Latest / Own More Doors / #3 Insights from a Real Estate Builder and Developer (Scott Choppin)

Transcript

#3 Insights from a Real Estate Builder and Developer (Scott Choppin) · Own More Doors

0:00
SPEAKER_00: What's up, everyone?
0:01
SPEAKER_00: We're on Own More Doors Podcast.
0:03
SPEAKER_00: I'm super excited of our of our guest today, Scott Chopin.
0:08
SPEAKER_00: Scott is a builder and he's gonna tell us all about what he's into.
0:13
SPEAKER_00: What is it that makes his um his business unique, his business models?
0:18
SPEAKER_00: Uh, we're gonna learn from uh what he's done right, some of his mistakes, and what he makes about the um overall uh real estate industry right now in 2024.
0:28
SPEAKER_00: Scott, thank you so much for being here today.
0:30
SPEAKER_00: Great to be here, Juan.
0:31
SPEAKER_00: Appreciate it.
0:32
SPEAKER_00: Scott, tell tell us a little bit about yourself.
0:33
SPEAKER_00: I know that you're born and raised Long Beach.
0:35
SPEAKER_00: I know that you're well respected, and uh most people in Long Beach know who you are or know of you.
0:42
SPEAKER_01: Maybe.
0:44
SPEAKER_01: Um, my family's been here, so my kids are fourth generation in Long Beach.
0:48
SPEAKER_01: Um, so I'm third generation.
0:50
SPEAKER_01: My grandfather moved here in the late 40s in 1949, and my family's been in real estate development since 1960.
0:56
SPEAKER_01: My uncle Mike and my dad were both developers in their own right.
1:00
SPEAKER_01: So, you know, some deals around town that people might know.
1:02
SPEAKER_01: My uncle built the World Trade Center in downtown Long Beach, um, several million square feet of commercial office, a bunch of apartments, you know, throughout Southern California.
1:11
SPEAKER_01: So my background really is I come from a family of real estate developers, and it makes sense.
1:17
SPEAKER_01: If you think about it, most people don't wake up one morning and go, hey, I'm gonna be a developer.
1:21
SPEAKER_01: Like I just decided out of the blue, you usually have some exposure to it, right?
1:26
SPEAKER_01: Like you have some background in it.
1:28
SPEAKER_01: And when I was young, it actually made it, you know, you know, when you're a kid, you sort of do what your parents, you don't want to do what your parents did, you do the opposite.
1:36
SPEAKER_01: So um I sort of, you know, didn't know what I was gonna do after high school.
1:41
SPEAKER_01: I actually went and worked in the electrical trades for a for a handful of years.
1:44
SPEAKER_01: In fact, in Long Beach, if anybody was around in the 80s, uh, all the eight-plex buildings, the you know, the eight-packs I call them, um, I've wired several dozens of those around town.
1:56
SPEAKER_01: Um, but as I worked in the trades for a few years and sort of had the the what happened for me, Juan, was I had the background in real estate development, but I didn't necessarily know what that meant.
2:07
SPEAKER_01: Like it didn't mean what it does to me today, meaning how do you do it?
2:10
SPEAKER_01: What do you do it for?
2:11
SPEAKER_01: What's the purpose of it?
2:13
SPEAKER_01: Uh I worked in construction and sort of knew this is what I didn't want to do, like people that wear their bodies out.
2:18
SPEAKER_01: I mean, I made more money at 19 years old than any any of my friends, but I had the background, plus I'm a pretty voracious reader.
2:26
SPEAKER_01: So when I was 19 years old, I started reading real estate books, like you know, go figure out how a family background in it.
2:33
SPEAKER_01: And I um I read one of those, you know, wacky books from the 50s, like how to make you know a million bucks investing in real estate on the weekends.
2:41
SPEAKER_01: And it was a cheesy book, but it was instructive because basically it taught me how to make deals.
2:46
SPEAKER_01: Like, what is a deal, you know, buy low, sell high, yes, fix it up, you know, raise the rents, that kind of thing.
2:52
SPEAKER_01: And when I found finally had the development background come together with a deal understanding, like finally got, oh, that's what my uncle Mike does, what my dad Carrie does.
3:02
SPEAKER_01: And now it understood.
3:03
SPEAKER_01: And then from there on, it was like my mission from like 19 years old, you know, I had to go get an education, go get a college degree.
3:10
SPEAKER_01: I knew I needed to work professionally for other people, you know, uh, learn the real estate development business.
3:16
SPEAKER_01: And I went from there.
3:17
SPEAKER_01: And then the only thing to add to that is I left my professional career working for other people in the year 2000 and formed Urban Pacific, my company.
3:25
SPEAKER_01: And that's uh, we're in our 24th year of operations this March.
3:29
SPEAKER_00: Wow.
3:30
SPEAKER_00: Well, yeah.
3:30
SPEAKER_00: I uh Scott, I've been following a lot of what you've done on on YouTube and podcasts, and thank you so much for giving back.
3:36
SPEAKER_00: I know that that I follow you on X, and people, you need to follow Scott Chopin on X.
3:41
SPEAKER_00: I appreciate that.
3:42
SPEAKER_00: I it I really love that on that platform, people are actually breaking down deals.
3:47
SPEAKER_00: People are saying, Hey, um, I just got pitched this property.
3:50
SPEAKER_00: What do you guys think?
3:50
SPEAKER_00: And like legitimate investors, people like you are commenting.
3:54
SPEAKER_00: Yeah, and I'm like, I I I think it's really it, it's like um, you know, someone probably wouldn't be able to call Scott Chopin and say, Hey, what do you think of this property?
4:03
SPEAKER_00: Here's the cap rate.
4:04
SPEAKER_00: Can you help me analyze it?
4:06
SPEAKER_00: If they called you, I I would think that you it may be hard to get a hold of you.
4:10
SPEAKER_00: That's what I would think, but somehow you could put post that on X, formerly known as Twitter, and someone like you could respond.
4:16
SPEAKER_01: Yeah.
4:17
SPEAKER_01: I would I encourage people all the time, Wan.
4:19
SPEAKER_01: I mean you're on X and you know, formerly known as Twitter.
4:22
SPEAKER_01: I tell people if you are not on Twitter and you're in real estate, you sh you gotta get yourself there.
4:27
SPEAKER_01: It is the most robust real estate network that I've ever experienced.
4:32
SPEAKER_01: You know, sort of social media meets real estate deal making, make you meets real estate development, lenders, insurance people.
4:40
SPEAKER_01: I mean, anything, brokerage, you know, anything that you can think of that sort of like makes up all the different parts of investment and development in the real estate space.
4:47
SPEAKER_01: And then, like you just said, I would I would only change what you said is that you know, people might call me and ask about their deal.
4:54
SPEAKER_01: Could I vet it?
4:55
SPEAKER_01: And I always say that in the old days in real estate development, we never shared anything.
4:59
SPEAKER_01: Like, if a developer called me, I'd be like, dude, no, I'm not gonna like no, I did it.
5:04
SPEAKER_01: Like, I'm no, I'm not gonna, hey Scott, what did you sell?
5:06
SPEAKER_01: Was the capital we sold?
5:08
SPEAKER_01: And I'm like, dude, no, like forget it, get out of here.
5:11
SPEAKER_01: Um, so what I um now use real estate Twitter as my place, my go-to place to both share and and receive knowledge and information in an open format that doesn't exist anywhere else.
5:25
SPEAKER_01: I mean, it's a complete opposite of what us real estate guys are normally sort of holding close to the vest, and you know, I'm not gonna share, you know, co-stars calling me for my data on my sale, I'm not gonna call it back, right?
5:35
SPEAKER_01: Or the appraiser's calling.
5:36
SPEAKER_01: And you know, you have to be careful.
5:38
SPEAKER_01: Like there is, you know, the possibility to share too much information that certainly, but I haven't found that limit yet.
5:44
SPEAKER_01: And I would I would say if anybody's in in any format of development or real estate investment, if you're an investor, it is a place to go see what are other investors seeing, what are they asking questions, what what's working for them, what's not.
5:57
SPEAKER_01: Like as an example, right now, there's a big sort of discussion about general partners, you know, who have raised capital in syndications or raised LP capital in value add deals, um, and the things that are going wrong with those deals now that we're in this new interest rate environment and you know, uh values have fallen, you know, cap rates have increased, you know, interest rates have increased.
6:20
SPEAKER_01: And there's almost, you know, now this sort of pervasive like sort of dialogue about okay, what GPs are good.
6:25
SPEAKER_01: And I think people are cautious to name names, but even you'll get people, they'll go, Hey, I'm a GP or I'm an LP in a deal.
6:32
SPEAKER_01: This GP like totally screwed us over, and da-da-da.
6:36
SPEAKER_01: And people are like, name names, you know, and I see that people are cautious, and I think rightly so, nobody wants to get into legal trouble.
6:43
SPEAKER_01: But what I think where where with Twitter it goes is then you go to the DMs, like the direct messaging off the public domain of Twitter or X, and then you go, hey, dude, I saw your tweet and you're you know, Pelope and that deal.
6:57
SPEAKER_01: Can you know I'm an LP, maybe the same deal or whatever, right?
7:00
SPEAKER_01: Whatever the connection point is to why you would message uh on the DMs, and then you go into real life, and then you have these whole robust off offline in real life conversations and meetups and meetings.
7:12
SPEAKER_01: I mean, I probably have at least two, if not maybe more, calls every day of people that I've met on Twitter, you know, and I'm I I'm always trying to give back.
7:22
SPEAKER_01: Like I love to teach people and and help them.
7:25
SPEAKER_01: And you know, we have an advisory offer in our real estate development uh business where we help people with their deals, like strategically and underwriting and project management, all that stuff.
7:34
SPEAKER_01: But I just love to talk to people, like a young person will call me and say, Hey, I'm trying to get a startup or you know, I'm trying to start up a deal or start up my company or I'm trying to build my career.
7:43
SPEAKER_01: And a lot of times I'll talk to them and I try to keep it tight.
7:45
SPEAKER_01: I gotta, I gotta watch my time, but I'll go, hey, go here, find this article.
7:49
SPEAKER_01: Here's an ebook I can share.
7:51
SPEAKER_01: I mean, I even created a whole learning community around the real estate development domain because there's so many people calling me saying, Hey, I want to get in development.
8:00
SPEAKER_01: How do I do it?
8:00
SPEAKER_01: Where do I start?
8:01
SPEAKER_01: Like, who do I talk to?
8:02
SPEAKER_01: What do I do to get my first job?
8:04
SPEAKER_01: And I rat, you know, I was getting so many calls.
8:06
SPEAKER_01: I said, Hey, let me create this space, and you guys can go there.
8:09
SPEAKER_01: I'm gonna post all my questions, all my answers, ebooks, all that.
8:13
SPEAKER_00: And where is that space?
8:14
SPEAKER_01: Um, it's actually called real estate development 101.
8:17
SPEAKER_01: Okay, and it's hosted on a web platform called school.com.
8:20
SPEAKER_01: That's s k double.com.
8:23
SPEAKER_01: And you just look for red 101 or real estate development 101.
8:27
SPEAKER_01: You can just you know search real estate development 101 Scott Chop and it will pop up.
8:31
SPEAKER_01: I mean, it's it's searchable.
8:32
SPEAKER_00: And um, you know, I watch those videos, but I was able to get to them on YouTube.
8:36
SPEAKER_01: I have a bunch on YouTube as well, right?
8:38
SPEAKER_01: Okay, right.
8:39
SPEAKER_01: Okay.
8:39
SPEAKER_01: Now that yes, so the the YouTube stuff is sort of more business oriented, and I got a little bit of the learning.
8:44
SPEAKER_01: I should do a lot more.
8:45
SPEAKER_01: I mean, you're doing an amazing work on YouTube, and you know, I've looked to you know, follow guys like you.
8:50
SPEAKER_01: Um, but the real estate development one-on-one is really where I put all the learning stuff.
8:53
SPEAKER_01: So I have like a boatload of ebooks.
8:55
SPEAKER_01: Not we didn't come here to talk about that necessarily, but it's just really interesting as people like they're in the investment world and they think about getting into development and they start, what do I need to do?
9:03
SPEAKER_01: Yeah, what's different?
9:04
SPEAKER_01: What's the you know, what's what do I know and how to do, what do I not know how to do in that that real estate development one-on-one space.
9:10
SPEAKER_01: I go, look, go read the eight ebooks that I wrote about how to do development, how to underwrite deals, how to check zoning, whatever, whatever the subject matter is that's specifically real estate development oriented.
9:21
SPEAKER_01: But I would definitely encourage people to go there if they're thinking about it.
9:24
SPEAKER_01: It's you know, it's it's all free.
9:25
SPEAKER_01: You know, like I don't, you know, it's not anything I monetize.
9:27
SPEAKER_01: I just like to, you know, throw stuff at people and you know, have it be good learning.
9:32
SPEAKER_00: You know, Scott, what I've noticed, um, you know, the the long term in business, there's a couple things.
9:37
SPEAKER_00: So, you know, sometimes we we might start off in the world of brokerage.
9:40
SPEAKER_00: So I'm in the world of real estate brokerage, and then we want to get to the point where we're super busy and we have clients and we're well known, and then you're at that, and then you get to that point, and then I talk to people that get to that point, and then they're either like, man, I want to get into syndication, I want to get into development.
9:55
SPEAKER_00: It's like we're always looking for something new.
9:58
SPEAKER_00: Uh, and either uh is it we we get bored or we think we understood it or we thought that it was gonna be different?
10:04
SPEAKER_00: The goal was to, I think in most cases, I think in most most cases, Scott, is people are doing this to make money, uh development, real estate, um uh build wealth, generational wealth, all that kind of stuff.
10:15
SPEAKER_00: But then people get there and then they want to do something else.
10:17
SPEAKER_00: Yeah.
10:17
SPEAKER_00: So so with that, let's talk about let's talk about development and maybe let's talk about your specific development because you have a couple terms that I I believe are really unique to what you've created and what you've done.
10:31
SPEAKER_00: Um, because when we talk about development, there's different levels of development.
10:36
SPEAKER_00: There's you're someone who builds single family homes and maybe like small tracks, there's someone that might just build smaller apartment buildings, someone might do high-rise, someone might do high-rise office.
10:48
SPEAKER_00: And so there's all levels.
10:50
SPEAKER_00: Tell us about your level, what what it's uh kind of your unique proposition.
10:55
SPEAKER_00: I love and I know we're gonna get into it.
10:57
SPEAKER_00: Your your 54321.
10:59
SPEAKER_00: I think that's awesome.
11:00
SPEAKER_00: Um, tell us about what makes you you guys special.
11:04
SPEAKER_01: So, you know, I mean, I think being a developer is like a relatively obscure career choice, like I mentioned before.
11:12
SPEAKER_01: And even people who are investors, they look at developers and it's still sort of a question mark about what they do.
11:18
SPEAKER_01: Um, our our specialty has really always been, you know, uh our company name is Urban Pacific, and I named it that way purposely because when I started it in 2000, we we had um my previous company had done a market study with a company called Robert Charles Lesser and Company, or they're now called RCL Co.
11:36
SPEAKER_01: And they're one of the major sort of market study, market analyst companies in Southern California.
11:41
SPEAKER_01: And you pay them, you go, hey, what's in the future?
11:44
SPEAKER_01: What's coming?
11:44
SPEAKER_01: What should we be thinking about?
11:46
SPEAKER_01: And the guy at the time was named Bob Gardner, who was one of their VPs, and he wrote a whole um study for the company I worked for about urban housing.
11:54
SPEAKER_01: And that was in 1999, and the guy I worked for at the time was this crust seal guy, he's still around, was sort of an ass-kicking former, you know, Marine Corps captain of Vietnam, turned real estate developer, if you can imagine that kind of personality.
12:07
SPEAKER_01: And I remember it's really funny because he's like, you know, this is BS, man.
12:10
SPEAKER_01: Like, and he more or less threw it away, right?
12:13
SPEAKER_01: And so I went and picked it out of the trash because I was like, this is interesting.
12:17
SPEAKER_01: Like, I could, you know, I was 31, 32 at the time, and I remember looking at it, I go, this is interesting.
12:23
SPEAKER_01: This is something new and different, and nobody's doing this.
12:27
SPEAKER_01: And that was urban infill housing, so building condos or apartments in places like downtown Long Beach.
12:32
SPEAKER_01: And you got to remember in 2000, like 1999, 2000, downtown Long Beach was a pretty tough place.
12:38
SPEAKER_01: I mean, I'm you know, I'm I'm a native, um, and you know, you you went sort of downtown at your own risk in in the old days, it's much different now than it was, but it even goes through waves.
12:49
SPEAKER_01: And so why I bring all that up is because as a developer, really, I've always tried to focus on differentiating, right?
12:55
SPEAKER_01: Like the development world is sort of of not a very innovative place, like real estate generally, and you'll you'll get this like real estate isn't exactly cutting edge on use of technology.
13:04
SPEAKER_01: And you know, I think people are doing it very serious, but we're not a particularly, you know, innovative domain, right?
13:09
SPEAKER_01: Like a lot of people are doing what a lot of other people are doing, and that's fine, I get that.
13:12
SPEAKER_01: But I've always sort of approached it like let's let's not do what everybody's doing, call it contrarian, call it niche, you know, call it uncommon, however it would be.
13:20
SPEAKER_01: So from the get-go, why I mentioned this is that we started, I started the company to facilitate like exploiting some niche that people weren't seeing that looked different, that looked cool.
13:31
SPEAKER_01: And for me, at the time living downtown, I go, Oh, you know, that seems like a really cool idea.
13:37
SPEAKER_01: Like, why wouldn't more people want to do that?
13:39
SPEAKER_01: And at the end of the day, from 2000 to like 2005, that world blew up.
13:43
SPEAKER_01: I mean, urban info became like every home building company, every big public builder, every developer in Southern California was like all over urban housing.
13:51
SPEAKER_00: Scott, do you think other people paid that same company for the same forecast that you guys saw?
13:56
SPEAKER_00: You know, that one, it's a good question.
13:58
SPEAKER_01: Yes, definitely.
13:59
SPEAKER_01: Like you're not getting anything and you have to be mindful of that.
14:03
SPEAKER_01: Um, and so so even though you might recognize in fact, Bob Gardner, the guy I mentioned before, he his whole thing, he he had this uh, I saw him at PCBC, Pacific Coast Builders Conference.
14:14
SPEAKER_01: I don't remember the timing around when they did the report, but he sort of overlaid um the millennial demographics, ascendance in the in the demographic stack, right?
14:23
SPEAKER_01: Like they were becoming adults and they were starting to rent.
14:26
SPEAKER_01: And so his thing was that where do demographics cross over with housing?
14:30
SPEAKER_01: And he was overlaying.
14:31
SPEAKER_01: I remember seeing this thing, and you could see, you know, the millennials being the kids of baby boomers, which themselves were the largest cohort in US history.
14:40
SPEAKER_01: Well, the millennials be were even bigger, right?
14:42
SPEAKER_01: They were even larger.
14:43
SPEAKER_01: And so as you start to see them coming into their years to rent apartments or buy homes, you could see that overlaid with sort of the housing cycle and a couple other cycles.
14:52
SPEAKER_01: But what was interesting is that this millennial demographic was not going to be a traditional home buying demographic for various reasons.
14:59
SPEAKER_01: One is affordability, which turns out that's pervasively known today, and a big deal, right?
15:03
SPEAKER_01: It's a big issue.
15:04
SPEAKER_01: Um, but what was interesting at the time was that the millennials were not going to be living, they didn't want to live in the suburbs.
15:10
SPEAKER_01: That was like, they were like, no way.
15:12
SPEAKER_01: I'm not, you know, that was where I grew up there.
15:14
SPEAKER_01: My that's where my parents live.
15:16
SPEAKER_01: And, you know, I think the next generation is always sort of like quasi-rebellious that way.
15:20
SPEAKER_01: And so that was sort of the combination of that plus my recognition of it.
15:25
SPEAKER_01: So Bob was like a he was out evangelizing about urban housing.
15:29
SPEAKER_01: And so he would talk to anybody who would listen to it, but it really wasn't so much that he was commonly sharing that with many other developers, is how does the developer receive it and did they do something different with it?
15:41
SPEAKER_01: And that's really where I think our you know, where I shine is I'm always looking for the cutting edge.
15:46
SPEAKER_01: What's different?
15:47
SPEAKER_01: What could we be doing that's not what everybody else is doing?
15:49
SPEAKER_01: And you know, look, you do a lot of what other people do.
15:52
SPEAKER_01: I'm not saying none, but I'm always sort of looking for the like the niche, the cutting edge.
15:56
SPEAKER_01: Um, because at the end of the day, I don't want to have to compete head to head with Tramw Crow or Holland Partners, the big guys who, you know, if it came in a recession and I'm trying to rent units up and they're trying to rent units up, they're gonna crush me, right?
16:08
SPEAKER_01: They have you know huge financial statements, cost of capital, that kind of thing.
16:12
SPEAKER_01: So our the genesis of you know the development company and the logic around the name and what we do has always been about uncommon offers, about differentiation.
16:21
SPEAKER_01: Um, and then so fast forward to your point, the last several years we worked on a version of what we call workforce housing that we created called Urban Townhouse or UTH for short.
16:31
SPEAKER_01: And what that is, is uh we build a five-bedroom, four-bathrownhouse rental unit, right?
16:37
SPEAKER_01: So in Southern California, people might be used to seeing the three-story condo format, two-car garage on the ground floor, and then it's a you know, it's a for-sale condo.
16:46
SPEAKER_01: We're doing that format, but we're making a rental housing unit.
16:49
SPEAKER_01: So it's never going to sell, doesn't have a condo map or anything like that.
16:53
SPEAKER_01: And it's meant to house multi-generational middle-income families.
16:56
SPEAKER_01: That's really sort of the the the key to the offer, is that in California, we we all know we have an affordable housing issue, like the that's pervasive, like it's in the media every day and more so than it's ever been.
17:07
SPEAKER_01: Um, but what's sort of missed is like if you think about the market, you have a spectrum.
17:12
SPEAKER_01: On one end, you have the luxury housing, high-income renter will rent, you know, it you know, cost is no object, right?
17:18
SPEAKER_01: They got plenty of money.
17:19
SPEAKER_01: On the other end, you've got the true affordable, in other words, families that are truly in poverty that really do need reduced rent housing.
17:26
SPEAKER_01: But what's forgotten is this middle income demographic.
17:29
SPEAKER_01: Think like a salt of the earth working class family.
17:32
SPEAKER_01: Um, everybody's gainfully employed, even the family may be multi-generational.
17:36
SPEAKER_01: They have two or three or four income earners.
17:38
SPEAKER_01: Um, so they're, you know, they're pulling down, you know, 30 to 50 K a piece.
17:42
SPEAKER_01: But when they combine their incomes together in the family group, well, all of a sudden that family's making 120 to 150,000 a year, right?
17:49
SPEAKER_01: And so they're overqualified for the for the true affordable.
17:53
SPEAKER_01: Like they make too much money to qualify for the government subsidized housing.
17:56
SPEAKER_01: But at the same time, on the other end of the luxury spectrum, that high-rise one bedroom in downtown Long Beach doesn't suit their family lifestyle.
18:03
SPEAKER_01: It's it's it's sexy, but it's not for them, right?
18:06
SPEAKER_01: They'd have they've, you know, you know, grand grandparents and in-laws and kids and adult kids, right?
18:12
SPEAKER_01: They need really a house, would be the traditional format that they would go into.
18:16
SPEAKER_01: But of course, that most of those families can't afford the down payment and the income qualifications to buy a house.
18:22
SPEAKER_01: So what we we've done is injected a new type of rental housing into that demographic um in the locations that they already live, you know, and sort of the you know, peripheral, suburban, urbanized suburban neighborhoods around different cities in Southern California.
18:36
SPEAKER_01: And so we've exclusively gone to this five-bedroom, four-bathroom uh product and three-story townhouse, two-car garage, and then we build one unit over and over again.
18:45
SPEAKER_01: And that's the five, four, three, two, one that you described earlier.
18:48
SPEAKER_00: Yeah, no, I think that's amazing.
18:49
SPEAKER_00: So um before you, no one was building five bedrooms.
18:54
SPEAKER_01: No one's building five bedrooms now either.
18:56
SPEAKER_01: Got it.
18:56
SPEAKER_01: Yeah, that's you're right.
18:57
SPEAKER_01: I mean, you you might five five-bedroom houses, and then there's a couple guys in LA that did really specialized five-bedroom, like stack flat, you know, sort of for sale units.
19:09
SPEAKER_01: But we're really the only group that's done it purely rental and at scale, is the real key.
19:14
SPEAKER_00: Um one of the things you talk about is the the demand for the four and the five-bedroom apartments.
19:20
SPEAKER_00: Um, my mentor, uh Mark Milan, longtime native of Long Beach.
19:25
SPEAKER_00: He's an investor in Long Uh in Long Beach.
19:27
SPEAKER_00: And what he was doing, uh now this only worked out at a certain time of the market, but he was buying five and six unit buildings and going to the city and downsizing them down uh to be a four unit.
19:39
SPEAKER_00: And and in his mind, he was creating larger units, which he knew there was larger demand because of the demographics here in Long Beach.
19:45
SPEAKER_00: He said those are gonna rent up quicker.
19:48
SPEAKER_00: And then also when it's a four unit, then there'll be a bigger pool of buyers when he goes to resell.
19:52
SPEAKER_00: So um, when I've heard you say, Well, you're what you were doing is making five bedrooms, but it was new construction.
19:58
SPEAKER_00: Right, Mark was simply combining two two bedrooms and and then eight unit into a four unit, uh, not that big, so typically it'd be a five or a six unit and make it into a four-unit.
20:08
SPEAKER_01: But he was taking a two-bedroom next to one bedroom, combining that into a three-bedroom unit.
20:12
SPEAKER_00: Uh and sometimes it would be a four-bedroom because then you got to pull one kitchen out.
20:16
SPEAKER_01: I got you, right.
20:17
SPEAKER_00: And then the city at that moment was was really in favor of the downsize, you know.
20:22
SPEAKER_00: And so then um, what ends up happening now, uh like fast forward, I'll get some of the clients, will call me, they'll give me an address.
20:28
SPEAKER_00: I'm like, Oh, I know that property.
20:29
SPEAKER_00: Like, I know 1701 Cedar Avenue because that one was a six unit, now it's a four unit, and now they want to trade it.
20:34
SPEAKER_00: And they're like, it's kind of unique.
20:36
SPEAKER_00: One of them is a five-bedroom.
20:37
SPEAKER_00: Like, I know why it's five.
20:38
SPEAKER_01: Yeah, because that guy did it.
20:39
SPEAKER_00: He did it because Mark did it.
20:40
SPEAKER_00: Yeah, but but to your point, so I guess um a couple questions.
20:44
SPEAKER_00: Um, when you're building these um UTH, so urban townhomes, are you are you having to I mean, I guess tell us the difference between workforce housing and uh call it low-income housing, right?
21:00
SPEAKER_00: Because there's there's two types of developers going on right now, right?
21:03
SPEAKER_00: And we hear workforce a lot, but probably more like in South LA, uh, we're gonna hear the word uh low income housing.
21:09
SPEAKER_00: Yeah, lower effect.
21:10
SPEAKER_00: Affordable might be the affordable might might be the most appropriate term.
21:13
SPEAKER_00: Yeah.
21:13
SPEAKER_00: So, like what what's the difference?
21:15
SPEAKER_00: And I guess do you fall into the category where the products that you're building, are you having to meet some type of like uh, hey, you can't, is there a deed restriction on how much you could like does that apply to your product to your product or no?
21:28
SPEAKER_00: Generally not.
21:29
SPEAKER_01: In fact, the the UTH model is is really unique because basically what I say is we're pairing private capital with a workforce housing model.
21:36
SPEAKER_01: Now you go, what does workforce housing mean?
21:38
SPEAKER_01: That's the next question.
21:39
SPEAKER_01: And those those terms affordable, attainable, uh, workforce housing are all have sort of loose definitions.
21:46
SPEAKER_01: So if you say it to me, I think it of it one way.
21:49
SPEAKER_01: If you talk to somebody else, they'll think about it a different way.
21:51
SPEAKER_01: So I sort of have to define it every time I speak it.
21:53
SPEAKER_01: But earlier I talked about the true affordable.
21:56
SPEAKER_01: That's what I called.
21:57
SPEAKER_01: You know, some people call it big A affordable.
21:59
SPEAKER_01: Think of it like Like government subsidized, you know, maybe public housing, but it's it's the type of affordable housing that's like built from day one purposely to be rent restricted, reduced rents, reduced incomes, and built purposely for people who fit into these low or very low-income categories, right?
22:16
SPEAKER_01: So that's what I call affordable or true, you know, true, true affordable or big A affordable, and and there's different terminologies for it.
22:23
SPEAKER_01: Workforce housing is sort of like adjacent to that.
22:27
SPEAKER_01: Um, the the definition of workforce housing is even more loose, but I basically what I mean by it is it's sort of that space in between luxury and and low income or true affordable housing.
22:37
SPEAKER_01: So it's a maybe middle-income family, um, moderate income.
22:42
SPEAKER_01: Some people might, you know, you know, be familiar with that term.
22:44
SPEAKER_01: But my idea is basically that this is a family that doesn't they make too much money to qualify for the government subsidized housing, um, but they don't afford the luxury from an income perspective.
22:55
SPEAKER_01: And so they're middle income and therefore in the middle between those two extremes on the spectrum.
23:00
SPEAKER_01: But I call it workforce housing because basically these families that we house are working class families.
23:04
SPEAKER_01: They're all, you know, if we have a family of six, we'll often have two or three or four wage earners in the household.
23:10
SPEAKER_01: Everybody's outproducing, everybody's got a job.
23:13
SPEAKER_01: You know, this there's this is these are not people who are on, you know, government subsidized, you know, welfare.
23:19
SPEAKER_01: These none of these people have that.
23:20
SPEAKER_01: These people are like salt of the earth.
23:22
SPEAKER_01: This would be old school middle class one if you were to think about it.
23:25
SPEAKER_01: These people are working.
23:27
SPEAKER_01: Um, many, many of the families, one of the earners is entrepreneurial.
23:31
SPEAKER_01: Um, these people are out like they're working their asses off to, you know, make a good life for their families.
23:36
SPEAKER_01: Um, they don't take public subsidy money generally.
23:39
SPEAKER_01: They're not, you know, often, and we do rent to Section 8 families sometimes, but that's not the predominance of if we rent to.
23:45
SPEAKER_01: So for me, workforce housing is that working class family.
23:48
SPEAKER_01: Think blue-collar, working class, salt of the earth family.
23:52
SPEAKER_01: They're they could, they, you know, they produce a good life for their families, but they need a housing type that is, you know, as coordinate coordinated with that, right?
24:00
SPEAKER_01: That's coherent with their lifestyle, meaning that can house their family and do it affordably.
24:04
SPEAKER_01: Does that answer your question, no?
24:06
SPEAKER_00: It does.
24:07
SPEAKER_00: I guess but the the the first question I was asking is is are are your units restricted with the amount of of rent that you're allowed to ask?
24:15
SPEAKER_00: No.
24:15
SPEAKER_00: So the answer is no to that.
24:17
SPEAKER_00: Um talk to us about how does how does Scott um because these are when you're so you're saying urban landfill, these are like so people can't kind of so if we're talking Long Beach, we're to we're saying, hey, we find a lot that is suitable size for you, the zoning is suitable, and then you're like, okay, I'm gonna tear down that that old house that's you know burned down or whatever, someone brings you the deal or or your team finds it.
24:43
SPEAKER_00: Talk to us about um from a macro level, like what what are the steps that you're taking to be able to underwrite the deal to say, yeah, that's that's gonna make sense.
24:54
SPEAKER_01: Let me just define urban infill a little bit.
24:56
SPEAKER_01: So I just call it that because you know, I've tried to differentiate between you know, out in the in the hinterlands of inland empire where you're great, you're building on green fields, is what people call that.
25:05
SPEAKER_01: In other words, it's virgin dirt that no one's ever built on before.
25:09
SPEAKER_01: Urban infill is the dead opposite of that.
25:11
SPEAKER_01: So it's exactly like you described, it'd be, you know, in Long Beach, it'd be in any any neighborhood in Long Beach.
25:16
SPEAKER_01: It could be on a major street, it could be on a small street, but basically it's some sort of vacant land or under utilized property that we can, you know, if it's got the right zoning, we'll capture that.
25:28
SPEAKER_01: If we need to rezone it, we we do that quite often.
25:30
SPEAKER_01: You know, government entitlements is a standard thing for us, but we're really looking for that underutilized property where we can enhance the value of it through the zoning and the build out.
25:40
SPEAKER_01: What we don't do is we are not a buyer of existing apartment projects that we tear those down and then build new housing.
25:47
SPEAKER_01: The main reason for that is it's not economic.
25:50
SPEAKER_01: Apartments are so valuable in their existing condition, no matter if they're you know old or new or good or bad, right?
25:57
SPEAKER_01: Just the the sheer economic, you know, power of uh units, like your your idea of like combining units together today, I don't think that would work because apartments are so expensive to buy that you're like you'd be losing ground on per unit basis.
26:10
SPEAKER_01: You know, if you could talk about a revenue enhancement and higher NOI, then great.
26:15
SPEAKER_01: But I think that might be difficult in those days in today's you know era.
26:19
SPEAKER_01: Um, but you know, we're just finding underutilized type things.
26:23
SPEAKER_01: So to underwrite, basically, we you know, we have economic underwriting, we have physical, geo geographic underwriting, but you know, first we'll start with location is usually we're we're usually land-centric.
26:35
SPEAKER_01: So in other words, we'll we're looking for land deals or people are sending us land deals and we'll work from that first.
26:41
SPEAKER_01: Maybe we identify an area and we'll go drive it or tell you know our brokerage friends, hey, go find me deals here.
26:47
SPEAKER_01: But for us in this sort of moderate income workforce housing, we want to be in what I call urbanized suburban locations.
26:54
SPEAKER_01: And so in Long Beach, that would be, you know, the the Anaheim corridor, right?
26:59
SPEAKER_01: So you drive down Anaheim, Anaheim's sort of built out, it's got retail, it's got some apartments, it's got some commercial, but behind it are the single-family homes.
27:07
SPEAKER_01: So if you drive down the side streets, it turns into a suburban community, but it's much older, it's sort of grown up a little bit more.
27:14
SPEAKER_01: It's not like your suburbs out in, you know, Irvine or someplace where it's just, you know, houses as far as the eye can see.
27:20
SPEAKER_01: It's got neighborhoods, it's got commercial, it's got stores, it's got, you know, some fabric.
27:25
SPEAKER_01: And um, so we want to find those kind of neighborhoods.
27:28
SPEAKER_01: And so for us, we would find places that were two or three neighborhoods outside of the central business district.
27:33
SPEAKER_01: So we wouldn't build in downtown Long Beach ostensibly, but we might go to the west side, you know, over by like a location we built was like at or orpez or Cesar Chavez Park.
27:43
SPEAKER_01: Yeah, and that's like older apartment buildings, some houses.
27:46
SPEAKER_01: We found a lot over there.
27:48
SPEAKER_01: So that's like a perfect sort of urbanized, suburban community.
27:51
SPEAKER_01: It used to be homes, sort of built up into some apartments, and then we're finding underutilized lots in those areas.
27:57
SPEAKER_01: And so we'll go do that throughout Southern California.
27:59
SPEAKER_01: And really we're we're searching for the way I describe it was we build an A product.
28:04
SPEAKER_01: So it's brand new, you know, like market comparable finishes, course countertops, new appliances, the whole, you know, shooting matches for what a new apartment would deliver.
28:13
SPEAKER_01: But we're gonna deliver that into a B and a C neighborhood.
28:16
SPEAKER_01: So that would be not an A neighborhood.
28:18
SPEAKER_01: So it would be, you know, not a, you know, we're not gonna be in war zones, we're not looking for that, but we're gonna definitely be in that neighborhood that's you know seen better days, is older, um, probably has in and we go there one because that's basically where our families already live.
28:33
SPEAKER_01: So when we built our first deal on Long Beach, we had a guy who worked for one of our investors.
28:39
SPEAKER_01: He was like a runner uh for the guy who was a broker at Keller Williams.
28:43
SPEAKER_01: And I remember the guy visited, and I was like, hey, dude, let's go, let's go check out the unit and try.
28:47
SPEAKER_01: I didn't know him at all.
28:48
SPEAKER_01: But as we're walking around this four-bedroom, the first one is a four-bedroom, three-bath townhouse.
28:52
SPEAKER_01: I remember him saying, He goes, 'You know, I could see my family living here.' I go, Yeah, tell me more about that.
28:57
SPEAKER_01: He goes, Oh, yeah.
28:58
SPEAKER_01: So I work at Keller Williams, it's 20 minutes away.
29:01
SPEAKER_01: And then he said, Oh yeah, my my kids go to school at the at the school, like a few blocks away.
29:07
SPEAKER_01: My my church is, you know, down the road a little bit.
29:09
SPEAKER_01: And by the way, my extended family lives close by.
29:12
SPEAKER_01: And so we could occupy this unit.
29:14
SPEAKER_01: It's big enough for my family who has had a larger family, not a huge family, but not a small family either.
29:20
SPEAKER_01: And we were close to his job, we're close to his network, like social network of family and church and and school.
29:28
SPEAKER_01: And so I really came to the, to the, you know, arrived at the idea that this is our tenant avatar.
29:35
SPEAKER_01: We want a working class, um, you know, person who already lives in this sort of existing neighborhood fabric in Long Beach or any city that we would build in, that all their stuff is around them, right?
29:47
SPEAKER_01: That their social networks are strong.
29:49
SPEAKER_01: And the reason for that is basically if you look at the opposite, like, you know, if you're building the mid-rise and high-rise, you know, one bedroom product, it's great product, but who lives there is a single person, maybe a young couple.
30:02
SPEAKER_01: They're often going to be younger, they're going to be professional, and they're going to be mobile, right?
30:06
SPEAKER_01: And those are all perfectly natural things for their lifestyle.
30:09
SPEAKER_01: Right.
30:09
SPEAKER_01: But what will happen in a recession is those people will lose their job and then they're gone.
30:14
SPEAKER_01: And nothing wrong with that.
30:15
SPEAKER_01: I don't, this is not a criticism of that part, that type of demographic.
30:20
SPEAKER_01: I just say I don't want to rent to that person.
30:21
SPEAKER_01: What I want to rent to is the family who is going to stick here no matter what, not for take being taken advantage of, but like when recessions come, these families, they batten down the hatches, they circle the wagons, whatever, whatever metaphor you want to use, but they're basically figuring it out.
30:39
SPEAKER_01: They're going to figure out how to make money, they're going to figure out how to create businesses, they'll figure out how to get, you know, one or two or three jobs.
30:45
SPEAKER_01: They pool their resources together in the family group.
30:48
SPEAKER_01: And what all that does is it makes them much more robust in any environment, whether it's good times or bad times.
30:54
SPEAKER_01: They basically are really sticking together.
30:57
SPEAKER_01: And what that does for us is that basically gives us a great tenant to rent and be a really great tenant.
31:04
SPEAKER_01: But also the trade is we give them a great unit in return, right?
31:07
SPEAKER_01: Like we honor that family demographic, that family structure that they have and go, let us give you a unit that serves your family for the best life for your family.
31:16
SPEAKER_01: And then we want you, of course, as a long-term renter.
31:19
SPEAKER_01: The butt one of the bottom lines that you know all your owners will appreciate the turnover rate on these families is like incredibly low.
31:24
SPEAKER_01: Like we have very little turnover in comparison to just a regular, you know, institutional type of deal.
31:30
SPEAKER_00: Well, that's what I was thinking when you were describing the high rise and the single person.
31:36
SPEAKER_00: And yeah, they could afford$2,800 studio.
31:40
SPEAKER_00: Um, but the first thing that came to mind, I'm like, yeah, but that's you know, whether they get laid off or whether they get an offer uh to go work in Seattle, there when you said like the chances of them moving is much, much higher versus this uh what you're talking about multi-generational families that are living together, yeah, they're gonna be there forever.
31:57
SPEAKER_02: Right.
31:58
SPEAKER_00: And and yeah, so then the the turnover for you is much, much lower.
32:02
SPEAKER_00: Um you brought up your talk to us about the very first one you did in Long Beach.
32:09
SPEAKER_00: Um, how many units, what street, uh how old were you, and and and were you scared?
32:16
SPEAKER_01: Um, I can't I'll have to think about how old I was, but the first deal we did was 325 Daisy Avenue.
32:22
SPEAKER_01: So the the closest cross street would be third and Daisy.
32:26
SPEAKER_00: That's down for for people listening, that that is somewhat downtown-ish.
32:29
SPEAKER_01: It is downtown, but if you look at it, Juan, it's on the periphery, it's like on the almost very end of the west end of, you know, you only really have um really one more street, which would be golden, and then you're to the 710 freeway and and Chavez Park.
32:45
SPEAKER_01: You're like at the very edge of it.
32:46
SPEAKER_01: You're right.
32:47
SPEAKER_01: It's I I call it downtown adjacent.
32:49
SPEAKER_01: You know, you could walk, you could easily walk to Pine, you know, in you know, 15 minutes, right?
32:53
SPEAKER_00: Like very, very you could see the high rises, but they're not but but they're not on that specific level.
32:58
SPEAKER_01: But that neighborhood is not a downtown type of neighborhood.
33:02
SPEAKER_01: It's it's families, it's it's just regular salt of the earth people, it's not the sexy high-rise dwellers, and nothing wrong with those people, but at the end of the day, this is the this is sort of your this is your blue-collar neighborhood.
33:14
SPEAKER_01: I mean, I don't know how to describe it, and it's a great neighborhood.
33:16
SPEAKER_01: I mean, it's very safe, you know, schools right next door, um, you know, families, kids out playing, right?
33:22
SPEAKER_01: It's got that whole sort of feel to it, uh, but it's definitely a much older part of downtown.
33:27
SPEAKER_01: You know, it's a fair amount of apartments, some houses mixed in, that kind of thing.
33:31
SPEAKER_01: Um, so it's 325 Daisy, and we actually ended up buying it's the tiny parcel we bought from the city of Long Beach, um, from their what used to be the redevelopment agency.
33:40
SPEAKER_01: They had a bunch of land assets that they owned, and we were um actually it was um you know a local commercial broker in town, uh Becky Blair, and she represented the city.
33:50
SPEAKER_01: And I know I've known Becky forever.
33:52
SPEAKER_01: Um, and actually she was a hoseeta who works with her.
33:55
SPEAKER_01: And so we just put our, like we said, hey, the city releases it.
33:59
SPEAKER_01: Hey, we're gonna sell this property.
34:00
SPEAKER_01: It was tiny one.
34:01
SPEAKER_01: I mean, I I knew when we bit on it, like no one was gonna bid on this thing.
34:05
SPEAKER_01: It was, and by the way, it was in a weird location.
34:06
SPEAKER_01: It was not, it didn't face the street, it was on the interior of the block at the cross of the two alleyways in mid-block.
34:14
SPEAKER_01: Like literally, your front door would be the alley, and yes, and no, and no street frontage, although it had a daisy address, it didn't actually, you know, wasn't facing it daisy in the city of Long Beach.
34:24
SPEAKER_00: Something that faces the alley is typically on a court.
34:27
SPEAKER_00: Yeah, if it ends in like Daisy Court, then you're no you can't.
34:29
SPEAKER_01: Yeah, right, exactly.
34:30
SPEAKER_01: Yeah, they they name the alleys.
34:32
SPEAKER_01: So we because we bought it from the city, we bought it really well.
34:35
SPEAKER_00: I think we paid$90,000 and uh so ninety thousand dollars, you said it was small, but you didn't what what size was it?
34:42
SPEAKER_00: So we kind of wrap our head around more or less.
34:44
SPEAKER_01: Gosh, I want to say it was I want to say it was maybe three thousand, four thousand square feet.
34:49
SPEAKER_01: It was tiny.
34:50
SPEAKER_00: Okay.
34:51
SPEAKER_01: Wow, and we we ended up putting all of two units on it.
34:54
SPEAKER_01: And what's okay, what's funny about that, two units, nothing wrong with that.
34:57
SPEAKER_01: I'd never done two units in my life.
34:59
SPEAKER_01: I mean, I'd never done a I mean, we were doing projects that were like hundreds of units for for years and years.
35:04
SPEAKER_01: Um, but at the time, I I just like we were always after trying to buy land from cities, like because you can generally get either really great pieces of real estate or you can get really cheap real estate, or maybe both, right?
35:17
SPEAKER_01: And when we bought this thing, I didn't necessarily know, like I didn't buy it and go, hey gosh, we're gonna do these townhouses on there.
35:22
SPEAKER_01: I did not have all that mapped out.
35:24
SPEAKER_01: Um, but we made our bid, and I think we had you know probably a few months to close it.
35:29
SPEAKER_01: So we were in no big hurry.
35:30
SPEAKER_01: We we opened escrow that whole thing.
35:32
SPEAKER_01: But out of the design process, I think I described earlier, um, which is you know, we hired the architect and you know, we go, we can only do two units, but we can do really big units if you want.
35:41
SPEAKER_01: Did I tell that story?
35:42
SPEAKER_00: No, tell me.
35:43
SPEAKER_00: Okay, yeah.
35:43
SPEAKER_01: So so when we when we got the site, you know, as I always do, we get the site and we start to do diligence.
35:48
SPEAKER_01: I'll send the site to the architect and I go, like, what can we do there?
35:51
SPEAKER_01: Like, and I might have usually I have a strategy, like, okay, we're gonna do multifamily, we're gonna do rental housing, you know, it's gonna be attached, it's gonna be this and that.
35:59
SPEAKER_01: I'll sort of give the architect like a little bit of a guidance on like strategically what it is, and then I tell him, like, see what you can come up with.
36:06
SPEAKER_01: And what he came back, he goes, Oh, we can get two units.
36:08
SPEAKER_01: The zoning code allows two units.
36:10
SPEAKER_01: I'm like, Oh, really?
36:10
SPEAKER_01: That's all I'm in.
36:11
SPEAKER_01: That geez, like that's that that's not good.
36:14
SPEAKER_01: But he goes, but there's something interesting.
36:16
SPEAKER_01: He goes, we can make the units bigger if we want.
36:18
SPEAKER_01: I go, oh, okay.
36:20
SPEAKER_01: Because up to that point we've been doing studio one and two bedroom units and all of our you know recent projects in downtown Long Beach and and throughout you know western United States, we're doing a lot of projects.
36:30
SPEAKER_01: And I said, Well, how big?
36:31
SPEAKER_01: And he goes, Well, you know, let me get back to you.
36:33
SPEAKER_01: So he came back and he had a four-bedroom, three-bath, two-story townhouse with a two-car garage.
36:38
SPEAKER_01: And I go, hmm.
36:39
SPEAKER_01: Um, we've never done that product, like that's totally off the radar for us.
36:44
SPEAKER_01: But I also knew from my background and working for other companies, particularly in the affordable housing domain.
36:50
SPEAKER_01: I knew fundamentally that there'd be somebody who would want to rent a four-bedroom unit, would be a roommate's, maybe it's a family group.
36:57
SPEAKER_01: At this point, we didn't know who that was.
36:59
SPEAKER_01: Later on, that guy toured who who sort of gave me the idea for the avatar.
37:04
SPEAKER_01: So we we bought the deal, we raised the capital, we did the design, we did the four-bedroom townhouse units.
37:09
SPEAKER_01: And then we the the the great ending of that story is we we finished the deal, we put it on the market, and we got an offer for all cash and like a good price, and we could make money with it.
37:21
SPEAKER_01: But the the caveat, the guy says, I don't want you to rent the units.
37:24
SPEAKER_01: I want to rent them, I want to use my property manager, we'll rent the units.
37:28
SPEAKER_01: And so at the time we were proposing and we had underwritten the deal at$26.50 a month for that four-bedroom, three-bathroom townhouse for the rent, right?
37:36
SPEAKER_01: We'd comped it out and did the whole thing.
37:38
SPEAKER_01: Well, the day after we closed, the guy puts it out on the market at$32.50.
37:43
SPEAKER_01: And I saw it and I was like, okay, what's that?
37:46
SPEAKER_01: And so I called the guy who is a who is the partner investor, and I go, dude, what do we miss?
37:50
SPEAKER_01: Yeah.
37:50
SPEAKER_01: I mean,$32.50 from$26.50, that's a huge delta, like massive, like one I'd never seen before.
37:57
SPEAKER_01: And the guy who was the investor, he's like, Yeah, I don't think they're gonna get it, dude.
38:00
SPEAKER_01: I mean, that seems like a real stretch.
38:02
SPEAKER_01: And I remember sitting there, I go, I think maybe they might.
38:05
SPEAKER_01: And they they actually did.
38:06
SPEAKER_01: And so that was the genesis of what became the urban townhouse um unit type, project type, because it dawned on me that basically we had we knew better who was gonna be the tenant, would be some sort of a family or roommate group, that they had the capability to pay$32.50 a month for a four-bedroom.
38:23
SPEAKER_01: If you divide$32.50 by the four and get the per bedroom, you could start to get the math, and then you can start to extend that to new properties.
38:31
SPEAKER_01: And so once that one worked, we go, what more of that can we find?
38:35
SPEAKER_01: Like, what else is out there that could do this kind of four-bedroom product?
38:38
SPEAKER_01: And we actually found another site at 1719 Cedar, 538 Golden.
38:44
SPEAKER_01: Um, and then we found one in Fullerton, and we started to like expand out a little bit geographically.
38:49
SPEAKER_00: So so let's go back to the one on Daisy because I uh part of part of today's show.
38:54
SPEAKER_00: I kind of want to show.
38:56
SPEAKER_00: Um, so this was your early 30s, you've now left the company that you were with because you were gonna be um um have your own company.
39:08
SPEAKER_00: This was your first this was your first actual development under Scott.
39:11
SPEAKER_01: No, no, yeah, sorry.
39:12
SPEAKER_01: I meant I left some out.
39:13
SPEAKER_01: No, this would have been 2017, 2018.
39:17
SPEAKER_01: So I started the company in 2000.
39:19
SPEAKER_01: So we were already 18 years.
39:20
SPEAKER_00: But you guys were into it already.
39:21
SPEAKER_01: We well, like I'd done, you know, thousands of units by that time.
39:25
SPEAKER_01: So this was this was a post-GFC.
39:29
SPEAKER_01: So the so the the environment and real estate development after the 2008 era had everybody super skittish.
39:35
SPEAKER_01: Um, everybody was sort of scared, including us, like like when's the next recession coming?
39:40
SPEAKER_01: And I remember at the time in 2016, we'd finished a group of projects and we sort of had this moment in time to like sort of pop our heads up and look around for something else to do to differentiate.
39:51
SPEAKER_01: And so Daisy popped up in that in that time period.
39:54
SPEAKER_01: And although we didn't know we're gonna do town owns, I said, well, look, we're buying the land for really inexpensively, let's experiment.
40:00
SPEAKER_01: That's the terminology I use all the time.
40:02
SPEAKER_01: Like, let's this is an experiment.
40:03
SPEAKER_01: Let's see if it if it works.
40:04
SPEAKER_01: If it doesn't, fine.
40:06
SPEAKER_01: Let's make sure it doesn't kill us.
40:07
SPEAKER_01: If it works, then great.
40:09
SPEAKER_01: And so because we bought the land so inexpensively there at 90,000, like we could, we could mess the thing up badly and still, you know, do okay, get our money back and move on to the next one.
40:17
SPEAKER_01: But in this case, it actually worked really well.
40:19
SPEAKER_01: In fact, you know, if we had underwritten it 3250 originally, uh, we probably never would have sold the thing.
40:25
SPEAKER_01: It worked so great, uh, or we would have sold it for more money, but you know, it made sense at the time because a good cash deal.
40:31
SPEAKER_01: So, no, this was um this was well into the life of the company, but I think it's it's a good demonstration of like our ability and our want to pivot.
40:42
SPEAKER_01: Like we're always looking, like, let's not get stuck because that was our lesson from 2008, is you know, you sort of follow the trends, and people are doing condos, so you do condos, people are doing apartments, so you do apartments, this kind of thing.
40:54
SPEAKER_01: And the entire development business is sort of following each other and you know, sort of a web, right?
41:00
SPEAKER_01: And so what I learned in 2008 is if you're gonna do what everybody else is doing, then you have to be prepared to suffer the consequences that everybody else suffers.
41:09
SPEAKER_01: And of course, because everybody's doing it, there's gonna be a lot of it.
41:12
SPEAKER_01: So, like the example in 2008 for us was doing condos, like urban infill, middle and high density condos, or or adaptive reuse of older uh office buildings into loft condos, which is a great, you know, sexy, you know, urban infill type product.
41:26
SPEAKER_01: The problem is when the market went against us in 2006 and 2007 and mortgages were no longer available and all those buyers disappeared.
41:34
SPEAKER_01: Being in condo deals, what like the absolute worst space to be in.
41:37
SPEAKER_01: Like they're hard to rent, you know, it's hard to like change them into something else and sort of you know make something out of like a dead condo deal.
41:44
SPEAKER_01: So from that day forward, I basically said I never want to be in a position where I'm stuck in a deal type or unit type or location.
41:52
SPEAKER_01: And so I was always sort of mindful that's you know, we got to do really great deals, we got to buy land really well, and but particularly we have to be differentiated from the trends enough to not get caught, right?
42:05
SPEAKER_01: So, like we did a deal in Denver at the time, and I remember uh we finished the deal in 2012 or 2013, and I remember at the time there was like 10 or 15,000 units of new apartments coming online in Denver.
42:20
SPEAKER_01: And I remember telling my partner, like, we got to get out of this thing, we got to get, man, these apartments are coming and they're building over the next year or two.
42:28
SPEAKER_01: I do not want to stick around for this, like like so.
42:30
SPEAKER_01: We ended up selling the selling the entitlements, the land deal with the entitlements, and we sold it to Lenar.
42:35
SPEAKER_01: And so those are the kind of moves that you start to make.
42:38
SPEAKER_01: So you're either ahead of the pack or you're separate from the pack in some way.
42:42
SPEAKER_01: And so the urban townhouse model um was both ahead of the trend of multi-gen workforce housing, but also separated from the pack because no one else is doing it.
42:52
SPEAKER_01: And that's still sort of the way, but although the idea of workforce housing is now much more pervasively discussed and you know it's on people's minds and they know they need it, you know, the idea of you know people talking commonly about affordable housing and the need for it, even people that are non-real estate people didn't exist 10 years ago.
43:10
SPEAKER_01: Like no one was if you told them affordable housing, they wouldn't know what that was.
43:13
SPEAKER_00: Um, it I would imagine that the five-bedroom, four-bath model may not work in areas where the the demand for the multi-generational families is not there, right?
43:25
SPEAKER_00: I mean, so it's probably, I mean, obviously here in Long Beach, uh, most parts of LA, we're probably going to see it, but it could be that if you go out of state trying to do that, uh, you know, just and I'm just thinking about some of the listeners who um, you know, listen, we have listeners nationwide, and I'm thinking if they're thinking something like this, someone would have to do their homework.
43:43
SPEAKER_00: Is there demand for something like that and where I'm located?
43:47
SPEAKER_01: I I think our opinion is this this works in every major metro in the United States that has a larger population.
43:53
SPEAKER_01: You're not getting this isn't well, I mean, it could work in rural places if you were doing farm worker housing, but yeah, any any any Place that that idea of economic sharing is practical, where people, you know, roommates or co-living is an example of that, right?
44:07
SPEAKER_01: Co-living is the same version of what we're doing.
44:09
SPEAKER_01: It's just for really high-end, sexy, young, you know, Melrose place kind of folks, yeah, not working class families, um, but congregate care and senior housing.
44:19
SPEAKER_01: That's co-living.
44:20
SPEAKER_01: That's that's economic sharing.
44:22
SPEAKER_01: It just happens to be for seniors that are congregating together to like have it be more affordable.
44:27
SPEAKER_01: So the the the idea of of this sort of economic sharing idea is really it's it's becoming much more pervasive for two reasons.
44:34
SPEAKER_01: One is culturally, our uh the United States has a makeup culturally and demographically, where there's many more people who are naturally and historically live multi-generationally.
44:43
SPEAKER_01: So if you were from South America or you're from the you know, from the Far East or from India, living multi-generationally would be like the the the standard.
44:52
SPEAKER_01: In fact, if you didn't live with your family, it would be looked at to be weird, right?
44:56
SPEAKER_01: Like, why are you doing that?
44:57
SPEAKER_01: Right.
44:57
SPEAKER_01: But in America, we had the for a moment in time, we had the nuclear family with you know, mom and dad and tune kids and the mom, you know, dog and the you know park car parked in the you know, driveway, that whole thing.
45:07
SPEAKER_01: But historically we lived multi-generationally, and then now we're starting to grow.
45:10
SPEAKER_01: In fact, Pew Research did a study that they said that the United States has the highest percentage of people living multi-generationally since 160 years ago.
45:19
SPEAKER_01: Interesting.
45:19
SPEAKER_01: And then, but then that's sort of the cultural makeup, but also the other part of it, which is really the main driver, is economics.
45:26
SPEAKER_01: So if you think of housing cost inflation and just inflation generally, money printing, you know, the loss of value in the dollar and our monetary system, that's putting pressure on people.
45:35
SPEAKER_01: I mean, you know, it's all over, you know, social media.
45:38
SPEAKER_01: I'm I'm working, you know, 40 hours a week.
45:40
SPEAKER_01: I can barely, you know, pay afford my life and pay rent, do all those kind of things.
45:45
SPEAKER_01: And if you look at who those people are, what you'll notice is that they're often people that live by themselves.
45:50
SPEAKER_01: They're living in a studio unit and they're paying for everything themselves.
45:53
SPEAKER_01: And I don't people reject the idea of having to live with other people to take care of their economics.
45:59
SPEAKER_01: But look, I'm a very practical, pragmatic person.
46:02
SPEAKER_01: You do what you got to do, right?
46:04
SPEAKER_01: Because if you can't sustain your life, you're gonna get, you know, pushed out of your apartment, you're not gonna have enough food to eat.
46:09
SPEAKER_01: So you may have to do other practical things.
46:11
SPEAKER_01: And one of those is living with roommates or living with your family, you know, and you know, moving back with mom and dad is sort of the like the anti-hero story.
46:20
SPEAKER_01: Like, that's a loser proposition.
46:21
SPEAKER_01: But I go, look, the reality of the United States is where we kick people out at 18, like, hey, Johnny, go like go live on your own and pay rent and pay for gas all on your own.
46:31
SPEAKER_01: That's dumb, right?
46:32
SPEAKER_01: Like, you go, hey, I got a house.
46:34
SPEAKER_01: Like, this is what I tell my kids, my wife and I, hey, come back anytime you want.
46:38
SPEAKER_01: Like our house is here.
46:39
SPEAKER_01: I mean, up for from a familiar standpoint, but I also go give yourself an economic break.
46:43
SPEAKER_01: You know, graduate college, come live with us for two years, save your money, get on your feet, you know, whatever, try to, you know, keep keep debt like that down.
46:51
SPEAKER_01: So I think that's just an example, one example of like the now much more larger trend of people sharing economics and housing and other things.
47:00
SPEAKER_01: I mean, sharing generally sharing cars, you know, VRBOs, sharing houses, right?
47:05
SPEAKER_01: Sharing in a in a living situation where you're living permanently.
47:08
SPEAKER_01: And I think just that's the an economic force.
47:11
SPEAKER_00: Scott, so um, because you're creating a product that that is in demand and doesn't exist, I would imagine that your vacancy and your absorption.
47:21
SPEAKER_00: So folks, when I say absorption, is Scott's a builder, he's gonna build a product, and he they need to anticipate how long are they gonna sit vacant after they're completed before they're rented.
47:32
SPEAKER_00: Um how does that look like for you?
47:34
SPEAKER_01: Yeah.
47:35
SPEAKER_01: So we I've always described this product as recession resilient because in my mind, these families, because they're practicing economic sharing, they're able to, you know, gather the wagons around them and sort of become defensive.
47:48
SPEAKER_01: And so the idea is that if you have four incomers in the family and one person loses their job, well, you still have three other people to pick up the slack.
47:55
SPEAKER_01: So the family doesn't have a breakdown, you know, they just have to sort of shift the load between the the incomers, right?
48:02
SPEAKER_01: And that's true with roommates, that's true with anybody who who does economic sharing.
48:06
SPEAKER_01: So what that does is it makes them very robust, you know, tenants.
48:11
SPEAKER_01: So we talked about turnover is low, um, you know, absorptions, I think is your question, you know how these absorb, they absorb actually brilliantly.
48:19
SPEAKER_01: And so I'll give you an example.
48:20
SPEAKER_01: We're we're just leased up our project 1115 Artesia in Long Beach, and I was scared to death.
48:25
SPEAKER_01: I I mean, as the it was the first project that we'd finished, and it's the last in that wave, sort of pre-COVID wave, but it was the last one to finish in that series, and everything else had done well, but we're going into a sort of a strained economy, right?
48:38
SPEAKER_01: People, you know, people are losing jobs, you know, everybody's under economic pressure.
48:42
SPEAKER_01: And I was really worried that we were gonna open the doors on this thing and have crickets.
48:46
SPEAKER_01: I mean, that's like you know, every developer's nightmare.
48:48
SPEAKER_01: Like that's where the rubber meets the road as a developer.
48:51
SPEAKER_01: It's like I finished this thing, I open the doors to lease it, and whoever shows up shows up, right?
48:56
SPEAKER_01: You know, marketing and you're doing all this stuff.
48:58
SPEAKER_00: It's it's almost well, it it is a business, and it's kind of like your grand opening day.
49:01
SPEAKER_01: It is.
49:02
SPEAKER_01: And I the the the the corollary I use, it's like making movies, and the you know, you put the movie out in the movie theaters, and then you see how it's gonna do.
49:10
SPEAKER_01: I mean, you can do all kinds of testing and stuff like that, but at the end of the day, you put the thing out in the theaters and either it works or doesn't work, and running apartments the same.
49:18
SPEAKER_00: And so how many units are there?
49:19
SPEAKER_01: That one was a really small project.
49:21
SPEAKER_01: That was a that was we did two projects in the COVID era when you know all the craziness was happening in 2020.
49:27
SPEAKER_01: We basically said, look, we're gonna shut all new uh projects down.
49:32
SPEAKER_01: In other words, we didn't kill any projects, but we didn't acquire any new projects that were bigger.
49:37
SPEAKER_01: We said we don't know what COVID looks like, but I found a couple interesting deals, 1491 Atlantic and Lim 15 Artisia, that were really close to home.
49:44
SPEAKER_01: Yeah, the land was you know was a good price.
49:47
SPEAKER_01: We had good zoning on both those, and so we undertook those at the time.
49:52
SPEAKER_01: Um, and so um what's back to your question?
49:55
SPEAKER_00: But the one on Artesia is how many units?
49:57
SPEAKER_01: Yeah, five units, right?
49:57
SPEAKER_00: And so okay, so that one's five units.
49:59
SPEAKER_00: That's five units, yeah.
50:00
SPEAKER_00: And they're and they're all the five-bedroom, four-bath.
50:02
SPEAKER_01: So that one's that one was a weird design.
50:04
SPEAKER_01: That was three of the units or five bedrooms.
50:06
SPEAKER_01: The fourth one is a four-bedroom, and then the front unit has a little storefront like live work thing, and so that's a three-bedroom.
50:12
SPEAKER_01: So that one's a little bit different.
50:13
SPEAKER_01: Usually we only do five bedrooms.
50:15
SPEAKER_00: And what was the rent just just for for our listeners, so they kind of so this is this is brand new product, everything is new.
50:22
SPEAKER_01: Yeah.
50:22
SPEAKER_00: Um, what does a five-bedroom rent out for in Long Beach?
50:26
SPEAKER_01: So on that one, we range from 3850 to 4,000 a month.
50:29
SPEAKER_00: Okay, which is a tremendously good price because I think I think if I was if I was if I was selling an eight-unit building or something out there and and we had a three-bed, two-bath, I I'm probably thinking, okay, if we fix up this unit very well, we're probably the same range that in the threes.
50:44
SPEAKER_00: You should be in the threes.
50:45
SPEAKER_00: Easily, easily, yes, correct.
50:46
SPEAKER_01: And so that's where I always want to be is in fact, we because comparables for five-bedroom apartments are almost impossible to find.
50:53
SPEAKER_01: Like there's uh there's zero in general.
50:54
SPEAKER_01: In fact, now we're almost sort of getting back to see comps from our old projects that we sold.
50:59
SPEAKER_02: Yeah.
50:59
SPEAKER_01: But we'll take a three-bedroom, and then the math we do is let's just for easy math here, we say that three bedroom is three thousand a month, divide by the bedroom.
51:06
SPEAKER_01: So that's a thousand dollars per bedroom, and then we'll times that times four or five, often five, and that sort of becomes our proxy rent to compare to a three-bedroom, but then we have to adjust down because we're not gonna get five thousand in most of the market.
51:19
SPEAKER_01: So we'll adjust it downward.
51:21
SPEAKER_01: But what I do want to be is I want a family to say, look, I can rent that three-bedroom for 3250, or I can get the five-bedroom for 3850, and that's a huge, tremendous value.
51:31
SPEAKER_01: By the way, one of the advantages we have is usually that three-bedroom older products not gonna have a garage, many times won't have you know air conditioning, central air and heat.
51:41
SPEAKER_01: Certainly is not a new unit.
51:42
SPEAKER_01: Maybe it's got some upgraded finishes.
51:44
SPEAKER_01: It was a value add deal, but often we will win both on value.
51:47
SPEAKER_01: In other words, you pay 600 bucks more, but you get way more space, you know, many more bedrooms.
51:53
SPEAKER_01: Uh, and but one of the interesting things, five bedrooms is a big deal.
51:57
SPEAKER_01: But guess what?
51:57
SPEAKER_01: Four bathrooms is a is almost a bigger deal, right?
52:00
SPEAKER_01: If you're a family of six or eight people, having four bathrooms actually is is your bigger constraint than the bedrooms, right?
52:07
SPEAKER_01: And and in fact, a lot of the older product, this is sort of the running joke for me.
52:11
SPEAKER_01: You know, we would find other, you know, apartment, you know, uh comparables that was like a four-bedroom in, you know, on Daisy for when we did our original deal, except it was a, I remember at the time it was a thousand square foot four-bedroom, one bath unit in a 1920s era building, no parking, old building, no insulation, certainly no air conditioning or you know, cooling heating.
52:32
SPEAKER_01: So that sort of is our competition, right?
52:34
SPEAKER_01: Like I would compete with that four-bedroom, one bath all day long.
52:37
SPEAKER_01: Because I go, I'm a little more expensive, but I got so many things that are an advantage compared to that.
52:42
SPEAKER_00: Scott, can can you talk to us about um um the difficulty of of building in California and cost?
52:50
SPEAKER_00: Yeah.
52:51
SPEAKER_00: Um, I I listened to one of your podcasts and you said something interesting.
52:55
SPEAKER_00: And because I'm not a builder, you said that, hey, the the most expensive thing you can build is your kitchen.
53:01
SPEAKER_00: And what you were saying is because I'm building more bedrooms, um there's kind of a savings in in that because the bedrooms are are less.
53:10
SPEAKER_00: And I I guess you know, typically when when at a very basic level, if we're like, uh, hey, cost to build, and I'm making this up, this number may not be right.
53:16
SPEAKER_00: I might say, uh, it's like$300 a square foot, and we think that the entire house is$300 a square foot, but you're saying actually the kitchen is higher and the bedrooms are lower.
53:26
SPEAKER_00: That's right.
53:27
SPEAKER_00: Um, talk to us about um what what building in California is like and the cost to build.
53:36
SPEAKER_01: Yeah.
53:37
SPEAKER_01: Uh building in California is a total pain in the ass.
53:39
SPEAKER_01: But you know, but the you know, I think anybody who's in California knows that.
53:42
SPEAKER_01: But I I look at building in California as a you know, when we talk to investors and other developers, a lot of people go, Look, I hate California.
53:50
SPEAKER_01: I will never invest there.
53:51
SPEAKER_01: And I get that.
53:52
SPEAKER_01: Like, I, you know, it's go, okay, got it, got it, got it.
53:54
SPEAKER_01: But I say to people like, look, if you connect with the right sponsor, developer, investor, whoever it is, and they understand intuitively the environment of California politically and regulatory standpoint, and they can operate effectively within that, then they can actually deliver a much more valuable product than if you were in an easy market, right?
54:13
SPEAKER_01: I always use Texas, Dallas, Fort Worth as a comparison.
54:16
SPEAKER_01: It's really hard to deliver in California, right?
54:18
SPEAKER_01: It's very hard, but when you do deliver, it's very valuable, right?
54:21
SPEAKER_01: In Texas, it's easy to deliver, but everybody else is delivering too.
54:25
SPEAKER_01: And so when you when you finish it, it's not as valuable, right?
54:28
SPEAKER_01: So in fact, Texas, they call it a cash flow market, right?
54:31
SPEAKER_01: You build it, you cash flow up, but the appreciation is always going to be suppressed because as soon as values go up, you know, Joe's gonna build 500 more apartments like next door, right?
54:40
SPEAKER_01: In California, you can't do that.
54:41
SPEAKER_01: So I basically I tell people, look, California is a total pain in the ass, but basically it creates a moat, right?
54:46
SPEAKER_01: If anybody follows Warren Buffett, Berkshire Hathaway, he has this idea when he buys businesses, he wants to have the a moat, another some sort of protective mechanism that keeps that business safe or competitive.
54:58
SPEAKER_01: So think like if you had intellect, you know, intellectual property, you had a you know an invention, right?
55:02
SPEAKER_01: And you had a patent on it, well, that's a moat, right?
55:04
SPEAKER_01: I have the I have the protection of this and that protects me.
55:08
SPEAKER_01: Well, building in California, the regulatory environment being so difficult is a moat.
55:12
SPEAKER_00: I mean, it it it gives you the um it gives you a uh a harder um entry to barrier, right?
55:19
SPEAKER_00: And so and so, like, okay, yeah, you can go to Texas and any anyone could go there.
55:22
SPEAKER_00: And so what you're saying, it's more competitive.
55:24
SPEAKER_00: California, hey, it's so difficult that it's just really hard to answer.
55:27
SPEAKER_01: Yeah, no, people will say, well, oh, okay, but still it's hard.
55:30
SPEAKER_01: And I go, yes, it's hard.
55:31
SPEAKER_01: But so what that job then becomes present developer is we have to be really, really picky on the sites that we select, the locations, some cities we work in, some cities we don't, right?
55:40
SPEAKER_01: They're so difficult.
55:42
SPEAKER_01: Um, but you know, like I've been doing that my entire career.
55:45
SPEAKER_01: I've only ever really worked in California.
55:46
SPEAKER_01: I've worked in several other states, but you know, California's my home and you know, sort of headquarters for the company, and all my you know, most of my projects are.
55:53
SPEAKER_01: So you get really good at picking the right horses to run on.
55:57
SPEAKER_01: And so what that means is basically 99 out of 100 are you know put in the trash.
56:02
SPEAKER_01: Like you it doesn't work, the zoning's bad, the city's bad, right?
56:06
SPEAKER_01: The the the you know where we are in the economic cycle is bad.
56:10
SPEAKER_01: No, every once in a while, like we pick a horse and it doesn't, you know, run the way we want and we don't win.
56:15
SPEAKER_01: Um, but you know, we've had only one like no vote on a project for our company in fact the entire 24 years that I've run Urban Pacific.
56:24
SPEAKER_01: We've had one uh city council vote where we went all the way to the city council and got a no.
56:28
SPEAKER_01: That was Quine Gardens.
56:30
SPEAKER_01: That was like a couple years ago.
56:31
SPEAKER_01: And it's the one place that could use new housing.
56:33
SPEAKER_01: Dude, it was crazy.
56:34
SPEAKER_01: Um, all the people on the city council were really nice.
56:37
SPEAKER_01: Um, but they they were like, our what did they say, our residents don't need this kind of housing, it's too expensive.
56:44
SPEAKER_01: And I'm like, Are you kidding me?
56:45
SPEAKER_00: This is like Quine Gardens that's the demographic that you're catering to.
56:49
SPEAKER_01: The world for family housing, you know, I and look people in in political situations and political bodies different motivation.
56:56
SPEAKER_01: They will say whatever stuff they have.
56:58
SPEAKER_01: I mean, it was you know, it was a little controversial, but the reason I give that statistic is that what what like is not said in there is we don't pick a lot of projects.
57:07
SPEAKER_01: There's a lot of stuff that we say no to, right?
57:09
SPEAKER_01: It's got slope, it's got you know difficult neighbors, it's got some weird, you know, situation where you know the traffic can only go through a neighborhood, and you know those people are gonna get pissed off at you if you're rezoning the property.
57:21
SPEAKER_01: So there's you know thousands and thousands of little decision, you know, parts of the decision, the matrix of which for which we say no.
57:29
SPEAKER_01: So most of the stuff doesn't um, you know, make it successfully.
57:33
SPEAKER_01: Although I will add, one of the things about being in these B and C neighborhoods, these sort of urbanized, suburban older communities, often the land is much more available and the politics are a little bit more pro-business, pro-growth, that they understand that you know they need housing.
57:49
SPEAKER_01: Like when we built Montebello, the city was sort of tough.
57:53
SPEAKER_01: But man, as soon as we opened the doors, there was like, I mean, we had probably half the units rended by Montebello native, multi-generational families that showed up and they were like, oh, dude, I didn't know this existed.
58:03
SPEAKER_01: Like, I, you know, I want the unit right now.
58:06
SPEAKER_02: Yeah.
58:06
SPEAKER_01: Like they got it immediately, you know, multi-gen families, you know, Montebello natives.
58:12
SPEAKER_01: And this is a perfect example of us picking the right location.
58:15
SPEAKER_01: City was like okay to deal with.
58:17
SPEAKER_01: And I I don't want to make it sound easy.
58:19
SPEAKER_01: I mean, we still work our butts off to get stuff approved, and it's a fight the whole way.
58:23
SPEAKER_01: Right.
58:24
SPEAKER_01: In fact, my joke to somebody the other day was development's like a series of you know, uh, you know, 10,000 problems to solve, and then you sell the building and make money.
58:33
SPEAKER_00: Okay.
58:34
SPEAKER_00: All right.
58:34
SPEAKER_00: Well, well, so long as you're making money.
58:36
SPEAKER_00: Yeah, I mean, you know, well, and you're doing a a lot of things.
58:39
SPEAKER_00: I it's not, you know, listen, I've I've listened to you enough to know that there's there's a mission behind what you're doing.
58:44
SPEAKER_00: Yeah, I did want to ask in if you could just um because you brought up making money is uh I want someone to understand, kind of wrap their head around what does it cost price per square foot with with what you're building.
58:56
SPEAKER_00: Now, it could be Scott that hey Juan, I I'm gonna be able to build it for for less, but you could say, hey, on average, this is what people are paying for new construction.
59:04
SPEAKER_01: Yeah, so what I usually share, I was like, so right now, depending on what like where we are for the land markets, we're probably somewhere 400,000 to 450,000 a door today.
59:14
SPEAKER_00: Okay.
59:14
SPEAKER_01: And so that means as a developer, we have to have a value that exceeds that.
59:18
SPEAKER_01: You know, we if we're building for 400, we want it to be valued at 500 a door.
59:23
SPEAKER_01: Um, so you know, that's all, but that's all in.
59:25
SPEAKER_01: That's land, you know, that's that's all the cost that all the cost, city fees, architectural engineering, hard cost to build costs, because a lot of people they go, yeah, here's my hard cost to build.
59:35
SPEAKER_01: Um, but I look at it from an all-in standpoint because what I care about is what it all in costs me to build, and what is it all in valued at when I'm done with it, either in a refi or in a sale.
59:45
SPEAKER_01: And do I have a delta between those two, meaning the values above the cost, right?
59:49
SPEAKER_01: And then some economic cycles, and uh, and we're not in that now, although we're sort of there a little bit.
59:54
SPEAKER_01: There's some times where new construction may be you know less valuable than it costs to build, so that means you wouldn't do it.
1:00:01
SPEAKER_01: Right.
1:00:01
SPEAKER_01: Um, and then you know, in that environment, usually then you know, apartments would be you could buy apartments below replacement cost.
1:00:07
SPEAKER_01: People have heard this term before, that it's a standard thing.
1:00:10
SPEAKER_01: Yep.
1:00:10
SPEAKER_01: Um, that replacement cost can be, in fact, uh apart apartment development is that you uh value is above replacement cost, right?
1:00:20
SPEAKER_01: So my replacement cost is my build cost, and I have to have a model where my value is above my replacement costs, that's the opposite of below replacement cost.
1:00:29
SPEAKER_01: Now we're in a weird situation right now because there were so many value add deals that were bought on existing apartment deals that people overpaid for it.
1:00:38
SPEAKER_01: They use bridge debt, floating debt, right?
1:00:41
SPEAKER_01: And now they're coming back onto the market, and you now can buy them well below replacement costs.
1:00:46
SPEAKER_01: Yes.
1:00:46
SPEAKER_01: And most new construction deals don't work for interest rates and construction costs.
1:00:51
SPEAKER_01: It's it's a weird environment for us because our actually our townhouse stuff is still working, and that's just the model of the bedroom cost and sort of the high, high whole dollar rent and you know, being above our bill costs, we're still producing good margins.
1:01:04
SPEAKER_01: But frankly, we're the only guys that I can see that are able to produce like regularly profitable projects.
1:01:10
SPEAKER_01: I don't say that we'll last forever.
1:01:11
SPEAKER_01: I'm not sitting here thinking we're bulletproof, but what I do know is that in California we're so vastly undersupplied that we're never going to catch up.
1:01:20
SPEAKER_01: So we're never gonna be one of those markets like Austin where you're building 10 or 20,000 units.
1:01:25
SPEAKER_01: Um, we'll always have you know more demand than we have supply, and that's just a function of where are we in the economic cycle.
1:01:31
SPEAKER_01: What I do know is that the demand for housing from multi-gen, middle income working class families is still off the charts and still no one is supplying that.
1:01:41
SPEAKER_01: And so we're sort of in a little protected, you know, harbor, if you will.
1:01:45
SPEAKER_01: And that's one of the reasons we picked it.
1:01:47
SPEAKER_01: I mean, we picked it to be in a situation where we'd be resilient, you know, going in.
1:01:52
SPEAKER_00: You know, Scott, when you're talking about uh we're never gonna be able to build enough, there's so much demand.
1:01:59
SPEAKER_00: So um, a lot of the people we serve are multifamily investors, and so these are people that are either just getting started buying the first fourplex ever uh with five percent down, and that's gonna be the first one, but that's the first of many, and we've seen this pattern go on through years where it's almost like I figure like the fourplex is the gateway to a large portfolio.
1:02:18
SPEAKER_00: It really is.
1:02:18
SPEAKER_00: Once you get one under your belt and you realize, hey, this is not that hard, I could manage this, I could lease this.
1:02:23
SPEAKER_00: Wow, it's doubled in value in the last 10 years.
1:02:26
SPEAKER_00: Well, this was not that hard.
1:02:27
SPEAKER_00: So that's kind of what what I've seen.
1:02:30
SPEAKER_00: And you know, sometimes people will ask me, well, um, hey Juan, you know, the returns, the cap rates, et cetera, are not enough in California.
1:02:37
SPEAKER_00: And I'm like, well, what are we chasing?
1:02:38
SPEAKER_00: Are we chasing cash flow?
1:02:39
SPEAKER_00: Are we chasing appreciation?
1:02:40
SPEAKER_00: And sometimes people are are wondering, well, um, you know, is there still demand?
1:02:47
SPEAKER_00: You know, we're reading that people are leaving California, although uh yesterday's LA Times said said quite the opposite.
1:02:53
SPEAKER_00: But but but it's interesting where where you're saying, hey, um there's so much demand here to me, uh, if we're talking to apartment owners or um income producing owners or soon-to-be income-producing owners, if there's this demand that's not gonna be met, to me, it's like you're buying a business that that the day you you um you you know you close the escrow, if there were a vacancy, there's kind of a line of people waiting to lease it because there's that much demand.
1:03:23
SPEAKER_00: And I would say there's demand for studios, one bedrooms, two bedrooms.
1:03:26
SPEAKER_00: And to your point, you discovered something that maybe you know no one had really tapped on.
1:03:29
SPEAKER_00: Yeah, is hey, there's demand for five bedrooms.
1:03:33
SPEAKER_00: And so with that demand, it listen, anytime we buy a rental property, we want to make sure that someone wants to lease it.
1:03:40
SPEAKER_00: And I I if you're in Southern California, that's never really a concern.
1:03:43
SPEAKER_01: Yeah, I agree.
1:03:44
SPEAKER_01: I agree.
1:03:45
SPEAKER_01: I mean, look at it from a like a political standpoint.
1:03:48
SPEAKER_01: We've been in supply, under supply mode for probably since the early 70s.
1:03:53
SPEAKER_01: And that time period, if anybody remembers what happened, that's when the Coastal Commission was was formed.
1:03:58
SPEAKER_01: That's when CEQA California Environmental Quality Act um got put in place.
1:04:03
SPEAKER_01: That's when most of the cities in in you know in California downzoned all their like most cities, you know, if you look at a zoning map, there it's lots of yellow, that's single family, R1, single family homes, suburban homes, that kind of thing.
1:04:15
SPEAKER_01: A lot of cities that used to be R3, meaning multifamily.
1:04:18
SPEAKER_01: Well, in the 70s, a lot of cities downzoned across the board.
1:04:21
SPEAKER_01: They said, all that's R3 is now R1.
1:04:23
SPEAKER_01: And I can't remember the numbers, but I think our ability to produce a total number of units was cut down by like a factor of like, you know, like eight or nine times.
1:04:32
SPEAKER_01: In other words, we went from, you know, a million units we could produce down to a hundred thousand, like that sort of magnitude, downzoning, meaning reducing the number of units that we can we can build under the zoning, right?
1:04:42
SPEAKER_01: And that's in California, the regulatory environment, like we live and die on the zoning, right?
1:04:46
SPEAKER_01: Can we can we rezone it?
1:04:48
SPEAKER_01: Do the neighbors fight us?
1:04:49
SPEAKER_01: Does it have the zoning we need?
1:04:51
SPEAKER_01: And the reality is that we've been in that political environment for so long that not only do we have the annual under supply in any given year, but then we have the totality of all every preceding year back to whatever, 1971.
1:05:03
SPEAKER_01: I'm picking a year.
1:05:04
SPEAKER_01: And so there's studies out there.
1:05:06
SPEAKER_01: Let's see, um uh Harvard's Joint Center for Housing Studies did a study about Southern California, and they think we have a million unit shortfall in Southern California by itself.
1:05:15
SPEAKER_01: Wow.
1:05:15
SPEAKER_01: I mean, just think about that.
1:05:16
SPEAKER_01: It's a million units.
1:05:17
SPEAKER_01: And by the way, I can't remember the exact numbers, but I think California does something like 80 to 100,000 statewide every year.
1:05:24
SPEAKER_01: Do the math.
1:05:25
SPEAKER_01: I mean, a million units, even if you argued it's true or not, you could just go look, we could all build for as much as we could for our lifetimes and never put a dent in that number.
1:05:36
SPEAKER_00: Well, one of the questions I get is uh, is this is this still a good time to buy, or um should we just avoid California?
1:05:44
SPEAKER_00: Yeah.
1:05:44
SPEAKER_00: And and I have to answer that all the time.
1:05:47
SPEAKER_00: And I'm like, of course it's a great time to buy.
1:05:48
SPEAKER_00: Yeah, you just confirmed it.
1:05:50
SPEAKER_00: Yeah, yeah.
1:05:50
SPEAKER_00: We need a hundred uh uh you said one million in Southern California.
1:05:55
SPEAKER_00: Southern California.
1:05:56
SPEAKER_01: That's not even the entire state, but uh that's not the Bay Area, that's not San Diego.
1:06:00
SPEAKER_01: Diego.
1:06:00
SPEAKER_01: I mean, if you do the math, I don't I I think uh, you know, our our illustrious governor at one point said we were at a three and a half million dollars uh three and a half million unit housing shortfall statewide.
1:06:10
SPEAKER_00: Wow.
1:06:10
SPEAKER_01: Um the numbers are all over the place, so they get a little they they get a little tricky as you get that big.
1:06:15
SPEAKER_01: But where I go philosophically is like, look, we're we're in a multi-decade supply constrained model.
1:06:21
SPEAKER_01: Um, or we're putting some new housing laws in place now.
1:06:24
SPEAKER_01: That's pretty good.
1:06:24
SPEAKER_01: That's sort of increasing accessory dwelling units.
1:06:27
SPEAKER_01: That's like a new popular thing that's happening a lot.
1:06:29
SPEAKER_01: But the reality is it's gonna take us several decades to build our way out of it if we ever do.
1:06:35
SPEAKER_01: Um, so at least from a new housing demand standpoint, I don't I don't worry about that at all.
1:06:40
SPEAKER_01: That's and that's part of the moat, right?
1:06:41
SPEAKER_01: That mo I described earlier.
1:06:43
SPEAKER_00: Correct.
1:06:43
SPEAKER_00: No, that makes perfect sense, and thanks for sharing.
1:06:45
SPEAKER_00: Um, I I wanted to talk to you about um there's a lot of changes in South LA, uh, properties that had zoning of, say, like R3.
1:06:53
SPEAKER_00: So typically you could build three units on it.
1:06:55
SPEAKER_00: Now they're allowing it and and I'm I'm being told this, so you tell me that they've changed it.
1:07:01
SPEAKER_00: So now they're they're kind of where where they were um downsizing, now they're kind of reversing that on some parcels and some areas, so that that R3 could potentially build 30 units so long as it's slow, um uh so long as it's affordable housing, uh less parking and all that kind of stuff.
1:07:21
SPEAKER_00: Um, I see a lot of new stuff going on in South LA and and and I sell in South LA and I see a lot of new product coming on.
1:07:27
SPEAKER_00: And on the resale side, I see it.
1:07:29
SPEAKER_00: It it does change the neighborhood, it makes the neighborhood better.
1:07:32
SPEAKER_00: I mean, by by all means, it's new, it's bringing in new product that a lot of the tenants in that area have never been exposed to.
1:07:38
SPEAKER_00: Um what are you seeing that's new?
1:07:40
SPEAKER_01: Like just give me a couple of things.
1:07:42
SPEAKER_00: I'll give you an example.
1:07:43
SPEAKER_00: So people are buying, people are tearing down like a single family home, and I'll see like four or five, six units brand new.
1:07:50
SPEAKER_02: Yeah.
1:07:51
SPEAKER_00: And so there's a lot, so you could go into LA right now, and around two million dollars will get you a brand new 7,000 square foot four-unit building.
1:07:59
SPEAKER_01: Yeah, see like the double duplex, two units in the front, driveway, two units in the back.
1:08:04
SPEAKER_00: And you're seeing a lot of that, and and you're possibly friends with some of the developers that are pulling that stuff off.
1:08:09
SPEAKER_00: Yeah, but but now what I'm seeing, and I'm being told like, hey, that's the old model.
1:08:14
SPEAKER_00: Uh now instead of doing four, we're looking to build 30 on on these things, and and that the city's saying yes.
1:08:20
SPEAKER_00: And, you know, I think, well, more housing has to be a good thing.
1:08:24
SPEAKER_00: Is it a profitable thing?
1:08:25
SPEAKER_00: I don't see, I don't hear you talking about going out there.
1:08:28
SPEAKER_00: So I'm just curious because I I do hear people are asking me, and like, Juan, why don't you do it?
1:08:32
SPEAKER_00: I'm like, I don't, I don't know how to put it.
1:08:34
SPEAKER_01: Yeah, you know, so so so city of Los Angeles proper, the actual municipality of the city of LA is a really interesting place to me.
1:08:41
SPEAKER_01: Um, but it's a total dichotomy.
1:08:43
SPEAKER_01: Okay.
1:08:44
SPEAKER_01: So it's got some of the most aggressive zoning that exists in California, even the United States.
1:08:49
SPEAKER_01: Like, I love LA for R3, R4, R5 zoning.
1:08:53
SPEAKER_01: You got the TOC stuff, you got the ED1 stuff, is probably part of the thing you're referencing, which is sort of a new affordable housing program under under uh Mayor Bass.
1:09:01
SPEAKER_01: But then on the flip side, we have ULA, right?
1:09:04
SPEAKER_01: And for those who don't know, ULA is the mansion tax they describe, which any property that's above a certain dollar amount will have a you know 5% tax, you know, um just taken off the top when you sell it.
1:09:16
SPEAKER_01: And so the dichotomy is, and and also I put on that side of the formula the regulatory environment for landlords, very landlord unfriendly.
1:09:24
SPEAKER_01: So I would love to do a bunch more in LA.
1:09:26
SPEAKER_01: And I know all the things you're talking about.
1:09:29
SPEAKER_01: In fact, South LA was a place that we studied when we were first doing this townhouse product and that double duplex stuff, and that's all over LA.
1:09:36
SPEAKER_01: I mean, that's on the west side, that's in South LA, that's in North Hollywood, I mean, all kinds of different places.
1:09:42
SPEAKER_01: And you're right, I think that model.
1:09:45
SPEAKER_01: I think it I think the model, the double duplex model is probably gonna come back because the doing the 30 units on that same site, you get a lot more density, but it's a lot more costly to build.
1:09:56
SPEAKER_01: And so this is the trade-off.
1:09:57
SPEAKER_01: Like just before we described our models that lots of bedrooms, lots of cheaper space, high gross dollar, high whole dollar rent.
1:10:05
SPEAKER_01: When you do those really dense things, you know, you people go, they must make more money.
1:10:08
SPEAKER_01: And you go, well, they do revenue-wise.
1:10:10
SPEAKER_01: You have a very high, you know, price per square foot on rents, right?
1:10:14
SPEAKER_01: Maybe the unit's smaller, so it's a lower whole dollar rent.
1:10:16
SPEAKER_01: But the problem is then it costs a lot to build that higher density, it's a more expensive construction model.
1:10:22
SPEAKER_01: And so where you really want to be is at the crossing point, the equilibrium point of a lowest cost build that generates the highest revenue, right?
1:10:30
SPEAKER_01: You want to be at the cross crossing point of the equilibrium point of those.
1:10:33
SPEAKER_01: And so why a lot of you know higher density deals podium or whatever describes the higher density, that stuff's not working right now because the you know the costs have exceeded the ability of the project to generate revenue to make it feasible.
1:10:47
SPEAKER_01: Now, there's some exceptions.
1:10:48
SPEAKER_01: You've got the ED1 program in um in the city of LA, which is sort of an ostensible affordable housing program.
1:10:55
SPEAKER_01: What does that stand for?
1:10:56
SPEAKER_01: Uh ED1.
1:10:57
SPEAKER_01: Actually, I don't know what ED1, maybe economic development.
1:11:00
SPEAKER_01: I'm I'm I don't know.
1:11:01
SPEAKER_01: I just know that the terminology, but basically what that program says, if you fit all the units within a certain affordability category and there's published rents that the city of LA publishes, then you get all kinds of crazy zoning relief.
1:11:12
SPEAKER_01: You don't have to do parking, you your setbacks are less, you can go really dense.
1:11:17
SPEAKER_01: And so there's a whole like just plethora of these ED1 projects.
1:11:21
SPEAKER_01: There's like hundreds now.
1:11:22
SPEAKER_01: Across, in fact, if people go on real estate Twitter and type in ED1, I mean you'll have a whole like education of all kinds of people doing the deals.
1:11:29
SPEAKER_01: What how does it underwrite, all that kind of thing?
1:11:31
SPEAKER_01: One of the challenges that we're starting to see is that the rents that are needed to make these deals feasible in in lower income communities like South LA, the economics are tough to the point where they probably don't work.
1:11:43
SPEAKER_02: Yeah.
1:11:44
SPEAKER_01: And people will argue with that.
1:11:45
SPEAKER_01: Now, so now what we're starting to see is ED1s going into higher income, like say West Side, um, you know, Santa Monica adjacent sort of LA.
1:11:54
SPEAKER_01: So ED1 is only in the city of LA.
1:11:56
SPEAKER_01: So that's an ordinance in the city of LA.
1:11:58
SPEAKER_01: So if you go to Santa Monica, that doesn't exist, so it's only LA.
1:12:01
SPEAKER_01: But yesterday I read that there was a um the daughter of a of a well-known real estate family had put forth, she has like 15 or 20 ED1 projects, and they're all high-rises.
1:12:14
SPEAKER_01: I mean, basically they're like eight or 10 or 12 stories tall, very, very dense, almost no parking.
1:12:19
SPEAKER_01: And this family and the the the lead, this this young lady who represents the family, they had done all kinds of west side ED1 projects, which that probably makes sense because in those west side markets, the rents are very high.
1:12:31
SPEAKER_01: In fact, she was going to do one in uh in Westwood Village.
1:12:34
SPEAKER_01: And the comment that was that the person who wrote the tweet is, you know, Westwood Village hasn't seen any high rises in decades.
1:12:41
SPEAKER_01: Like Westwood's been sort of dead that way.
1:12:43
SPEAKER_01: And so this would be the first one, and it will be the one of the ED1 projects.
1:12:46
SPEAKER_01: So those kind of things are interesting.
1:12:48
SPEAKER_01: Now, uh, if you do an affordable housing project like that, you're exempt from ULA.
1:12:52
SPEAKER_01: So there's an interesting dichotomy there.
1:12:54
SPEAKER_01: But often the ED1 projects or affordable housing projects aren't really meant to be classically profitable.
1:13:00
SPEAKER_01: It's not like you build that building, rent it up, and values above the cost, and you sell it and you keep the profits, right?
1:13:06
SPEAKER_01: And I'm not saying that doesn't exist in that environment, but the ED1 program is more of an affordable housing style thing, which usually means that the profit is less, maybe none from a from a structure standpoint, or the cash flow is gonna be less.
1:13:20
SPEAKER_01: Those projects are you know classically not intended to be highly profitable because they're you know, you got to reduce the rents, you got to keep the cost down.
1:13:28
SPEAKER_01: They're they're intended to produce affordability than more than profitability.
1:13:31
SPEAKER_01: And there's nothing wrong with that.
1:13:33
SPEAKER_01: It's just that's just a different business model, right?
1:13:35
SPEAKER_00: Right.
1:13:35
SPEAKER_00: And it seems tricky.
1:13:36
SPEAKER_00: I I think from the outside looking in, you're like, wow, the parcel doesn't seem to be all that expensive.
1:13:41
SPEAKER_00: Um, you are able to negotiate right now in those types of areas, and I'm talking about South LA, and then you count the number of units, you figure out the rents, you put it on a cap rate, and you're thinking, wow, I'm gonna I'm gonna retire rich quick, but I they look phenomenal.
1:13:56
SPEAKER_00: It looks phenomenal, but not knowing everything going into it and not having your experience of of development.
1:14:01
SPEAKER_01: What I've seen, I've I've had that exact experience.
1:14:04
SPEAKER_01: So I I've somebody sent me a site on San Pedro Street in South LA, I think it was, or maybe it was like you know, south of downtown.
1:14:11
SPEAKER_01: And I remember like you could you could put a whole bunch of units on this really tiny site.
1:14:15
SPEAKER_01: You can buy the site for basically the cost of the house, so that's a good price.
1:14:18
SPEAKER_01: You put a boatload of units on it, and then if you use the published rents for ED1, it looks amazing, right?
1:14:24
SPEAKER_01: You're renting the studios for let's say, I don't know,$2,000 a month was one of the published rents.
1:14:29
SPEAKER_01: I'm I may have the exact number wrong.
1:14:31
SPEAKER_01: But then what you got to do is you gotta go, okay, I can use the published rents, but is that the real market rents in that location?
1:14:38
SPEAKER_01: And when you look at San Pedro Street, at least in that, like I couldn't get anywhere close to that.
1:14:42
SPEAKER_01: I think we could, I think we underwrote it like$1,600 a month for the studio unit.
1:14:47
SPEAKER_01: I'm going off memory here, so I may have the facts incorrect.
1:14:49
SPEAKER_01: And so when you go from$2,000 a month to$1,600 across the board, then the deal doesn't look so good anymore.
1:14:55
SPEAKER_01: And so those I've had that exact experience.
1:14:57
SPEAKER_01: So it's like getting like a 9% yield on cost, which is like way above market.
1:15:01
SPEAKER_01: It's like, man, this is fantastic.
1:15:03
SPEAKER_01: But then you start to look at the reality of it.
1:15:06
SPEAKER_01: Um, and this is a like this is a classic underwriting process for developers, and and new developers were always sort of trend towards that, like it looks really good, and you sort of believe it, and you get you know sucked into it.
1:15:17
SPEAKER_01: My job as a seasoned developer is to basically not believe it.
1:15:21
SPEAKER_01: Like I like look at it, I go nine.
1:15:23
SPEAKER_01: I love that number, I don't believe it.
1:15:25
SPEAKER_01: So, like, what's wrong here?
1:15:26
SPEAKER_01: And you sort of beat up the numbers until you either, you know, you get truthful real data that you can prove and support, um, or the deal died.
1:15:34
SPEAKER_01: And so that one died.
1:15:35
SPEAKER_00: No, no, interesting.
1:15:37
SPEAKER_00: So, so investors out there, beware.
1:15:39
SPEAKER_00: Okay, it uh not everything is gonna be easy and it's gonna have its challenges, but but I'll I'll I'll tell you this, Scott.
1:15:44
SPEAKER_00: I don't think anything's easy.
1:15:45
SPEAKER_00: Yeah, I don't think there's a business that I've seen where I've ever thought, man, that that person's making easy money.
1:15:50
SPEAKER_00: Yeah, because at some point there was a lot of risk and a lot of money had to be put up, and and then the deal structure or the business model was was tough to implement, and nothing's really easy.
1:16:00
SPEAKER_00: Um, I did have a question kind of unrelated to real estate, but I've I've kind of noticed this.
1:16:04
SPEAKER_00: Um you you and I don't know if a lot of developers do this, but you tend to give back a lot in just in terms of your knowledge, your YouTube channel.
1:16:14
SPEAKER_00: Um you know, like you have a really robust um like like your emails go out, you get people updated, you're on podcasts all the time.
1:16:22
SPEAKER_00: And um, what's the reason?
1:16:25
SPEAKER_00: I guess what's the motivation behind it?
1:16:26
SPEAKER_00: Because I'll I'll tell you this, Scott.
1:16:28
SPEAKER_00: When I first so as a commercial broker, I was one of the very few to have a YouTube channel and start showing people what I know.
1:16:39
SPEAKER_00: And now now either you believe that I know what I know, uh, and then you know like and trust me, and you decide to work with me, or you decide maybe I maybe we're not gonna have a good vibe.
1:16:47
SPEAKER_00: And so it in the world of commercial real estate, and I would imagine development, we've always been to what you said at the very beginning where you know we're we don't want to uh give our secrets or show too much of what we do because someone might try to mimic us.
1:17:00
SPEAKER_00: But I've noticed that's not really ever been your concern.
1:17:03
SPEAKER_00: You you have no problem having your phone giving us like a selfie update with a foundation being built behind you, and hey, this is what's happening today, and they're tearing everything up, leveling out the land.
1:17:13
SPEAKER_00: Um, where where does that motivation come from?
1:17:16
SPEAKER_01: So I think it comes from a couple different places.
1:17:18
SPEAKER_01: So um one is I think where we are in the environment today.
1:17:23
SPEAKER_01: So my comments about Twitter and being able to share, I think we now have new like mechanisms to share that we didn't have before.
1:17:29
SPEAKER_01: I mean, we didn't have Twitter, Instagram, or YouTube.
1:17:32
SPEAKER_01: Yeah, you know, even 10 years ago would have been, you know, they were there, but no one really used them 15 years ago.
1:17:37
SPEAKER_01: They weren't there 20 years ago, like you know, it was the newspaper and magazines, right?
1:17:42
SPEAKER_01: So I think the the capability to communicate these things real time is like much more robust.
1:17:47
SPEAKER_01: Okay, so that's number one.
1:17:49
SPEAKER_01: Number two is um, so I I've studied with a uh it's like a learning group called the Aussie Network, and the founder of Aussie is this guy named Toby Hecht, and he always really had this great philosophy of business, which is basically giving and receiving powerful help, right?
1:18:04
SPEAKER_01: If you look at the most powerful business individuals in the world, the Elon Musk or you know, famous people like that, you know, people are always sort of focused on, you know, how like badass a business person are, or you'll see, you know, it's the old age, like how much of a jerk are they?
1:18:19
SPEAKER_01: You know, they punish their people.
1:18:20
SPEAKER_01: But I I look at, you know, Toby taught me a different way, which is if you look at the really top performers in business, they're giving really great help.
1:18:28
SPEAKER_01: So let's let's use an example.
1:18:30
SPEAKER_01: Um, Bill Gates, right?
1:18:32
SPEAKER_01: He he founded Microsoft.
1:18:34
SPEAKER_01: Well, what he did is he created the DOS operating program, right?
1:18:37
SPEAKER_01: And he sold that over and over again.
1:18:38
SPEAKER_01: If you look at DOS not as a piece of software it is, but as an offer of help that you for which you'll pay money to operate your computer, which by the way, the computer is the like the best source of help.
1:18:50
SPEAKER_01: Well, then you're gonna pay for that and you're happy to pay for it.
1:18:52
SPEAKER_01: You go, gosh, I get so much value and help out of this, you know, handing over 50 bucks for the DOS, you know, you know, software.
1:18:59
SPEAKER_01: Great.
1:19:00
SPEAKER_01: Like, and so all the you know, most wealthy people and the most successful people in business are really great at giving high value help, right?
1:19:08
SPEAKER_01: That's their offer into the marketplace.
1:19:10
SPEAKER_01: But also, interestingly enough, they demand help in return.
1:19:13
SPEAKER_01: Not in a demanding way like you shall give me, but like, you know, I'm Jack Welch, right?
1:19:18
SPEAKER_01: I run General Electric.
1:19:20
SPEAKER_01: I need 300,000 people who work for this company to be really valuable offers of help.
1:19:26
SPEAKER_01: I can't do what they do.
1:19:27
SPEAKER_01: I don't do accounting, I don't do manufacturing.
1:19:30
SPEAKER_01: I need the best of the best, right?
1:19:32
SPEAKER_01: The old adage, don't be the smartest person in the world, is means the other people that are smarter than you in the room are very valuable help to you, right, as the business person.
1:19:40
SPEAKER_01: And so it's it's that back and forth of giving and receiving very powerful help.
1:19:45
SPEAKER_01: So that's number two.
1:19:46
SPEAKER_01: And then for me, number three uh is my Christian faith.
1:19:49
SPEAKER_01: So I think just helping people is is part of my just my fundamental faith.
1:19:54
SPEAKER_01: Um initially, the the the stuff with Toby Hecht and my Christian faith like sort of melded together at one point that I was like, oh, really if I can take care of really good care of people in whatever way that is, whatever way I have capacity to do, um, then I'm gonna do that.
1:20:11
SPEAKER_01: And sometimes it's profitable and often it's not.
1:20:14
SPEAKER_01: Um, I'm always trying to build, you know, networks for the future, you know, to create future possibilities of doing business.
1:20:20
SPEAKER_01: You know, maybe I help that person now and it'll come back to me some days, but you know, gosh, um, you know, I'm on uh probably at least two phone calls a day of people who reach out to me through Twitter and are just young people, they're trying to figure out a deal or they need help or they just want to find out what I'm doing.
1:20:37
SPEAKER_01: You know, I do a every month I do a spaces event on Twitter, right?
1:20:41
SPEAKER_01: Yeah.
1:20:41
SPEAKER_01: If anybody in a space is sort of like a conference call where everybody dials into the space on Twitter and you're asking questions.
1:20:47
SPEAKER_01: I do that monthly because I just figured out I was like, I got people calling, like, hey, just bring me your deals.
1:20:52
SPEAKER_01: Like, what deal, like you got a problem deal?
1:20:54
SPEAKER_01: Like, bring it to the spaces event.
1:20:56
SPEAKER_00: Is that a consistent thing?
1:20:57
SPEAKER_00: Is it like uh every Thursday?
1:20:58
SPEAKER_01: Yeah, every every second Wednesday at 11 a.m.
1:21:01
SPEAKER_01: Pacific.
1:21:02
SPEAKER_01: If you go on Twitter and just search me in spaces, you'll find it.
1:21:05
SPEAKER_01: And it's just a space people show up and they go, Hey, I got this deal.
1:21:09
SPEAKER_01: Um, it's not working.
1:21:10
SPEAKER_01: I got this problem, I'm stuck with the city.
1:21:12
SPEAKER_01: What do I do?
1:21:13
SPEAKER_01: And well, like, you know, it's you know, it's a lot of me, but you know, I also want a bunch of other smart people to come into that space and go, hey, I I did this, I did that again, this sort of whole Twitter thing.
1:21:23
SPEAKER_01: Yeah.
1:21:23
SPEAKER_01: Um, so I think I just um, you know, this is probably the biggest takeaway is like I'm now I'm like I'm let's see, I'm gonna be 57 this year in August.
1:21:32
SPEAKER_01: Um just the the the willingness to to be a great offer of help and get great help in return has become like the center of you know my my business life in the sense that like you know I need to you know do both.
1:21:47
SPEAKER_01: I need to, you know, give give valuable help and receive valuable help.
1:21:51
SPEAKER_01: And everything I do is through that lens.
1:21:53
SPEAKER_01: Like there's nothing that I do, even when I teach my kids, you know, I've got a couple that are gonna graduate from college.
1:21:59
SPEAKER_01: My oldest will graduate from USC this year, and that's like a whole mantra I have with him.
1:22:04
SPEAKER_01: You know, 20-year-olds look at what I think philosophically a little bit different than a 50-year-old, right?
1:22:09
SPEAKER_01: Who's who's sort of been, you know, seasoned.
1:22:11
SPEAKER_01: Um, but nonetheless, you know, the the ability to you know transact with humans and human business is like the fundamentals.
1:22:18
SPEAKER_01: I mean, in the old days, when we're in, you know, caveman days, it's like, hey, I need you to hunt that deer and I need you to collect those berries, and that's your help, and here's my help.
1:22:26
SPEAKER_01: And I mean, it's very, very fundamental to who we are as human beings.
1:22:30
SPEAKER_00: Well, Scott, I appreciate you helping us today.
1:22:32
SPEAKER_00: And and we have a big following, and and they're super loyal and then they're and they're hungry for this information.
1:22:37
SPEAKER_00: So I encourage everyone to tune in to Scott.
1:22:40
SPEAKER_00: Scott, where should people follow you?
1:22:41
SPEAKER_00: Like, where's the best place?
1:22:42
SPEAKER_01: Yeah, so I would certainly, well, you know, we've talked about Twitter a bunch today.
1:22:45
SPEAKER_01: So my handle is at Scott Choppin, S-C-O-T-T-C-H-O-P-P-I-N on Twitter.
1:22:51
SPEAKER_01: And then I would also um I would encourage people to go to Substack, which is a newsletter, and look up this, the, the, the name of our newsletter is called The Real Signal.
1:23:01
SPEAKER_01: And that's a curated set of articles and a bunch of my writing every Saturday.
1:23:06
SPEAKER_01: Basically, it's sort of my economic research for the week.
1:23:09
SPEAKER_01: Shared, you know, all the articles that I think are important for our business, and I and I keep those and I capture them throughout the week, and then I share those out every Saturday.
1:23:17
SPEAKER_01: So just go Scott Chopin Substack, Real Signal, and you'll come up.
1:23:21
SPEAKER_01: And so um, you know, uh, you know, get on the newsletter list and then uh hit me on Twitter, and that's those are the two best places.
1:23:28
SPEAKER_00: What about for people that may want to maybe invest with you in the future?
1:23:32
SPEAKER_01: Yeah, for sure.
1:23:33
SPEAKER_01: So if people want, they can just email me.
1:23:36
SPEAKER_01: My email list, my last name choppin' ch o p-in at urbanpacific.com.
1:23:41
SPEAKER_01: People can send me an email.
1:23:42
SPEAKER_01: In fact, if if people want to go to our website, um, we're we're in the middle of uh uh uh update and rebuild on our website, but my our phone number is on there, so people can call that as well if somebody wants to call.
1:23:53
SPEAKER_00: Awesome.
1:23:53
SPEAKER_00: Thank you so much for being here, Scott.
1:23:55
SPEAKER_00: I'm gonna give you the final say.
1:23:56
SPEAKER_00: Anything, uh, anything you want to wrap us up with?
1:24:00
SPEAKER_01: Um here's what I would say.
1:24:03
SPEAKER_01: You know, the economy is doing crazy stuff right now, but I'm a firm believer in the American economic system and the America as a nation.
1:24:13
SPEAKER_01: I know we're gonna come back out of what whatever we're doing right now, sort of crazy in the real estate business.
1:24:18
SPEAKER_01: I mean, you you know that as well, Juan, but I'm a firm believer this will be the second uh recession that I've gone through.
1:24:25
SPEAKER_01: Um, you know, for some people they go through it easy, some people it's tough.
1:24:28
SPEAKER_01: I would just, you know, say to people who are having a tough time, it will get better.
1:24:33
SPEAKER_01: Um, for those people who are you know doing great, there's a lot of great opportunities to capture them.
1:24:37
SPEAKER_01: And I think you know, we're in sort of a with certain domains of real estate are distress, but I think there's tons of opportunities.
1:24:44
SPEAKER_01: So I'm I'm uh I'm bullish on the long run future of you know what we're doing in California and the U.S.
1:24:49
SPEAKER_00: Awesome.
1:24:50
SPEAKER_00: Scott, can't thank you enough.
1:24:52
SPEAKER_00: And we will definitely have Scott back if he's willing to come back.
1:24:55
SPEAKER_00: Thank you so much.
1:24:55
SPEAKER_00: Thanks, Juan.
1:24:56
SPEAKER_00: Bye bye.