flows just. It's gone up and down with some, you know, urban retail. And Covid had some problems.
• 1:22:28
  Speaker B: Yep.
• 1:22:29
  Speaker C: And then, you know, crime in Baltimore City has posed some issues periodically. But, you know, I think we're approaching 90%, least on the retail side, with a lot of interest. And it was definitely a very memorable project to work on that gets a lot of attention.
• 1:22:46
  Speaker B: Next one on my list is aura apartments. Talk about that.
• 1:22:50
  Speaker C: Yeah, that's a great project. That's a project in Largo, Maryland, that we actually bought from Peter Schwartz. Almost shovel ready when we bought it late in 22. And that is $125 million project right at the Largo metro station. We deliver the first units actually, later this year. A ton of activity is going on there right now, 379 units. And we should be fully finished next year. We had some tiff financing with Prince George's county. You know, another, another good example, I think, of us being flexible in terms of working with the landowner that's maybe a non traditional seller, and there need to be a comfort level on our ability to perform. Also respecting the vision that the seller has in terms of what they want to see get done on the project.
• 1:23:40
  Speaker B: Was this always zoned for apartments, this site? Or was it different zoning?
• 1:23:45
  Speaker C: No, no, I think. I mean, he secured the zoning for the apartments. When I say almost shovel ready, I mean, it really was probably 90% of the way along to being shovel ready, and we just had to come in and tie up some loose ends.
• 1:23:58
  Speaker B: How is the market there? It seems to me there not a large amount of absorption of apartments in that neck of the woods. Or am I wrong?
• 1:24:08
  Speaker C: I think it depends where you are over there.
• 1:24:10
  Speaker B: Okay.
• 1:24:11
  Speaker C: I think there are a lot of opportunities we've had in Prince George's county to do ground up development that we passed on. I think in this little nucleus, you're right next to the brand new hospital that got developed near the University of Maryland Capital Region hospital, right near sort of the county seat. And you're right near the metro stop and without a lot of other vacant land parcels in that core that can be developed. And there are a lot of comps that supported our development there. That makes us comfortable.
• 1:24:41
  Speaker B: That's great. So you'll be in lease up next.
• 1:24:43
  Speaker C: Year, start to be leased up later this year?
• 1:24:46
  Speaker B: This year?
• 1:24:47
  Speaker C: Yep.
• 1:24:47
  Speaker B: Good.
• 1:24:48
  Speaker C: We'll finish the product 100% next year.
• 1:24:50
  Speaker B: Do you. And is that with Dolben again, partnership with them or is that on your own?
• 1:24:55
  Speaker C: Yeah, we brought Dolben in for a slug there on the venture.
• 1:24:59
  Speaker B: And are they managing it, leasing it for you?
• 1:25:02
  Speaker C: They will be, yep.
• 1:25:03
  Speaker B: Okay. And then the next one I have is extra space storage.
• 1:25:08
  Speaker C: So what's interesting is we got into self storage a few years ago, mostly through a strategic venture with Morningstar out of North Carolina. And the president at Morningstar, Dave Benson, is a close friend of mine, actually. Really through a business organization, YPO. And they've been wanting to come in the mid atlantic region for a while. And we're having trouble sourcing deals. We liked the opportunity to go into an additional asset class. So we've done four self storage deals with them under the Morningstar flag. We've done one deal under extra space because that's a joint venture we did with Greenberg Gibbons where they knew we had some self storage in our portfolio. And they had an opportunity, and they hadn't done any self storage before. So we came in on a 50 50 venture with them on one deal in Ricerstown, Maryland. And that self storage, on the whole, has been a good asset class for us. I don't know how deep we're going into it because we sort of went into the Morningstar venture knowing that their fund has a shelf life, and whenever they exit the fund, we'll exit our portfolio with them. But it's been a good way to diversify our portfolio with an additional asset class.
• 1:26:15
  Speaker B: Have those deals been ground up or they've been part of, let's just say, retrofitting other uses?
• 1:26:22
  Speaker C: We did three ground up facilities, and we bought one. Four ground up, and we bought one.
• 1:26:29
  Speaker B: Interesting, because I've seen often conversions from retail into self storage. I've seen office conversions into self storage and even industrial. So all three of those product types.
• 1:26:41
  Speaker C: Seem to tap in there, and we've looked at some of this.
• 1:26:46
  Speaker B: So the other project I was curious about is the Waldorf townhouse house deal. Talk about that one also. That's a new product type for you, isn't it?
• 1:26:55
  Speaker C: Yeah, it's a new product type, and I think it's a good example of us being willing to sort of dip our toes into an asset class without fully committing. And so it's a 74 unit build to rank community in Waldorf, where we bought the. The lots from dream finders homes, and they actually then constructed the homes for us, and we own them and operate them, rent them out. When we went into it the summer of 22, a lot more exposure was coming on build to rent. We wanted to see if it was something that we could expand our rental housing portfolio through. We haven't done any other transactions since in the mid atlantic region. I think it's hard to make the numbers work because the land costs are so high and the housing costs are so high, and, you know, we're up and running there. We're leased up. We're stabilized. But I don't think we'll get the numbers there that we thought we would get just based on the shift in capital markets. And so I think we're happy we didn't dive in completely because we had some opportunities to, but we felt like we wanted to sort of talk about exercising some patients earlier, sort of see how the first one performed before we went in too deep into the asset class.
• 1:28:07
  Speaker B: Well, since it's townhouse, I assume. I'm assuming you have a condo regime there to some extent. So you could convert if you wanted to, if the market was appropriate for that, right?
• 1:28:18
  Speaker C: Yeah, we could. You know, dream Finders is still building and selling houses there, so we don't want to be competing with, we don't want to be competing with them. But at some point down the road that could be an option. And the housing values there are very strong, but there's absolutely a market for institutional buyers to buy this project. Once we've been up and running and operating for a while.
• 1:28:44
  Speaker B: You'Ve been active in acquiring retail, industrial and storage properties, both one off and in portfolios. The Cedar realty acquisition in retail. That's an example of a portfolio. Is there a theme for your acquisition strategy or are you looking at one deal at a time and whether it achieves certain yields and quality metrics?
• 1:29:08
  Speaker C: This almost mimics a conversation we had on our weekly management call this morning.
• 1:29:13
  Speaker B: Here we go.
• 1:29:17
  Speaker C: It would be amazing if acquiring portfolios was more capital efficient because you're getting transactions by buying in bulk, but we tend to see the opposite takes place. The cap rates seem to be more compressed on portfolio sales than they are on the one off transactions. And so we look at the portfolios we underwrite, we try to stay competitive, but we don't have the lowest cost of capital of all the institutional investors in the world. And frequently the cap rates that we're seeing portfolios potentially trade at are lower than we carry retail or multifamily, whatever. The asset class is on our own books. So it's hard for us to justify the portfolio purchases, even when we love to. I think it has to be situational from an energy perspective. Be able to pick up a number of assets at one time I think would be preferred. But the reality is we have a great deal team that works really hard to source opportunities for us internally and we can find the assets on individual basis that have better stories, that allow us to take advantage of the opportunities better than the portfolios. And the portfolios tend to be institutionally owned, well managed, well run. There might be some opportunities here and there to add some value, but not as great as the one off transactions that we see.
• 1:30:55
  Speaker B: How did you win the cedar deal then?
• 1:30:57
  Speaker C: So that again, ties into relationships. Our friends tied up the entire portfolio and for various reasons it was a very large transaction. I think there was a comfort level that they could parcel off a portion of it to produce capital outlays. Maybe. There may have been some properties where there are some radius restrictions based on their assets they owned in individual circumstances. And I guess we got that call time flies now, but I guess probably summer 22 is when we closed it. So our friends knew that we had a lot of dry powder in the almanac transaction and that we could handle the sensitivity of the transaction well in an off market sort of way. And we had the ability to source both debt financing and have the equity to put into transaction like that. And it was $135 million transaction 130. And so there aren't that many groups that can, that can move quickly at that size. And fortunately, we were one of them. So we got the phone call.
• 1:32:01
  Speaker B: So back up now and explain the deal and how it came to you in the first place. Okay.
• 1:32:08
  Speaker C: On Cedar?
• 1:32:09
  Speaker B: Yes.
• 1:32:10
  Speaker C: Yeah. So, and KPR centers, you know, I was working on a deal to privatize Cedar and they.
• 1:32:19
  Speaker B: And who is Cedar again?
• 1:32:21
  Speaker C: Cedar is a. Cedar was. My apologies. I just assume everyone that listens is so well versed in what goes on.
• 1:32:27
  Speaker B: Back up a little bit, please.
• 1:32:29
  Speaker C: So my apologies. So Cedar was a public rEIT that focused on owning grocery anchored shopping centers along the east coast of the United States. And they had been on the market for some period of time. And some friends of ours were awarded the deal to privatize Cedar in a very large transaction in order for them to manage their own capital. In terms of closing on a portfolio that was significantly larger than the piece that we took down, they parceled off some portions of the portfolio and we acquired nine centers from Pennsylvania south through Virginia that were really in our backyard geographically, in areas that we understood very well. And we closed in those centers simultaneous to the. They're closing on the broader, on the broader portfolio for cedar to be privatized. And that was a complicated transaction because actually the public shell and number of assets went to Wheeler, which is another, which is an existing public reit that's headquartered in Virginia beach.
• 1:33:38
  Speaker B: Right. So you have nine centers that you keep all nine, or did you spend any of those off during that process?
• 1:33:48
  Speaker C: Nope, we kept all nine. And we wrapped them into our broader. It was about 770,000 sqft that we acquired all, all in one day. And we just wrapped that into what is our now two and a half million square feet grocery anchored retail portfolio.
• 1:34:05
  Speaker B: So did you have to beef up your staff to manage that or did you?
• 1:34:10
  Speaker C: Yeah, we've, you know, we, we, since that acquisition, we've hired net new positions in leasing, property management and accounting. For context, John, as I sort of mentioned, I joined the company in 2004. Maybe there were five or six non client family members in the company. Today we're approaching 30 people between our offices in New Jersey and in Baltimore. And we have consistent and steady sort of year over year growth. We're pretty strategic about hiring where we need spots filled. But we've had. We've generally had net new growth every year in the past ten years.
• 1:34:59
  Speaker B: So do you have a property management office in Virginia since you said most of your assets or a lot of your assets are down there?
• 1:35:05
  Speaker C: No, no, we haven't done that yet. We've discussed it. We've discussed having someone who's dedicated down there. But for now, we've just been deliberate with our property management and leasing staff about when they're making trips there. And we have vendors that are in Virginia that can respond on short notice for things that pop up. But we've been, you know, people have just put in the, been putting the miles on.
• 1:35:27
  Speaker B: So you have a large portfolio. Is there anything, any other projects, before I get into your financing structure, talk. Any other projects that you want to talk about that are of interest you think the listers would like to learn about?
• 1:35:40
  Speaker C: Yeah, so we just had the. We just had a big groundbreaking on a hundred plus million dollar project on the multifamily side in Metuchen, New Jersey, in Middlesex County. 272 unit project. We just closed financing on that project last month with northwestern Mutual, and it was our second loan with them. They also financed our Hora deal in Largo construction.
• 1:36:02
  Speaker B: Permanent deal.
• 1:36:03
  Speaker C: Yep. Construction firm deal. They've been a great partner on these two projects with us.
• 1:36:09
  Speaker B: That's great.
• 1:36:10
  Speaker C: And this Metuchkin project, which the project is called the Kempson, I think, is a good example of, you know, we keep making these references to pebbles and the ripples that take place, but this is a deal that came to us through a shareholder in client enterprises who owned a piece of land and was having trouble. There's an old industrial piece of land that had environmental contamination and struggling figuring out what to do with it. And as a favor, we just said, yeah, you know, we'll take a look at it. Not thinking it would be a development opportunity for us, really, just to help out a friend, just help give them some ideas. We drove past and said, you know, this will be a great multifamily site. So we worked collaboratively with the town of Metuchen on getting approvals for a multifamily project that they didn't want to approve in the first place. But they got comfortable with us based on our track record and reputation and other projects that they saw that we did in speaking to other municipalities. And this ended up being. We had to secure a pilot, we had to get a redevelopment agreement done. There was probably $10 million of environmental remediation. We're helping to construct a 30 plus acre park for the entire. For the county on the parcel next door. So, you know, people frequently see developments once they're finished and they look beautiful and they're all said and done. But there's a lot of work, a lot of collaboration that goes on between a wide variety of stakeholders. And this is one that when we look back on it, once we deliver it, you know, late next year, early 2026, that there are a lot of war stories that went on in order to take it from the vision to getting a project to come to fruition and executing on it.
• 1:37:52
  Speaker B: Was this a groundwater issue as far as Brownsfield, or what was the issue there?
• 1:37:57
  Speaker C: There were all types of issues. It was really. It was a 1960s industrial diet.
• 1:38:04
  Speaker B: Okay, so this is an industrial area of New Jersey, then?
• 1:38:09
  Speaker C: No, it's a. Metux is a great town. There's an old. There's a greenway trail adjacent to our site. We're half mile away from beautiful whole foods and a path train along Island, New Jersey. Path train that goes. That goes into Manhattan City.
• 1:38:22
  Speaker B: Yeah.
• 1:38:23
  Speaker C: Yep. So it's a. It's a. It's a great town without a lot of developable land and. And the town that really values what goes on there. So it really was a collaborative effort with. Yep.
• 1:38:36
  Speaker B: You got a pilot, too, which is.
• 1:38:37
  Speaker C: Interesting, I think, in New Jersey, for the most part, it's very difficult to get multifamily projects up and running based on the tax. The taxes up here without getting a pilot done.
• 1:38:50
  Speaker B: Interesting. Always away.
• 1:38:53
  Speaker C: Yep.
• 1:38:56
  Speaker B: So now I'm going to pivot to what's probably turbocharged your growth, I'm guessing, but I'm just going to let you tell the story about Almanac realty investors. And as we said, I think before I turned on the mic, I had experience when I was at Lake Mason back late in the 1990s into the early two thousands. When they invested, they were known as Rothschild real estate at that point. And they had a fund called five Arrows, which was a fund that invested in companies at the entity level, that invested capital and basically became part of the board of directors and really restructured companies in a way that made them look like an institutional owned company, institutionally owned company, operating company, or like an REIT would be structured if they were public, and so more like a private REIT structure. And so I'm going to guess that they're $200 million investment in your firm, but they were looking for a little bit more organizational structure than you had at that time. So talk about how you got to the deal and then how that changed your company and then your thought process from there.
• 1:40:10
  Speaker C: Sure. So just a quick background. A pivotal event in our company transformation that set the stage for this was January, because we did a roll up across all of our single purpose entities throughout 2017 into a consolidated holding company, which was effective as of January 1, 2018.
• 1:40:31
  Speaker B: Why did you do that?
• 1:40:32
  Speaker C: And we did that because as we grew from a dozen assets to 35 assets, the fragmentation of the partnerships, the differing objectives of individual partners and deals, the lack of ability to sort of think holistically about our portfolio was this was almost like wearing handcuffs on a daily basis. Right. We would leverage our relationships to refinance five assets at one time, and let's say market rates were 4%, but we would get 3.75% because of the efficiencies and because of the trust and belief that the lender had in client enterprises as a sponsor. And invariably, someone in one of the five partnerships would think something nefarious was going on and say, well, you're only refinancing because you're doing these other properties, too. We'd say, no, we're getting below market terms. We're helping out the partnership. And we had a lot of situations like that when people aren't aligned across the whole portfolio and everyone's looking their own individual interest, it's almost like people could have bifocals on, and they're not thinking about the big picture. So we formed this holding company, and at inception, we had about $150 million of equity value based on partnership interests that were contributed in. The goal had been 100, and we had a lot of partners who contributed, interested in, because of their trust and belief in us, which was very rewarding. And it was great to have this cohesive vehicle. But one of the problems we had for the first few years of operation was we had this holding company. We had a lot of equity value. We didn't have cash. We distribute out dividends quarterly, and we do a new transaction, and the holding company could put in some capital, but not all of it, and we'd still have to go raise the rest of the capital on a sidecar. We kept saying, at this point in time, we had an entirely new management team, which I should also mention, because it sort of ties into everything. My late uncle Michael retired at the end of 2016. I bought him out of our operating company, but he still kept his ownership in the real estate partnerships. And once I did that, I was able to really build up an institutional quality management team alongside of me that could help take us to the next level. I brought in our chief investment officer, Sean Garland, late in 2016. He had been the head trader at a $2 billion hedge fund in Baltimore. We had actually met, ironically enough, I was on a flight with my wife and kids and met his mother in law sitting in the rope with us. And she said, oh, my daughter and son in law moved to Baltimore. And I said, oh, again, these ripples in the pond, right? I said, well, if they ever need anything, here's my number. I'm happy to help. I have a real estate company. I'm not in a hedge fund space, but if he ever needs anything, we're here. And next thing you know, the hedge fund decided to shut down to become a family office. And he called me and said, you want to get together and talk? I'm trying to figure out what I'm doing next. And so a fortuitous get together ended up him coming in as our CIO and been a great partner for eight years now. Not long after that, we brought in our CFO, Aaron Levinoff, who had been the CFO at the hedge fund as well. His kids and my kids went to the same school together, so we had some familiarity with each other. And he came in on a temporary consulting gig for six months while we were going through this roll up. And he's now been our CFO since 2017 and a great partner as well. Then we also brought in by early 17 or late 16, Neil Schechter as our general counsel. And you probably crossed paths with Neil at some point over the years. So as we evolved and we transitioned from being a family business, we were able to really become more of an institutional quality business with high quality people who could share the vision that I had for our long term success. And I give that background in terms of this, were the team that was sort of thinking about what to do as the holding company evolved. And as luck would have it, we kicked off a small equity raising to the holding company late 2019, with the initial closing to take place March 30, 2020. Covid hit right around March 12 after we kicked off this equity raise. We're raising capital into an existing portfolio of assets. And immediately we, as team said, we have to cancel this capital raise because everything's valued as of 1230 119. And we have no idea what the world is going to look like in a month or two months or three months. We all the capital raise. We even sent money back to some people who had invested and said, we have to get through Covid. And if you remember, March of 2020, no one was paying rent. We had no idea what was going on. We said, we need to at least understand what's going on in the world before we're comfortable taking capital from our network. So we paused it. We talked about maybe raising an opportunity fund, take advantage of opportunities where the whole company would be the general partner and contribute some capital. And I'm sitting there in my house with my three kids working from home every day saying, we raise $100 million fund, I'm going to have to be on the road 200 days next year. Is that what we want to do, and does that make sense? And what's the process we're going to have to go through? And we had been in touch with Almanac a few times after we formed the holding company because they had heard about us and just wasn't the right time. And we sort of checked in with them summer of 2020, and they always had a great reputation. And I know a lot of people who have partnered with them over the years, and we checked in more just to see what their worldview was four or five months into Covid knowing they just raised the big funds. And how are you guys thinking about investing in companies today? And they said, so we're long term investors and we're partnering with the companies. We've been through everything else. We're going to get through Covid. It takes nine months to get a deal done anyway. Covid could be gone by the time we get a deal done with the company. And it was the first institutional group we spoke to that took a much more pragmatic, collaborative, friendly approach to making investment, as opposed to some other firms that we spoke to that just seemed like they wanted to opportunistically discount the value of what we've created in our portfolio. And we didn't need money. We weren't in distress. And so we could pick the right partner. And the more we engaged with Almanac, the more comfortable we became. And we ultimately closed what was then a $200 million commitment into client enterprises as of closed that May 1, 2021. And I'm happy to say that it's been such a successful relationship, John, that we actually just, we just closed an additional $50 million commitment Monday of last week.
• 1:48:03
  Speaker B: Congratulations.
• 1:48:05
  Speaker C: Thank you. And so I think it speaks to the relationship that we collectively have that, number one, that they would want to continue to support us. Number two, that we'd be comfortable having an even greater commitment from them as a partner. And it's been a wonderful relationship.
• 1:48:24
  Speaker B: We trust us. Would you mind talking about the deal structure there a little bit? And also curious, during your due diligence process with them, did you talk to Scott Dorsey over at merit?
• 1:48:36
  Speaker C: I will say I spoke to probably a half dozen different firms that were either current portfolio companies or prior portfolio companies. And that diligence that I did is what gave me the greatest level of comfort as to what types of partners that they would be. And I think they approach their investments with firms as they want to invest in high quality teams that can just continue to execute on the strategy they were already executing on, but with more infrastructure and capital support. So it's a win win for everybody. I don't think I can get into the nuances of the deal structure. I think there's probably some limitations on that out of respect for how they maybe approach their deals with other portfolio companies and things like that. But I'll say, as it's a hybrid of debt and equity, hybrid of debt and preferred equity, I think every company needs a different structure based on what that company needs or desires. But I'll say frequently what they do when they come into companies is get the companies to form a consolidated holding company like we already had. So we were able to save a lot of time and effort because we already had the framework in place. And then it was just getting into the details of the investment and their investment is like a typical private equity investment in a non real estate asset class in which they are, they own a part of our business. And everything that we do that we still have to explain to partners sometimes, or lenders or sellers, that if client enterprises makes a $20 million commitment to a project, no one's ever going to see Almanac. Because Almanac is an investor in client enterprises, the same way you have private equity transactions in software businesses or other non real estate asset classes.
• 1:50:31
  Speaker B: Well, is it a common stock? I guess I'm trying to figure out the corporate structure. Is it a common stock investment? Is it a preferred equity structure?
• 1:50:40
  Speaker C: There's a component that's preferred equity, and there's a component, the debt component has warrants that converts the common stock.
• 1:50:45
  Speaker B: Warrants. Okay.
• 1:50:46
  Speaker C: Yep.
• 1:50:47
  Speaker B: All right. And I'm not a wizard at finance, but I'm just trying to explain the capital structure a little bit, that's all.
• 1:50:55
  Speaker C: And what happened was we still operate as an llc. We have some rate structuring rules that we abide by from a tax perspective, and that we follow that we are already equipped to handle. I mean, we had to beef up our accounting staff for reporting and things like that, but I wouldn't say a seismic change, because we were already doing institutional quality reporting, and we adopted a synthetic share structure, which I think has been really good for our company from a checks and balances perspective, because before we just did the year end valuations, and now we do them quarterly. So we have an NAV, so we can track our stock price on a quarterly basis. And our entire team, we don't have individual promotes on individual partnerships. We have a stock price for the entire company that is the benchmark of which.
• 1:51:50
  Speaker B: So it's like a private, private REIT structure, basically.
• 1:51:53
  Speaker C: Yeah. It mimics. I like to say it mimics a private reit. Right. We don't really operate like a private REIT, but that's the easiest way to explain it is it mimics a private REIT, and our team gets compensated based on the stock performance. And so everyone's incentivized as a team and as a company to make sure all 57 assets are performing to the best of their ability. And a big thing for me as a leader is having alignment of interests with our team and having people that are working together who aren't competing with each other, but instead are trying to lift each other up. And I think that I've seen companies where everyone's competing with each other, and it's unhealthy, and it's not how I live and how I operate, and it's not an environment I want to see. But seeing people work together as a team, knowing that everyone has the same end goal and the same end objective, I think, gives me a lot of peace and comfort and should give our external shareholders beyond Almanac, of which we have over 150 peace and comfort as well.
• 1:53:06
  Speaker B: So the relationship with Almanac is a partnership, but it's also almost as if they're just kind of a capital provider to you when you need it to help with situations that traditional debt equity just can't provide.
• 1:53:24
  Speaker C: Well, no, they are the equity. Right. So there's a commitment to our company. Right. And so we take the capital that's committed to our company, and we use a portion of that capital as the equity on new transactions.
• 1:53:36
  Speaker B: Got it. Yeah. So that's. They're part of your sponsorship.
• 1:53:41
  Speaker C: Yeah, correct. Correct.
• 1:53:42
  Speaker B: Got it. So you will find large deals. You might do a joint venture with an institutional investor, potentially, but they're just.
• 1:53:50
  Speaker C: Part of the sparks.
• 1:53:51
  Speaker B: They're just part of your GP interest in the deal. In essence, yeah.
• 1:53:56
  Speaker C: They're part of everything. Right. It's GP and LP, because we haven't really been doing the GPL deals. We've just invest, been investing capital from our holding company.
• 1:54:07
  Speaker B: You have outside equity. Yeah, they're in your position, but just side by side. That's what I'm trying to make sure that people understand.
• 1:54:16
  Speaker C: Yes.
• 1:54:17
  Speaker B: Okay. And so when that happened, what did that do for you with regard to looking at deals and you were able to take on much larger deals? I mean, what did that do? What lens did that open up for you to have that money there?
• 1:54:36
  Speaker C: So there's always the fear of the unknown, and I think there was a lot of fear of the unknown, of us bringing in a private equity partner into the company. I can say emphatically that the association with Almanac and their public commitment to our firm gave a level of confirmatory diligence to property sellers, to lenders, to people across the ecosystem that has enabled us to vastly accelerate our pace and rate of growth in a way that we couldn't have measured when we were evaluating doing it. Some examples. You know, we had a, we had a sizable line of credit already for the holding company. We had a $30 million line of credit the day we closed the Almanac transaction. We expanded that to $50 million with the same institution because they knew there was the Almanac commitment there. We were able to do some larger refinancings with some, you know, what now, in retrospect, were some very good long term fixed rates in our portfolio, tied in with just having conversations about what we were doing with the almanac capital. Right. And just having some conversations that wouldnt have come up otherwise. The cedar transaction is a great example. The people who reached out to us there knew that we had $50 million of dry powder and could close in 30 days if necessary. Right. So, so much of real estate, given how capital intensive the business is, is providing credibility and reliability and surety of performance and closing. Absolutely. And 15 years ago, ten years ago, I'd have to grind my way through it through perseverance and determine termination. Whereas now the people that we deal with just know. Right. And there's a comfort level that if we're saying that we have the ability to execute on transaction people, know that we will. Right. And there doesn't have to be that doubt. So it's been an amazing partnership. My only wish, and I say that, to say this to almond Hook also is I wish that their capital with long, real, true, long term capital, as opposed to having a finite, having a finite lifespan. You know, they're not short term investors, but as you know, real estate, long term in real estate, could be 20 years, not seven to ten. Right. So we're already, you know, before we, you know, we're fully deployed on the first 200, that the additional 50 will be deployed within the next twelve months. And then at some point in the next three to five years, we have to figure out what a recapitalization of almanac looks like. And fortunately, we have time and it's a great relationship. We don't have to worry about it, but it's something that we have to focus on and think about for the future.
• 1:57:38
  Speaker B: So talk about the management. You mentioned some team, your team members, I assume that Almanac, based on what I've understood about them, they put somebody on a board of directors to, of an investment that they're in. Do you now have a board of directors? Structures like a public company does?
• 1:57:57
  Speaker C: Yep. We have a board of governors that has five of us on it. It's three of us from Klein Enterprises, myself, Sean Garland, who I mentioned before, our chief investment officer, and Aaron Levinoff, our chief financial officer. Then Almanac has two, has two seats on the board. I'd say it's equal voting, even though the numbers are skewed. And I think we love the governance structure. We're audited annually now. Some firms don't want to be audited. I like being audited. Again, it's another verification of how we operate our business that we're audited annually. Our accounting team probably doesn't love the whole process, but again, it's part of that confirmatory diligence as to what type of firm we aspire to be. And having checks and balances in place, by and large, are good. And there's a reason they exist. We have quarterly board meetings. We have quarterly asset management meetings. We have a pipeline call with Almanac every other week to go over the deals in our pipeline and what we're looking at. But we have an investment committee, so we put memos together when we're doing transactions. We have investment committee votes. All these things, by and large, I think are good, and I think they're necessary as firms evolve from small, entrepreneurial family businesses to more institutional quality firms. And there's a reason these processes exist, even if some of them might be hard for me to accept or adapt to. But I think in life, when you know something, there's a reason for doing something, it's beneficial at the end.
• 1:59:39
  Speaker B: Is Pike Aloyan one of the two.
• 1:59:41
  Speaker A: Board members that's on your.
• 1:59:42
  Speaker C: Yep, pike is on our board and then named Madeline Wick. And having pike on a board on the board is phenomenal. He's sort of the outer statesman at Almanac. He's, you know, he was probably the most tenured partner at Almanac, and, and his wisdom and experience in terms of seeing a wide variety of things across a wide variety of cycles has been invaluable. And Madeline is more of a contemporary of myself, and she's a phenomenal board member and partner as well. It's just a very caring, thoughtful relationship. And a lot of people say, well, why almanac over this other private equity firm? I think the reality is it's not one or the other. It's, we would have only partnered with firm that sort of ideologically, like, matched up with who we are and who we'd like to be. Knowing how closely we work together, and we will work together for a long time. Having really good people on the other side of the table will ultimately be on our side of the table is very important for us as part of the process.
• 2:00:51
  Speaker B: Well, please say hello to pike for me and share this episode with him, too, if you would. I definitely would probably enjoy this. So sustainability appears to be a little bit of a focus of your firm, I assume. Talk about your commitment to it and other aspects of ESG and firm.
• 2:01:12
  Speaker C: Sure. It's funny, I had this conversation with somebody the other day. We've probably done Brownfield's remediation, at least north of ten projects by now I can think of. And, you know, that's part and parcel of maybe the geography in which we develop or we look for opportunities. When you're along the east coast and it's mature market, there's not a lot of land that hasn't been touched before. But it also, I think, is a testament to our ability to realize that you can solve problems and clean things up and create a brighter future. We have some involvement. I'm on the board of a solar installer as well. And so we're very focused on alternative forms of energy and how to get solar on our properties. And I think that anyone who's developing the world today, first off, if you're developing, you're already going to be focused on sustainability in some way, shape or form, because fortunately, the standards from a political perspective have become more stringent. And even just anything that you're doing is going to be better from a net new perspective than it was ten years ago or 20 years ago or 30 years ago. That's the first off. But second is it's not that hard to push a little bit to hit certain levels of sustainability in projects while still also making economic sense. I think just a lot of people don't take the time to look into it, but I think any intelligent developer should take the time to look at ways that you can be more sustainable in terms of your projects.
• 2:02:54
  Speaker B: And what about ESG and other aspects.
• 2:02:58
  Speaker C: Other than just sustainability and what components of ESG?
• 2:03:04
  Speaker B: Let's talk about the social and the governance side. Governance. We talked a little bit about governance already. So maybe on the social side.
• 2:03:13
  Speaker C: Yep. So on the social side, I think this one's always a little bit tricky when you're not a law, a very large company. Right. You know, I found if you're 100 person company and you're hiring ten people in a year, I think there are certain aspects of the so of the social side that, that are a lot easier to achieve than when you're 27 or 28 people and you're hiring two people. Right. And I've had these conversations, you know, at ULI conferences and things like that. You know, we are very open minded in terms of, you know, who we, who we hire and, you know, we push for diversity in candidates, but, you know, across the spectrum, at the end of the day, we hire the best people that come in and apply for jobs with our firm and hope that they're best for the culture and help lift us up as we grow going forward.
• 2:04:13
  Speaker B: That's great. So since this podcast is aimed at young real estate professionals, please offer your thoughts on where you'd be focused today if you renew to the business in both investment and the development businesses. What product types, geographies or niches would you be looking at today if you're new in the business?
• 2:04:37
  Speaker C: This one's a hard one to answer because I think that anyone who specializes or focuses on being the best at whatever they do can be successful. I'd say my biggest thing I ask anyone who's coming into business today is to really think about AI. And I'm amazed that the first time AI has come up in an hour and a half discussion or longer now. But think about, number one, how you're training yourself to utilize AI in your business. And, you know, but also, what about your role could be replaced by AI ten years down the road, right? Not tomorrow, but down the road. And what skills are you developing or working on to make sure that you can be a contributor wherever you end up and that your skill set doesn't become obsolete. And I also tell people not to worry so much. I think this next generation, this. I know I'm getting older, I'm only 43, but I notice things a lot more now in terms of I'm not. I was always the youngest person in the room, and I'm absolutely not anymore. The next generation seems a lot more impatient about achieving success, by and large, and has, in a lot of conversations I have with people who were in college or just coming out of college, seems like there's just, you know, because it's so easy to see other people's successes in the world today, and success can be glamorized, you know, through social media and things like that, that people seem less willing to runted out in the early part of their career to try to get to that pinnacle of achievement later on down the road. And I tell everyone, don't focus on your salary or your title or anything for the first five years of your career. Go somewhere where you can get as much exposure as you can to interesting things in business with interesting people that can help set the framework for what your future career will be.
• 2:06:41
  Speaker B: Well, to me, the big word is learn, learn, learn, learn.
• 2:06:48
  Speaker C: Absolutely.
• 2:06:49
  Speaker B: Much as you can, as broadly and as diversively as you can. But that's what I would advise, at least. So what are your biggest wins, losses, and surprises in your career, Daniel?
• 2:07:08
  Speaker C: Biggest wins? Yeah, I say us winning that Social Security project.
• 2:07:15
  Speaker B: Yeah, I'll bet.
• 2:07:17
  Speaker C: I'd say forming our holding company.
• 2:07:21
  Speaker B: Sure.
• 2:07:22
  Speaker C: And then ultimately actually closing that almanac investment.
• 2:07:25
  Speaker B: That's great.
• 2:07:26
  Speaker C: Biggest losses. Fortunately, I can only really think of one bad deal that we ever did. It was an apartment building in Baltimore City called the Lenore that we bought. We were the third owner in when we recapped a friend who we had recapped the original building converter. And, you know, my general philosophy at that point in time was, you know, we got into a building at $18 million under preferred equity transaction that had been converted for 25. And it was after Freddie Gray in Baltimore. And there's really only one way to go. And then, you know, Covid hit, and it was in the CBD and when rents dropped and we ultimately got out and got our money out. But it was a. It was a painful process. It was a good lesson on, you know, if you're catching a falling knife, it doesn't mean you want to be catching it. And so, you know, but other than that, we haven't had a lot of losses, fortunately.
• 2:08:30
  Speaker B: Great.
• 2:08:31
  Speaker C: And the surprises are, you know, I think we have surprises every day. And, you know, and I'm honestly, I'm surprised that I'm 20 years into a career with what was our family business, you know, because there were big stretches of time where I didn't know, didn't know if I would stay. I don't talk about it a lot, but. But there was a point in time in summer 2016 where my late uncle and I had such different worldviews that I was ready to leave the company. And I had spoken to my wife about it. I married, four kids. I've been married for 15 years now. And we had a meeting that I knew I was walking into where one of two things were going to happen. I was either going to stay and continue or I was going to leave. The meeting worked out in a better way than it could have and still here today. But a lot of things can happen, and I think you have to have a lot of luck in your career. Hard work, absolutely. But a lot of things are based on luck. And I'm a big believer in karma and how you treat people. And if you do good things, good things will come in return.
• 2:09:45
  Speaker B: You're an active member of YPO, young presence organization, ICSC and Uli. Perhaps discuss what you've learned from those affiliations.
• 2:09:55
  Speaker C: Sure. I'd say I'll stay on the real estate specific ones first. In ICSC and Uli, I learned about the value of, the value of industry relationships and learning from other people. You know, I can think to many conferences and events and, you know, both regional and national, where I developed really strong relationships with people that I was able to, you know, learn from and share experiences with and gave me some different views on what real estate could be right for myself and for our family. On the YPO side, I can say that it's definitely been the most transformational organization that I've been involved with. I've been a member since 2013, actually got referred in through another close real estate friend, JM Shapiro. And I was 32 when I joined. And every major life decision that I've made since 2013 has I've done consulting with somebody in some way, shape, or form through YPL. It's also given me some great opportunities on the real estate side. Specifically, I'm on the board of. There's a real estate network. I chair a program at Harvard Business School exclusively for YPO members from around the world that are real estate professionals.
• 2:11:09
  Speaker B: That's great.
• 2:11:09
  Speaker C: And so, you know, it's a one week program every year in May. You know, ten years ago, I would have never guessed I'd be chairing a program at Harvard Business School. But it's been, it's been a very fulfilling organization that I've been able to develop some real meaningful relationships through and give me some good perspective on life.
• 2:11:26
  Speaker B: One of my earlier podcast guests, Bob Young, and Tom, is a very active.
• 2:11:30
  Speaker C: Member of IPO Eya homes.
• 2:11:35
  Speaker B: Eya. That's right. So what advice would you give your, you talked about in general for people? What about yourself at 25 years old? What would, what advice would you give yourself 25 years old today?
• 2:11:48
  Speaker C: Just, you know, things might seem like they're taking a long time now, but time will move more quickly than you ever could ever imagine.
• 2:11:59
  Speaker B: That's great. Okay. My final question, if you could post a statement on a billboard on the Baltimore Beltway for millions to see, what would it say?
• 2:12:10
  Speaker C: Life is short. Do good and be kind.
• 2:12:14
  Speaker B: That's great. Well, Daniel, thank you very much for your time and candidate remarks today. I really appreciate it.
• 2:12:23
  Speaker C: Thank you.