Design That Sells: Secrets to Smarter Development with Aaron Yassin

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Hello. Hello.

Jenny Bowling here with Pivot to Prosperity, the podcast brought to you by Pivotal Real Estate Investments. And we have here today with us, Aaron Yassin. Aaron, thank you for coming on.

Yeah, well, it's great to be here. Thanks for having me.

Jenny. We've known each other, I guess, a couple of years. Yeah, couple years. Really? Yeah, yeah. Part of the same mastermind and.

Exactly.

You're in one of those niches because you're a developer.

Yes, yes, yes.

Talk to developers every day and I, I love to hear what y' all are seeing in the market, what you're dealing with and you could, you, you know so much about all the pieces that imparts, especially since you're an architect by trade.

I think I am, I am actually an artist by trade. So I kind of, I come into this in a unique, with a unique perspective. I would say I'm definitely kind of a unicorn, at least in my local market for sure. There's definitely some architects that have become developers. It often doesn't work very well. I know a lot of them that would like to do it and they find it very challenging. So I think that my background actually gives me a level of flexibility that's been very useful. Although not all artists do lots of different things in the way that I do. But I think that that background just really in approaching making things and doing things has been incredibly valuable.

I used to be married to an architect and he loved the design Component.

I love the design component, but I also really, really like the process, and I like the building component because it's really the making. You know, I'm a maker, so I like making things. So a building is just something bigger to make. Right. Than lots of other things that I might make. So there's a little bit of a difference there. Like the actual mechanics of the making of the thing, really, I find very exciting.

And how did you come up with the name of your company? It's Hive Capital.

Right, Hive Developers. Well, it was connected to another name, so I was looking for kind of brainstorming some, you know, related name. But the, you know, it's also very much about this idea of creating spaces like a hive, essentially. So there's kind of two components to it that, you know, a hive is. Is generally constructed of hexagons. Hexagons are one of the strongest shapes. Geometric shapes, structural shapes. So I really value that as a kind of a reference, the strength that that offers, and also the. The idea of the quality of. Of a hive, that it's a communal kind of space that that one could inhabit. Right. And create then something from that. So I appreciate these kind of different references.

And a hive kind of means we want to. Right?

Exactly, exactly. It's a home. We want to create homes that are, are, are, are, are, are beautiful, that feel comfortable and shared and have a kind of quality to it that, you know, you might think of as that with that quality.

And we're going to show some pictures here towards the end, but first, let's talk a little bit about. So you are located in.

I'm in Brooklyn, New York.

So. So when you want to build something, you usually have to get something else out of the way, right?

That is, yes, almost all. Almost always. There are very few rare sites in, In. In the boroughs in New York City where there's nothing built on them, but it's very few. So, yes, this is almost always a demolition component when you're doing new construction. And then it gets even trickier than that. I mean, I know you know, a lot about it, but it's not just about demolishing because, you know, we have adjacencies, right. There are adjacent properties. It's not that there's space around the property so you can demolish it and then clear the site. You know, we have to be very conscious of the adjacent properties that are sitting next to the lot line. So there's definitely complications involved. So there's.

Lots of times they're connected. Right. Aren't they sometimes touching?

They are. I try to stay away from those. We have to remove one building from another. I've seen it done. I've taken buildings off where they're touching. Right. So one would be touching another property, but separate structures. So that's, that would be the most extreme I would like to go to. But it's not impossible that you have to actually, you know, remove one building from another in some capacity. It's certainly been done many times.

So like in the right of way work, if we were taking part of a building and especially if it was contentious and they said you're not touching anything more than you absolutely have to. Right. Cutting down that bill.

Right, right. Well, that, that just creates lots of risk factors. Right. Because you know, you needed an agreement with the, the neighbor. The neighbor and then how do you arrive at that and then who's monitoring it? You know, I've seen properties where the monitoring has, has run into the years, like multiple years of monitoring a site, mostly in historic districts, historic landmark districts, to ensure that adjacent properties are not subject to any kind of damage or movement from a new construction or excavation. So it's very serious. And that presents one of the critical risk factors in working on new development projects. And that's not just a risk factor for projects in more dense urban areas. That's a risk factor in other markets as well. You know, you've got to deal with your neighbors and sometimes your neighbors are nice and they it can work out and other times it can be very challenging. So it's certainly something to keep in mind. And I think that goes for pretty much most real estate. You know, you want to.

Yeah, certainly. But you're in such a unique situation there. So anybody looking to invest in development in New York better make sure that that developer really knows what they're doing.

Well, I mean, I think that that would be an obvious question for someone looking to invest as a, as an LP in a new development, a new development syndication. Right. But I would actually broaden that and say it may seem like that's where you really want to focus on the operator. But in my opinion, and I'm not the only one, I think that's the main, should be the main focus for anyone looking to invest in the syndication. You need to understand who the operator is everything, because the operator is everything. And there's tremendous risk factors across the board in all real estate investments. Are there more in ground up new development in New York City? Okay, probably yes. There's not an existing asset that has some existing Value except the land. So, you know, you can look and dig into some numbers there, but you need to understand where those points of risks are and you need to understand how operators address those points of risk. And it's a complicated question really understanding where your risk factors are because sometimes they're not known. Right. Things happen.

Right. For sure. And so then you identify property. Well, first of all, let me just ask, I don't know if this is out of the blue land values where you might develop up there. What's the typical range per square foot of the land?

Right. Okay, that's a great, a great question. How do you even evaluate that? So when I'm looking at a development site, it's going to be based on the number of square feet that you can build. And then looking at the cost per buildable square foot, does that make sense? So say you've got a, I mean, I can start with just say a small site that's. Or you can say 100 by 100 foot property, which is pretty big for the city. That's 10,000 square feet. You might be in a zoning district that allows you to build that has what's called a floor area ratio of 2 times the site dimensions, the site square feet. So that would allow then 20,000 square feet to be built. Could be 2.2, 2.433, you know, would give you 30,000. So the, the acquisition price is typically going to be based on. And that's how underwriting would be done too. You're going to base your underwriting on what you're paying per square foot because everything's going to get broken down in your underwriting by the square foot. And then there's another layer of that complication in underwriting and New Development Pro project is that you have the total buildable square feet, but then you have the saleable square feet because you're going to have a loss factor. So this is a lot of what, you know, development in New York City is about is how to know, juggle these different kind of puzzle pieces. Because there's the, the whole, the hole could be greater than actually the buildable because there's deductions and then there's the actual salable. So but from an acquisition standpoint, it would just really, you would look at it from a price square foot price based on the buildable. So let's say it's 10,000 square foot, lots of. And you can build three times the. Those dimensions. Right. That square feet, 30,000 square feet. Multiply that by whatever the prevailing development Site price per square foot would be in that, in that local market, which could range from on the very, very, very low end in locations that are not so desirable, somewhere between 50 and $100 price per square foot. And you know, there have, there have been sites traded, I think north of a thousand dollars just for development sites. But for the, the most part, decent development sites in New York City right now are ranging between, let's say 350 and 550 price per square foot. That's just for the land. So in a lot of markets that would exceed what you can actually sell the, sell a square foot for. You know, what you're going to pay for the, for the acquisition cost. And in those locations you would look at an exit value. You know, we're focused on condominium developments. For a location with a 350 to 550 buildable square foot acquisition cost, your exit price per square foot is going to be 1200 to potentially north of.

2000 attributable to the land.

Well, that would then be the, the what you would sell a condo for once built, right?

For a square foot.

Yes. So you're acquiring, acquiring land between, you know, 350 and 550. And then you would look at an exit square foot price on the, on the saleable square feet of 1250 to north of 2000, $2,000 a square foot. So a 1000 square foot. On that higher end, 1000 square foot apartment, you know, would sell could some for north of $2 million. And then obviously in the, you know, the more trophy locations, you know, that could exceed 2500 or 3000. It's not that, it's not that many buildings though. Those are kind of key, typical key Manhattan locations. Yeah. And then you've got to fit in, you know, you've got to fit in all your costs, you know, into that, into that, that split because you're starting with your, your cost basis on the, on the, on the land. Right. And then the rest of the underwriting's got to fit, has to fit into that. It's kind of digging into some of the nuts and bolts and the numbers. Right. So you need all that work on the modeling side. And then, you know, you've got to have the robust operations to be able to execute. So there's definitely a high level of execution risk. But again, in real estate, there's execution risk everywhere. Right, right. And that should always be something that any investor should consider. You know, what, what, what are the, the execution risks? Actually really stepping back from that, I think one of the things a lot of people don't really back up from enough and think about is really determining what are the layers of risk in a potential investment. Right. Because let's say you're looking at something very close. Right. Are you taking enough of a bird's eye view to really consider what all of the potential layers of risk are? Because there are layers of risk. Right. Even in, in, you know, say you have operational risk, there's layers of operational risk. It's not just one. Oh, it's the operators. Well, you know, what's their level of risk? Well, you know, that operator is going to have multiple consultants on a, on a project. Again, could be whether whatever project it is, you know, if you are acquiring 100, 100 unit multifamily building, you're still going to need to hire a significant number of consultants depending on the level of value add that you're doing. So you know, who in, when, where are the risks in the operations there, there's layers of risk. So how do you actually assess what all those layers are and then what the impact of those different segments of risk are? It's, it's very challenging.

Right, right, yeah. And depending on your market, it escalates from there. When you're this kind of dollar per square foot cost, it's high, high risk.

Absolutely, absolutely, yes. Delays, just. And it's also just ability to transact is, is challenging. You know, like, I got a broker called me yesterday and he was like, oh, I got a problem. This was thought. And then he texted me again today. He's like, oh, there's already a term sheet out. I'm like, since 8 o' clock last night? He was like, yeah, it went quick. Like, you know, you never know what, what you're told, right? It's always. But you know, that's, that's how like, that's how there's a segment of people that like to operate like that in New York. You know, it's going to be as fast as possible.

So. So what's your typical timeline once you've got a site cleared? Well, I'm sure you're working out right from the get go on putting together plans for permits and all that, right?

Absolutely. So a timeline in. There's a lot of misconceptions, I think, about developing in New York about layers of red tape and other regulatory requirements. Not that they don't exist, but they exist all over the place. Certainly some places are easier to build than others, but it's not as some of the parts, some parts of the process are not as necessarily as complicated in New York they can be, but they are not necessarily. So it's possible to get plans approved in, let's say, four to six months, depending on who you're working with. But you know, you, there is a planning part of the process and you can take longer and you might end up with a better building. And it might make sense to spend more time in the planning stage. Right. If you can do other things during the same period of time. Demolition application is separate so you can get that approved and begin on demolition while you're getting plans approved. So you want to know, you need to know exactly what are those, those points that you need to hit so that you can overlap them. Right. You're doing one and then you're simultaneously doing another, as opposed to like you do this, you realize, oh, now I can do this, but you could have actually done this, you know, further, further in the past. Right. So you can speed up your timeline. So again, there's a, you know, it's just an understanding of what, of what needs to be done. The projects that I've been working on, generally the project duration is about 30 months. I'm looking at a, trying to get a larger project originated and I would likely underwrite that at 36 months just.

To provide how big is that, how many, how many units, how many sites at that?

I think that that could be 20 to 40,000 square feet or potentially a little bit more. You know, you have more units, it's going to take longer to. Obviously it's going to take longer to build, but there's some efficiency you can get, you know, if you have some consistency in the construction. But it's going to take longer to, to market and sell the units as well. So you just need to figure to add in a little bit more time depending on the size of the project. Certainly a very significantly sized project. Let's say you've got 80 to 100 units. It's going to, in their condominiums, it's going to take longer to sell those. There's no question about it. So certainly size is, makes a difference from a timeline standpoint.

So the typical size is in that 500 square foot range. Pretty much.

By 500, you mean in terms of apartment size?

Yeah, if you did, if you did 100 or say 80 units in, in a 40,000 square foot, that's.

Oh, that would. 80 units you'd need, you would want to have more, more buildable square feet, because 500 square feet is not really a sale. That's like a studio size apartment of those in, in a, in a building that you would sell. Maybe they fit in and just to have a little bit of diversity. But in for the most part, you'll typically have some one bedrooms, two bedrooms and maybe three bedrooms depending on how many square feet you have. And depending on the submarket, it might appeal more to, you know, one bedroom buyers as opposed to, you know, family size units in a different neighborhood. So there's locations where you might just want to build all two, three, maybe even some four bedroom apartments that might work well in that, in that submarket. So they would just be larger and in that case it might work better because you have less, more square feet, less units you could potentially, they could absorb more quickly. Potentially.

Just going to ask about absorption.

Absorption is a very critical component on your project schedule. So it's definitely something that needs to be kept in mind. And certainly as we've talked before, you know, I really focus on design and the projects that, that, that we do. And, and that is a one way in which you can try to push absorption. I do believe design can also lead to higher exit prices. But you know, having a product that really appeals to a buyer, you know, I would say the same thing with a, you know, value add multifamily to a renter. It's just going to get absorbed more quickly and typically for a higher price. So you're going to be able to take multiple points of benefit from focusing on the quality of a product. And that's really important. But you've got to understand what your target is and know how to get there. And that can be easier said than done because it's a lot of people that are involved in real estate that mostly focus on the numbers. So if that's your focus, you need to know, enlarge your team so you have, you know, the right, the right people that you're working with that understand how to get you to where you need to get to.

Yeah, right. Sorry, I'm just texting the next podcast because I want to go, I don't want to stop like we want to keep going here. Yeah, yeah. You and your wealth of knowledge on this. It's, it's definitely a very tedious process also to go through every. You don't want to skip through this stuff fast. You want to be sure that you're looking at each of these components and.

Everything you need to look at. Yeah, yeah. I mean I'm, I'm very detail oriented. It drives most people crazy. How detail oriented. I Am. It's a blessing and a curse perhaps. But you know, I, I spend a lot of time focusing on, on all the details and, and that's, you know, I'm involved very hands on in the design for process and that really goes to the level of design specifications. So that's picking out everything that, that is used in the, in the building itself or even potentially designing and manufacturing something for, for a project. I'll get that far involved in the, in the design details. So it's certainly something that most people are not going to be able to do. But you know, you want to work with people that you know can help you achieve the right product for what your, what your asset is in your, in your market. And that, and that's really critical it be very easy to come up with the wrong end product for a market and it not work as well as it could.

Yeah, yeah, it happens a lot too, doesn't it?

Oh, absolutely. I mean knowing your market and you know, knowing who you're serving on that level is, is really critical, you know, and really that's why I, you know, I really focus on working in that I, that I know neighborhoods that I know where, you know, I know who's there. So people show up at the buildings. Like it makes sense to me who, who's showing up. I mean you're going to try to perhaps drive a market in some way. So you might, you know, I'm, I'm working neighborhood that, that has been changing in the last 20 years. So different people are, are moving into the neighborhood. But there's a quality of the neighborhood that attracts certain people and then other people might also then be attracted because those people are attracted. So you know, who is that demographic? And you know, what is it that, what is it that they're looking for? But when you can really be successful, you're not just looking, you know, retrospectively, you're creating something that those people haven't yet thought of that really fits that location as well.

And that's rewarding when you can do that.

And how do you, how do you do that? And that's, you know, again, in any market you can buy an older asset that's got 50 units, 80 units, 100 units. How can you take that in and reinvent it to create a new market in, in the same location? Right. And that's, that's forward looking as opposed to, you know, just checking and matching. Oh, you know, there's this property quarter mile away or across the street, however close it is. I'll just do exactly that. Well, that can work, you know, but if you come up with something that then takes it someplace else, it could potentially work even better.

Right? Yeah, yeah, totally with you. And one of the things before we started recording that, that we happened to just touch on that kind of fits well with that existing improvement thing was you, you were mentioning the Mini Split systems, right? Why don't you talk about that?

Yes, yes, exactly. So, so I was just telling you that, you know, one, you know, I have a couple of interests as, as a, on the design side I'm very interested, obviously as a, my background in fine art, very interested in, in the aesthetic component of the building itself and the architecture and the interior design of any of the project. But I'm also interested in the design mechanics of the building and that relates also to the performance of the building itself. And this is a key component. And really ideally when things work well, everything comes together right? You want it all to come together. So there's a standard that I mentioned to you earlier called Passive House, which is an energy standard. And I would just recommend anyone look into it, just, you know, search Passive House and you'll get a lot of information. You know, without getting into, you know, deep into the technical details of Passive House, I can just tell you that it's, it's the most energy efficient approach to building design that exists and that energy efficiency is about creating a more tightly sealed envelope so that your energy usage is significantly lower. And then you want to have equipment in that you're using systems, mechanical systems that are also efficient. Right. In Mini Split electrical Mini Split systems are really the most efficient systems that you can get on the market today. And they're really driving, they're driving new installations because they're less expensive and they're easier to install. So the cost to buy them is less and then the cost to install them is less and the cost to run them is less. So they just win on all levels is really, they're quieter too. You know, there's lots of benefits to these systems and there's lots of companies that make them. You know, a lot of Japanese companies have started making them, like Mitsubishi, there's some Chinese, and there's also domestic manufacturers like Cooper Hunter that are making decent quality Mini Split systems as well. And then those can be installed directly in each unit. And then if you have separate utilities which you would want, they can be metered just for each unit itself, so they can just be tied to the unit. You don't have to have massive mechanical systems. And the, the Benefit, the operational benefit is extraordinary. And this is really, you're talking about where, you know, a lot of investors focus in, in, you know, multifamily and value add multifamily. This is a great place to look for upside in those types of assets.

Remember that. Yeah, yeah.

Because if you can make your, I mean, imagine this, particularly in a lot of cases where the building is paying for a lot of the utilities. Right. That if you can make the building much more energy efficient, Right. And drive down those energy costs, then you're not going to rent the apartment for less. Right. You're renting an apartment for, let's say it's you know, 1500 bucks. Right. And if you as an operator are paying say $300 a month on, on energy consumption for that apartment, you can drive that down to $80. That's a huge delta. Right. I mean your, your noi just, it boosts your noi dramatically by approaching the energy usage of your property. And yeah, I can, yeah, it's a component of, of, of, of development and of, of redevelopment of properties that really should be much more focused on. Although there's a lot of people that are already, already focused on energy consumption.

I'm going to start going to this to your.

Okay, great, great. So, yeah, we took a look at this earlier. So I currently have a property that's on the market and this is the website for the project. The building.

I need to scroll down.

The building is called the Josephine. This is a 10 unit condominium building in Bushwick, Brooklyn. The name is taken from the matriarch of the family that owned the property for about 75 years. Really technically four generations.

I love that legacy.

Right. And the neighborhood is, it's a fascinating neighborhood. It's an old Dutch settlement. It was actually a settlement in this part of Brooklyn where moving toward Manhattan, there was still farmland. It was settled in the late 1600s and it's changed dramatically with different populations over the years. There was a large German population for many years. They built lots of breweries. There were a couple hundred of them. Then there was an Italian immigrant population. And that's the family that owned this, that owned this site. It was a two property site. So we did an assemblage and merged them together. And we've, you know, from an envelope standpoint, we've maximized what could be built. We have one bedrooms, two bedrooms and three bedroom apartments in the building. And we're definitely really trying to lead with here. You can see some of the images of kitchens, bathrooms, really a high level of attention to detail. You can see some of the materials and mood boards in this website was developed by the terrific marketing team, the Bethany Shen team at Nest Seekers. Here's a great photo. This is the family owned the building on the corner which is adjacent to the property. They had three properties. This was the corner property where they ran their own business. It was a family run business. They had a dry cleaning business and a washing business and clothes storage. Right. This was at a point where, you know, you would take your fur coat and have it stored for the summer. Right. They would store clothes in the basement of that building. And so this is, you know, part of the dynamic of the neighborhood. And there's still a couple of old Italian. There's a great Italian pastry shop in the neighborhood as well as a couple of other places. It's a very culturally rich part of Brooklyn that's full of artists and a lot of tech employees and other creatives as well, musicians and really appeals to a variety of different demographics, Both Americans, a lot of international buyers that this market appeals to. Very close to the city. It takes about 15 minutes to get into the center of Manhattan. From the location where this property is at.

That's really good.

We've done lots of different details here. On the design side, it's been on the market for about a little more than a month. We've got multiple contracts out at this point. We're still in. In the con, at the end construction phase. So so far the project is.

It's.

It's going. It's going pretty well. We're pretty excited about it.

It's beautiful. Yeah. Yeah, that's very nice.

And these are the kinds of projects that, you know, that we, that we focus on. Highly design driven, really focused on the details and looking for projects that can fit within a context in a. In a specific way, really connecting to the location and the neighborhood.

All right, I got to ask you this question because we're running out of time.

This has been great, though. Fantastic.

Good, good. I like it too. Is there a pivotal person or event that brought you either to where you are today or that's pushing you forward to something or someone?

Great. Yes. Great, Great question. So the, the person that I want to mention here, there's been multiple people. I mean, we all have multiple people that have really played a. A significant role in our paths or in particularly our career paths. But a few years ago, I took a real estate development course that was led by Joe Burko, who is the. The founding partner of Astor Realty Capital They're a huge LP fund, and it was just absolutely phenomenal. Phenomenal course. And I just, you know, I really broke everything down in a way that was so detailed and so insightful. Based on his knowledge and experience of working across many different asset classes and investing in many different types of projects with their. They're very, very diverse in their portfolio at this point, but they really done a lot of investments in new development projects in New York City earlier on. They're still involved in some of those. So he really brought on. I mean, he broke down the entire process. It was terrific.

So there's nothing like a great teacher, really.

Yes, he really, really, you know, the amazing extra effort that he put into this was, was extraordinary. And he's just a, he's a terrific guy also. So.

All right, and you're nominating him as a pivotal person, right?

I'm. I'm, I'm nominating him. You know, if you got him on your podcast, he would be a great, a great guest. He's generally in Florida also these days, so.

Okay.

Well, we film so that people don't have to get together, but I will. But yeah, so if he comes on the show, then he gets extra. Woo.

Woo. Okay.

And then he gets a lapel pin that says pivotal person. And that really sparks some conversation where you go.

And I will. I'll give him another plug that, that if there are investors listening to this, that, that, that are looking for a very seasoned group to invest with, I would highly recommend Astor Realty Capital. I mean, they, they underwrite deals by the hundreds and they invest in very few and in many. They do bring in accredited retail investors, so there's opportunities to invest with them. And certainly if I was looking for an investment, I would definitely look at what they have, what they're offering.

Terrific. All right, so if people want to get in touch with you, how do they get in touch?

If people want to get in touch with me, you can go to the URL Design Drives Value. So I have an ebook at that URL. You can download the ebook and then it will also, when you, when you go to that, it'll take you into our website and then you can contact. You can contact me through the website. You can also very easily find me on LinkedIn. Aaron Yassin. I think I'm the only Aaron Yassin on LinkedIn, so pretty, pretty easy to find there as well. And you can send me a direct message and I'll be happy to respond to any questions that anyone has.

Anybody that's listening and can't look at the show notes where this stuff will be too. Aaron is a a r o n and Yassin is y a s s I n. Thank you.

Yes. You look that up and you'll very easily, very easy to find me. Great.

Great. Awesome. Well, we will put those, those contact pieces in the, in the show notes like say, and I thank you so much for coming on.

It was, this was fantastic. Great, great questions. Really terrific conversation.

All right. Well, stay in touch, too. Thank you.

Wonder.