Opportunity Exists at the Edges!

Good morning. I am Robin Binkley and my partner, Courtney Moeller. And we are ladies, kicking assets and all things in between. Today we have an amazing guest with us, Victor Minaj. And when we talk about him, I mean, if you've never heard of Victor, you need to get on and listen to his daily podcast called the Real Estate Espresso. Victor, welcome. We're going to talk about everything that we can in 30 minutes. But before we do jump into that, I want to share that the information that we talk about today is an indication of what we're all working on, businesses that we've been in, experiences that we've had. But we ask that anything you hear that you reach out to your CPA and your legal counsel. They are the experts, the licensed individuals in those areas, and we're merely here talking about our journeys. So moving on. Victor, welcome, and thank you so much for your time today.

Well, great to be here. Thanks for having me.

Thank you. So let's talk about your daily podcast, the Real Estate Espresso.

Wow.

How do you do that?

Every day it's a commitment, and some days it's a hamster wheel. I'm not gonna lie. It's some days it's a hamster wheel. When I made the decision five and a half years ago now to start the podcast, it was. There were a few thoughts that were at the forefront of my mind. Number one was, why does the world need yet another real estate podcast? You know, if people are listening to shows, why would they listen to me? And if they already subscribe to six and listen to five, because that's all they have time for, who am I going to kick out of their list, really asking that question in, and came up with a couple of answers that actually have stood the test of time. The first is the notion of doing a daily show seven days a week. And amateurs don't do daily. Amateurs just don't do daily. So that would immediately set the show apart, number one. Number two, if people are listening to shows, if they're subscribing to shows, the format is very typical. You know, it's a weekly show. It's 45 minutes to an hour. Nobody has the time to listen to the whole thing. It's all kind of more of the same. So don't do that. Be differentiated in the market. Would it be better, you know, in terms of actual time, be about the same amount of time if you're doing a show seven days a week, but to really do a morning shot of espresso, to really make it very, very short, very tight. And came up with a format of doing five minutes just on the weekdays and then interviews on the Weekend Edition. And, and that seems to be working. People are giving me the feedback that they'll listen, listen to my show first ahead of some of the more established shows, because they know they can commit to five minutes. They can't necessarily commit 45 minutes to an hour. So that's been, that's been, that was the impetus for the show. And the format has remained largely the same since inception. A couple of minor changes. First day of each month, we do a book review, book of the month. We've added listener questions, a few things like that. But by and large, the format has stood the test of time. And now over 2000 episodes and still going strong.

That's amazing. I think the five minute clips is brilliant. And I just want to add in that the other thing that I love about you. You know, I've had the, the pleasure and honor of listening to you not only through your podcast, but, you know, in person at events. And, you know, a lot of times a lot of people might be saying that things are headed one way and you seem to always have a different perspective, and I really appreciate that. So. And I have to say that they've been pretty spot on in the, you know, couple of years that I've been listening to you. So I think it's also important to have that, you know, other, you know, perspective so that you're not just in this, you know, echo chamber hearing the same thing over and over again.

If you're paying attention to what's happening in the marketplace and you look at the data in its totality, you might draw different conclusions than just reading the headlines in the mainstream media. And I find myself often being a little bit ahead of the curve in the sense that I'll report things on the podcast and then see the same thing three to six weeks, weeks later on the front page of the Wall Street Journal. And I don't, I'm not really doing anything special other than just paying attention. That's all I'm doing well.

And that's, you know, comes into play, that ability to think and not just go with what you're reading or hearing.

That's exactly right. You can't, you can't just go with what's on the evening news or Fox News or know, just one, one space. Very, very true. And you've got your involvement, Victor, in many areas. You know, I was like Courtney, thinking about the last couple of years and the Spaces that we've connected in person, the groups that we're in, and heard you speak. I've read your book. I mean, you're an author, a coach, a developer, a syndicator, an investor, yourself, a podcast host, and maybe other other areas that you're expert in that I've not mentioned. You have a passion for sailing. You and I have talked much about that. And you know, you. You have a business where you're a principal in Y Street Capital. Am I saying that correctly?

That's right, yes.

You know, I mean, you're a lot. And you always talk about moving the line in your, you know, urban investing and buying on the line and really moving that line. I'm fascinated by that. As I've looked at real estate, personally investing myself through the years, getting into developments and how that whole process works, I was wondering if you could just share a few minutes with our listeners on how you even got into that mindset and talking about that and being really successful in raising capital in those developments.

That's such a great question. And I believe that the opportunity is really exist at the edges. And it's those boundaries that are interesting. And we'll talk about a few different boundaries here. First of all, let's start with capital raising. My background is from the tech industry. I started my career as a microprocessor designer developing microprocessors for telecom applications. And then all kinds of various embedded applications, rose through the ranks of both private and public companies, held senior roles in the semiconductor industry. And I've got chips in all kinds of weird and wonderful applications like seatback displays on Airbus aircraft. And I have a chip in the Patriot missile and Pachinko patchy slot machines in Japan with Sammy, Sega and Nvidia. All kinds of applications all over the world. Cisco routers and Brocade fiber channel switches. Anyway, the list goes on and on. And it was in that environment I actually learned how to raise Capital, did five M&A deals in my career, one IPO, and learned how to have the investor conversation. When I moved into the world of real estate investing, ended up relearning the process of raising capital, and discovered that there were a lot of very stark similarities. That it was basically the same process, different players. It's like a remake of a movie, you know, different actors, but the plot's the same. And when, when I discovered that, of course, you know, when I moved into the world of real estate investing, I did what everyone else did. I spent my own money till I ran out, because you do. And that was the lazy thing to do and then realized, oh, wait a minute, Victor, you, you know how to raise capital, or at least I remember how to raise capital. Let's see if it's the same or if it's any different. And it turned out to be very, very similar. So that really is one of the key skills that unlocks the key to the kingdom in terms of offering you the ability to scale your business. Because at the end of the day, real estate's a game of large numbers and if you're using your own funds, you're going to run out. That's pretty much the way it is. The strategy in terms of buy on the line, move the line. There's a number of different lines that exist and they can be arbitrary. They're often arbitrary. Now if it's a municipal boundary or a school district or a freeway or a railway line, those are hard lines and those are more difficult to move. We'll come back to those. But often, if you think about most any city in America, there is an arbitrary line where on this side of the line you've got the coffee shops and the art galleries and it's a gentrified neighborhood and you go two blocks in the other direction and you're in the hood. And wherever you are in America, that condition, I know it exists in whatever city you're, you happen to be sitting in and listening to this. And often that line is arbitrary. We discover this in two. Two facets started early on in Chicago. There were a bunch of lines like that, but in particular it was Philadelphia. And we ended up acquiring about, I don't know, 85, 90 properties within about a 10 block radius. But they were just on the wrong side of that line. In to the south of Gerard College, which is one of the landmarks in, in Philadelphia, is the Fairmount district. And that's a hot area. If you go immediately on the other side of Gerard College, the exact same 1920s vintage townhouse would have sold for about a half or a third of the price. And you say to yourself, well, why? Well, no reason. It's just because there was no real reason. So we started buying properties on the wrong side of the line for pennies on the dollar, redeveloping them. And guess what? When you go to get those properties appraised, there are no comps for brand new product in the hood. So where are you going to get the comps? You're going to get it from a block away, immediately to the south. Now if you just do one or two, the marketplace doesn't notice. But if you put a little scale behind it, all of a sudden the marketplace says, oh, the line has moved. Are you willing to live one block further away from the traditional, you know, hot neighborhood for, you know, 5% less rent? Most people would. They recognize that the line has moved. And so we just started repeating that over and over and over again. And we ended up getting just straight great valuations. But we were able to acquire assets at a significant discount to the market because they were not desirable. They were, they were, they were in the hood. Who wants that? And yet what people were offering it for is for what it was, not for what it could be. And, and that's, that's very much a. Absolutely. An infill urban strategy that virtually any investor can do. There's more advanced versions of that where the line is a hard line. Like, for example, if it's a municipal boundary, it's harder to move that line. You can, you can do an annexation, and that's, that's a heavier lift, for sure. But even there, you can create tremendous value. I'll give you a simple example. Maybe not simple. It's. It's an example from our own business. We're doing a project on the edge of Colorado Springs right now. This is a large project, and it is in the county, it's not in the city. And when we originally contemplated this particular project, we were having meetings with the county. And at the county meeting, the city, city officials showed up and said, you know, if you were to choose to annex into the city of Colorado Springs, we would be very supportive. And we go, wow, that. When, when does that happen? When does the city crash a county meeting and show up uninvited to, to solicit you to annex into the city? Now, this was agricultural land. I talk about the land, the land use multiplier. So the value of land is pretty much tied to what you can do with it. You know, an agricultural land pretty much anywhere in the country is going to be anywhere from, I don't know, 3 to 10,000 an acre. Something in that range. And that's pretty much the going rate. Might be a little bit more if you're growing wheat on it, but, you know, it's in that range. As soon as it's available for development, of course, there's got to be demand for it. You know, laws of supply and demand to me are like gravity. It's the law of physics, and you have to obey that. But assuming the demand is there, if you, if that land is now entitled for development, you go from maybe, you know, 10 grand an acre to a few hundred thousand an acre. If you can put a, I don't know, 40 story high rise building on it might be several million an acre, but at the end of the day, it's the same dirt. It's just dirt. So what is it that is making that land more valuable? It's, it's what you can do with it. So we acquired 1783 acres. I know that's not quite a round number. It's just under 1800 acres. 7700 million square feet of land on the edge of Colorado Springs for 23 cents a square foot. And that's a pretty decent number, 23 cents a square foot. And you know, post annexation, post entitlement, that land should value between four to five dollars a square foot. If everything goes according to plan later this year, we should be fully entitled. And that's a pretty good multiplier. Then of course, we develop it from there. We put in eventually, over the next 10, 15 years, about 67,000 linear feet of road. And all of these, you know, the infrastructure we got to pull utilities, 3 miles. And there's a lot of incremental investment required. But we can get a 20x multiplier on the value of the land simply by moving that line, by going through the annexation entitlement process. It's just another line. That's all it is. And you can create value that way.

Well, Colorado Springs is a beautiful area, so that was a really smart move in that, in, in, in that area. I mean, it's just gorgeous. I was recently in Colorado about two weeks ago, and not in Colorado Springs, but I've been there and it's just gorgeous. And so really, how do you find these types of properties in these areas that, you know, that, what, what metric are you using to identify, for example, this project? You know, once you get through entitlement, you know, just from a development standpoint, you can either right. Flip out of that and, and make that available to another developer and, and collapse some time frames, or you can actually develop that project. And as you said, that's a 10 to 15 year plan, you know, for moving forward. So how do you look at something, you know, from the lens of, you know, 6, 15, 16 years, if you will, or, you know, what's your, how are you doing that? Like, what are you looking at?

Sure. So there's two questions in there. The first question is, how do we find things? And I'll say with all honesty and all humility, I have no Idea, because we don't hunt, okay? We really don't hunt. Every single project that we're currently doing came to us in one form or another. We weren't out there looking for it. With the possible exception there's only one city in America right now where I'm looking for land, and that's in Austin, Texas. That's a whole other story. But in all honesty, we really don't hunt. We. They all come to us. And this one in particular, when it first landed in our lap, we dismissed it. We said, oh, it's too big, it's too complex, it's too long. It's too fill in the blank. And it took us a couple of weeks to wrap up, wrap our minds around it and even come to the conclusion that maybe possibly we could do something with it. And you're right, there are multiple exit strategies. Where we got comfortable with it was, yes, it's a long timeframe to fully develop this. But we said, you know what, if we can take a portion of it and donate it to conservation, if we can take 100 acres and sell it off to a home builder, the value of that entitled land, even 100 acres will get our basis, our cost basis on the remaining land down to zero. So then at that point, you're sitting on more than 1600 acres that you own free and clear. That's not a bad place to be. You know, it's asymmetric risk. You've got way more upside than downside. And yeah, there's a little bit of property taxes, but it's still agricultural use. I mean, you put a few cows out there and they graze and you're not paying the full tax bill for. For. For residential subdivision, because that's not what it is yet. And we put together the master plan with all of the consultants and the environmentals, and there's a million different things that you have to do to. To get these through the process. But we learned how to do this on smaller projects. And it was that experience that got us comfortable with the notion that, yeah, this was just, you know, at a zero or two, but it's basically the same.

That's really great how we all kind of journey through and get into these different opportunities. You know, it's so much like you said, it's. It's similar to something that you've done before. It's just an extra zero or two. And you can't let that scare you. You know, you've got to confident in yourself. Curious. Since we have been in some of the same, similar circles. Who would you say has been, you know, a really prominent mentor in your life or your business, if you will, or maybe they're one in the same here. Over the last year, you know, we've had different benchmarks and seasons in our professional development and growth. And who would you say you're, you know, leaning on the most right now for your direction?

That's a great question. Yeah, I love that question. In fact, I did an episode on the podcast just last week where a listener asked that very question and the question was, you know, who are my mentors? And you're right, some of them go through different phases. One of them, quite frankly, is a gentleman who is 101 years old. He'll be 102 years old this month. And he's the gentleman who introduced my parents. He was a contemporary of my father, served in the army together, interned at John Hopkins and we keep in touch. He's someone who has mentored me over the years. It was through him that even as a maybe a 10 year old, 12 and 14 year old, I developed a hunger for personal growth because that really personified who he was, who he is. He's still alive. So, you know, he's, he's absolutely someone who I think about frequently in terms of someone who provides more day to day guidance. Today I would have to put George Ross at the high on that list. George is 95 years old. You'll notice there's a theme here a couple of they're a tiny bit older than me and, and George built a law firm in New York City. He worked for many of the big brand names in New York. He's well known for having been on, on the Celebrity Apprentice TV show and the Apprentice TV show as Donald's right hand man. He really is the person that I personally credit with having saved Donald from bankruptcy a couple of times and really, you know, pulled him out of the fire. He's just a real master when it comes to deal making, negotiation. He taught at the law School at NYU for over 20 years. And I've been running a mastermind with George now for 13 years. Every month get together and have a chat with him and it's been an extraordinary experience. And if, you know, if you had said to me, me back when I was in the tech industry, Victor, you're going to be hanging out with, you know, this, this genius of a lawyer from New York and you'll be holding a monthly mastermind, I would have said you're nuts. Like, no, but, but here we are so, and. And that is the key. You know, George's net worth is in the hundreds of millions, and I'm not going to, you know, put out a figure on. On publicly, but it's high. And he did that on the side. That was his side hustle, because there just aren't enough hours in a lifetime. I don't care what your hourly rate is, to amass that amount of wealth on an hourly rate. He did that on the side. And he never invested with Donald, but he happened to be immersed in an environment that spilled enough opportunity that he couldn't. Almost couldn't help but make money. So one of the things that I've learned from him just by observing him, is to be in an environment that is, you know, in an environment where what you aspire to do is normal.

Yeah.

And. And. And that's the key, is to surround yourself with those people. So I ask him advice of things where I even think I know the answer, and he often surprises me. He challenges me. Yeah. I'll give you a simple example, because, you know, I've got to know you both over. Over the years, and you both have very, very high ethical standards. And so I asked George an ethics question. I asked him, george, if you're negotiating with a seller and you catch the seller in a lie, can you do business with them? Just walk away from the deal? And he said, fantastic. I said, what? He said, fantastic. Now you just gained a tremendous amount of negotiating leverage over that individual. I was like, okay, interesting. Right. So it's a matter of perspective. It's not, you know, you're not compromising your ethics by doing business with that person, but now it changes the negotiation dynamic. But that's also what comes with experience.

I really like how you put that, you know.

Well, and it's interesting because I actually just had a company that I was, you know, vetting to potentially work with and, you know, caught them in a lie. And I actually did choose to walk away from them because that was not where I wanted to start. And I thought if we're. If we're starting off on this foot right at the beginning, this is not where. Where I want to go. So it's. It's interesting, and now my wheels are spinning. Okay, so how does that negotiation tactics apply to that situation?

Right.

Yeah. I wouldn't go into a partnership with a liar, that's for sure.

Right.

But if it's a transaction where the person's a seller and you're buying an asset, well, you got to do your own due diligence. Anyway. And that's, that's an entirely different scenario.

Absolutely, absolutely. Well, George is great. You know, we've had the honor and pleasure of listening to him with you, and he really does offer so many great nuggets. I've got a lot of, you know, great information that I've, you know, taken from listening to both of you, actually. And so that brings me, I'd like to ask you, you know, when I was listening to your podcast, I think it was your episode from a week ago, you know, there's a lot of concern in the economy right now. You know, nobody really knows what's happening. And you did one of your fabulous five minute clips on, you know, what the Fed said and what they didn't say. So could you talk a little bit about that?

That was such a fascinating meeting. And so when I look at something like that, you know, if the Fed comes out with an announcement, I've got to report on that in a timely manner. Three weeks later is right. It's, you know, it's, it's not news and it's not history. It's, it's neither. Right. So it's got to be in a timely manner. So I watched the press conference. I also listened to some of the other folks, Lacy Hunt, Daniel DiMartino, Booth, some of the other folks that are also have a very strong inside perspective. And, and what was very clear from that particular press conference was that the, the Federal Reserve was not speaking with one voice. They put out the economic forecast where they increased the forecast for 2023 from 1% GDP growth to 2.1. So in June, they said the GDP growth in 2023 was going to be 1%. And in September, they're saying 2.1 and we're almost at the end of the year. And so that's saying, wow, that's a huge, huge departure. And we won't go through all the numbers, but you go through all the rest of the metrics and you say, wow, this really is the soft landing narrative that has been promoted in the mainstream media that somehow the Fed is going to fine tune things just so perfectly, they're going to stamp out inflation and not create a recession as a, you know, as a consequence. And when the reporter from Reuters asked the question about the soft landing scenario, Jay Powell said, he said almost verbatim, no, no, that is not my base case. While a soft landing would be preferable, it is not my base case, which is signaling that there are other headwinds. And he made reference to them in the, in the press conference that they're paying close attention to. So they're not speaking with one voice. You also have two new members that were appointed to the Federal Reserve, ratified by the Senate, that are going to sit there on the board for the next 14 years. That is adding. And both of those individuals are firmly in the rate cutting coalition, if you will, which could mount a little bit of a, a critical mass of rate cutting sentiment within the board and potentially at some point create a mutiny, which again, nothing's happened yet. But it's, it's just a perspective. It opened the door to things changing where previously the narrative had been. And by the way, the narrative is still higher for longer. Absolutely. That is the, that is the official party line. But Jay Powell went off script and he spoke very firmly. And by the way, that's a departure from what it was in June because in June he was promoting the soft landing narrative and he said, I know it's not popular and it's almost verbatim. He said, I know it's not popular to say this time is different, but I think this time is different. And he's not saying that now. So it's just a matter of paying attention, you know, that's, that's it.

So how does that translate into what we could potentially see in this next, you know, six to 12 months?

I think we're going to absolutely see an economic downturn propagate into the United States. There are certainly other parts of the world that are already in recession. Rising energy costs are going to push that even deeper. We've seen inflation running hotter than wages are increasing. We'll see what the United Auto Workers gets because they're asking for some pretty big numbers. They're asking for 40%. That might create a wage price spiral if that becomes a contagion throughout the economy. But the main thing to think about is that once we enter into a recession, there'll be a tremendous amount of political pressure to re. Stimulate the economy. Traditionally, recessions are disinflationary. Now there can be stagflation. Stagflation is when you have inflation and economic stagnation simultaneously. That's usually the result of an artificial, it's not market forces, some artificial thing that has come to play. We saw it, for example, in the 1970s with the oil embargo, the OPEC oil embargo of the United States, where we had an oil price shock at the same time as a recession that created stagflation. And that can happen again. Absolutely. The other thing that there's, there's always headwinds and tailwinds. So for example, right now I, I see economic weakness in the near future causing governments the world over to, to cut rates. They haven't come out and said it, but I think that's my belief in the inverted yield curve says to me the market agrees with that perspective because the, the yield on short, short term paper is higher than the yield on long term paper. And that's a, that's an inversion. It's like an atmospheric conversion. It can occur in nature but it usually doesn't persist. So, but we've had it now for close to 27 months. I mean that, that interest rate inversion's been there. The other headwind though is that the US is printing a vast amount of money, like an extraordinary amount of money. And who are the buyers for that paper? It obvious. China's not buying it. Saudi Arabia is not buying it like they used to. Japan is still buying US paper. But who else? The Federal Reserve is shrinking their balance sheet. So they're not putting it on their balance sheet. Who's going to buy? Like you know, in the last three months the US printed a trillion dollars of new Treasuries. New money, not just rolling over the existing debt. That's a trillion dollars of new debt. And we've seen the yield on those Treasuries go up. Why? Because the prices have fell. People are having, are demanding a higher yield in order to buy that paper. It's being, it's being bid down as opposed to being bid up. So we may see interest rates rise for a little while, especially on the long term paper, which is negative for real estate investors because for permanent financing most of us are buying debt that is indexed to the 10 year treasury or the 30 year Treasury. It's not necessarily linked to the short term rates. If it's bridge financing, it might be linked to the, the secure overnights fund rate, what's called sofr. But, but that's usually short term financing. What really keeps people up at night is the permanent financing and that's linked to the 10 year Treasury. So I don't have a crystal ball. I wish I did. I think that there will be pressure to lower rates. For sure. Will and, and the Fed can lower the short term rates. They can set the Fed funds rate. They don't set the market rate. The market does that. So there isn't just one interest rate. The market sets the rates. They only influence a small portion of it. That, that's, that's my take.

Nope. I appreciate that. I think that just like I said, goes into a little bit of what people hear, but then what they don't hear and, and maybe what they don't want to hear.

That's right. I certainly didn't want to hear some of it and it came out of my own mouth. So.

But it is the, it's the reality of where we are. So, you know, we have to figure out how to pivot and work a little smarter. And like you mentioned, you know, it's that connection with folks. You said, and I wrote it down and I love how you, you said it. I've got multiple pages of notes here. You said be around and hang around the people that you aspire to become. So you're putting yourself in the room or you know, in the groups with the folks who are speaking your language or experts in a field and you're learning from more than one news station, like flipping on the news at night and just listening to what's happening. You know, you're gathering your information from several respected sources. And so I really love how you, you worded that, you know, but in essence, I mean, that's, that's essentially, you know, what you're saying here is, you know, gather your information from some different various expert sources and understand where you are in the marketplace and understanding that economic position. That's something that I had to really force myself personally a couple of years ago to begin looking at that macroeconomic perspective on the world and investing and, you know, learning terms and understanding how all that connects and, and works together. And so you've mentioned some very well respected folks here in the last few minutes.

Well, and by the way, everyone can do this, you know, for example, follows logic that products get manufactured before they get sold. Okay, so the Producer Price Index is going to lead the Consumer Price Index by three to six months. If you look at what's happening in the Pursuit Producer Price Index, you'll get a preview of what might happen in the Consumer Price Price Index. If the PPI is heading up faster than the Consumer Price Index, maybe inflation will be hotter in three to six months. If it's falling, maybe at least for that segment of the Consumer Price Index, maybe that will be a little bit cooler. You got to break it down and look at the constituent components. But there are leading indicators and not all of the indicators are subject to the fudging that happens with the cpi. Some of them are. They just deliver the data straight up and so without any alteration. And that can be often more useful.

I'll have to pay more attention to that. Something I have spent a lot of time looking at. But I will.

No, definitely. Thank you so much for all of the amazing nuggets. Our time is really drawing to a close here and we could. We could sit here and talk with you and pick your brain for hours, honestly. But how can our viewers and listeners get in touch with you, Victor, if they want to reach out and.

You.

Know, connect with you and get some coaching and mentorship and direction from you?

Sure. Well, I love to have you as a listener to the real estate Espresso podcast. It's available on more than 20 different platforms. So wherever you listen to podcasts, Spotify, Apple, on all these, the different podcasting platforms, it's out there. It's spelled like the Italian coffee Espresso, esp R e dash S O. And if they want to connect with me directly, just victor@victorjm.com that's Victor. Victorjm.com and happy to connect and answer any questions and build. Build relationships and connect with any of your viewers and listeners.

Well, I'm sure some people are really interested in 20xing their capital, so.

I wish we could do that on everyone.

Yes.

Yes.

Thank you so much for coming. You are incredible. You have such great golden nuggets and words of wisdom, and you have such a great calming voice to listen to as well.

Wow. Well, thank you.

All right.

Well, thank you so much, and I hope you have an amazing week.

Absolutely.

Thank you so much. Great to spend time with you both and hope to see you soon in person in the near future.

Thank you.