12. Jordan Vogel: Says Just Do It

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Now here is your host, James Nelson. Welcome to Real Estate Investing Live from New York. I am your host James Nelson and thrilled to be bringing you our 12th show. We are on a roll. If you did not catch last week's show with Kenneth Horne, definitely worth going back and listening to this interview. I really loved it. Ken's got an incredible story starting off as an attorney and then opening up a gelato store to his transition to real estate where he was selling off unsold condo units and then ult ultimately becoming one of the most prolific developers in New York, having converted the Woolworth building. While you're at it, why not go back to the first episode ever with Bruce Ratner and listen all the way through because we're certainly continuing to build on each of these episodes. We are teaching you everything you need to know about investing and operating commercial real estate. For this evening we have a fantastic show. We have Jordan Vogel with us who is co founder of Benchmark Real Estate Group. Really inspirational story story where Jordan really started this business out of nothing and has delivered an incredible portfolio. Then we're going to have back with us Michael Robinson, Jack Mullen and Evan Weiss talking to you about all the considerations for underwriting real estate and feasibility. You're going to want to definitely stick around for that. Before we get to that, it's time for our week in review powered by the Daily Beat. In this week's sales, Michael Schvo, Sirdar, Bill Gilley and BVK have entered into a contract to acquire 530 to 536 Broadway from Jeff Sutton's Wharton Properties for $400 million. The three office and retail properties span 210,000 square feet. The retail units are fully tenanted and include Skechers and Club Monaco. While the office space is reportedly 95% occupied, the history is that Joe sits Thor equities paid $190 million for the buildings in 2007 and sold them to Wharton Property seven years later for $326 million. In 2018, Sutton paid $100 million to buy SL Green's mezzanine debt position in the property. It is worth noting that SL Green and Thor held minority stakes in the asset at with Wharton and this was as reported by the Real Deal in Leasing News. Devoise and Plimpton have signed a 530,000 lease at Tishman Spires office development at 66 Hudson Boulevard, which they are calling the Spiral. The 20 year lease will give the law firm floors 40 through 52 of the building. The law firm was nearing a deal at 50 Hudson yards before Facebook swooped in to take their space as part of the 1.5 million square foot deal with related the law firm plans to move from their current office at SL Green's 919 Third Avenue upon Tishman's completing the Far west side project in 2022. Elsewhere in the Pfizer has inked an 800,000 square foot lease after selling its East 42nd street headquarters and Alliance Bernstein has also agreed to take a 189,000 square foot space at the property. The 65 story office building will span 2.85 million square feet and has a total project cost of $3.7 billion. Wow. And we'll take one small piece of credit for this development in that Back in my Massey Neck was part of the deal team that sold half the site to Tishman for $238 million. They subsequently then acquired the rest of the site lining the Hudson Boulevard, acquiring air rights from the Eastern Rail Yard and the city's District Improvement bonus. So quite an incredible assemblage and story to where it is today and couldn't be happier that it's been a success. Also worthy of noting in leasing that companies surpassed the financial services sector in leasing activity last year, signing deals for more than 5.6 million square feet, compared with 5.5 million square feet for finance firms, according to the Wall Street Journal. Lastly, in Real Estate Meets Politics, Governor Cuomo announced that New York State will take the lead on expanding Penn Station by inquiring an entire block in Manhattan to add eight new tracks. The proposed expansion would increase the capacity for trains by 40% and accommodate an additional 175,000 daily pass. And I can tell you, with all this new leasing activity nearby, we're going to need it. So that is it for this week's Daily Beat. Please stick with us. We just have a quick word from our sponsor and we'll be right back for that interview with Jordan Vogel. Follow us on Twitterceamerica.trn get the lowdown.

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Please Visit us at aytristateinvestmentsales.com and follow us on Twitter, LinkedIn and Instagram amesnelsonnyc to learn more. And now it's time for our Investor spotlight. And wonderful today to have my good friend Jordan Vogel here with us. Jordan is principal and co founder of Benchmark Real Estate Group. In addition to co founding and being the managing member, he oversees all the acquisitions for the firm and has purchased over a billion dollars of residential real estate in New York City since he established the company in 2009. Prior to Benchmark, he was with SG2 Properties. So Jordan, welcome so much to the show. Thank you for joining us.

Thanks for having me.

Whenever I read the intro with the billion, I always think back to the Austin Powers where I should be saying $1 billion. But no, great. Wonderful to have you here and incredible. I think we met probably. I mean, definitely, if it wasn't 2009, probably. Well, actually before when you were at SG2. So it's been amazing to see your trajectory. So maybe before we get to that, Jordan, maybe tell the audience, where did you grow up?

Yeah, I grew up in New York City. I lived there for 18 years until I went to college in Philadelphia and then I moved right back to New York. So I've been here my whole life except for a few years.

And real estate family or no, no.

One, no one's in real estate in my family.

So when you were in college, were you already thinking about real estate or what? What was kind of.

Yeah, I mean, my whole life, even as a child, I was interested in real estate. I knew that I wanted to be in real estate. When I graduated college, it was, I graduated in 2000. It was a terrible year to get a job. The ideal job for me at the time would have been an investment banker, you know, in the real estate department. But this was right after the dot com bubble and so it was tough to get a job. I ended up moving home and the first job I could get was being a property manager at a small family owned business that owned a bunch of buildings in Midtown west in the Upper west side. And so it was very far from the ideal job for me, but got me out of my parents house.

There you go. And was it a personal connection or did you.

No, no. I found the job just searching online.

Wow.

In retrospect it was, or at the time I should say it was a grueling job. I mean it was pure property management. There was nothing exciting about it. There was, it was collecting rent and kicking boilers to get them up and running and overseeing construction. And the interesting part is it was demoralizing at the time, but it's really what allowed me to start my company. I didn't know that at the time, but 10 years later what I came to realize is real estate is a game of pinching pennies and you certainly can't buy in New York at very sharp cap rates and think you're going to make money on the buy. We make money not because we are so savvy and we buy things for well below market. We make money by buying at sharp cap rates, understanding how to operate the assets, understanding how to add value and ultimately selling it for more. And so the, the experience that I hated at the time ended up being the most relevant experience that I have in terms of understanding how to make money in this business.

It's a great point. We had Doug Marshall on the show who wrote a book about the art of commercial real estate and he invests in garden style apartments up in the Pacific Northwest. He's a big fan of cash flow. And not that all real estate investors shouldn't like cash flow, but in New York, a big part of the upside is that appreciation. A lot of investors would say I made most of my money on the sell, but I really appreciate what you're saying about the importance for the operation. You're doing property management and then you make a move to SG2. Is that what happened next?

After the property management, I went to NYU with their real estate program which is now called the Shack program. And from there I started at SG2 Properties.

A lot of our listeners and a big reason why we're doing this show is to teach everyone what they need to know about investing, operating commercial real estate. Because previously and Doug did write a good book, but other than that, most of the stuff out there is Get Rich Quick, how to Flip Homes, that NYU experience, what was that like? Did you really learn practical skills to teach you how to structure a deal, how to buy it? What was that experience like?

Yeah, it's interesting. When I started in the program, I had no idea how to underwrite a deal. For me, it was almost like a trade school. I was a property manager that wanted to get into the business of buying real estate. But if you gave me a rent roll and expenses, I had no idea what a property was worth. What the program accomplished for me is it taught me the basics of if I know the financial information of a property, I could underwrite a 10 year cash flow analysis and sort of figure out what the property is worth. And I think it's different for everyone. I think that there's finance people that end up in that program. They probably learn nothing on the, on the underwriting side that they didn't know before, but they probably learned something on the property management or the construction side. But for me it was integral simply because I went into the program with no understanding of the acquisition side of real estate. And I left with a decent understanding. The reason why I say decent is not to knock the program. The program's incredible. But you only learn by doing it. You only learn by doing it. And flash forward 10, 15 years later, I could tell you what a property's worth standing on the street. I don't need the underwriting, I need the underwriting just to prove it.

Right from there, you make the move to SG2, you're doing acquisitions. What type of properties? What is involved in an acquisitions role? I think that might be a great introduction for a lot of our listeners who are thinking about going out and investing on their own one day to actually do it at a larger shop. What does that job entail?

For me, the early days were simply underwriting deals. It was.

Didn't you have to first find them or no?

Well, that's why I say for me, for me, and this is very common for young people in the business, the first role is really most likely your boss or someone that's more senior than you is tasked with sourcing deals and then you're underwriting them. So you're basically getting the limited information provided by investment sales broker and underwriting that to the point where you could say, what do I believe this is worth? You're reporting that to your higher ups and they're putting in offers. That's really all I did for the first at least year. And then the next logical step in acquisitions is you start to source deals. So, you know, for me it was reaching out to brokers, it was cold calling owners, it was meeting with other owners and trying to drum up deals. And what I found is, and I'm a true believer that it's Very hard to be good at a lot of things. And you sort of have to decide if you're a young person in acquisitions, are you going to be the master underwriter or are you going to be the socializer that knows how to drum up deals? I am the latter. And so, like, I could talk forever, and I could. And that's what I do during almost every single day. So it's all day, every day on the phone with brokers or talking to owners trying to drum up deals. On Monday mornings, I call 30 or 40 brokers to ask them how their weekend was. The sad truth, and this is different, because we are real friends. I don't really care what they did that weekend. What I want to do is strike up a conversation and talk about what deals they have. The funny thing is, you do that at the beginning and you call them 20, 30, 40, 50 Mondays in a row. All of a sudden, you actually become friends with them.

As simple as that sounds. So few investors do that, I think. Oftentimes they say, okay, you're the broker. It's your job to chase me, find opportunities. And there's very few investors who will call me and say, hey, James, what are you working on? On a consistent basis, some investors even go as far as say, hey, I want to come into your office. I want to go through. I want to see everything you're working on. Don't rule anything out. I think it's a great point about sourcing because, look, you can go online, you can go to LoopNet, you can go to costar. There's tons of stuff out there, but it's almost so much. It's where to start. I think the job of a broker is really to know what you want, where's the right opportunity, when is the time to make that call? So really a key piece for what you do.

That's totally true. And the other thing for us is it's just a numbers game for me on the deal side. And so, you know, we. My Office sees roughly 2,000 setups a year.

Do you track every one or every.

Single one out of. So we're talking 100 setups a day. From those hundred, I'm really only spending time on, let's say, five a day. So that's 25 a week. We're probably touring three, four, five buildings a week. So that's almost one every day. And we're buying a new deal every two to three months. And so for me, it's a numbers game of the more deal flow I could see, the more Likely we are to buy, and it allows me to, which is very, very important in the deal business, is not to fall in love with the bricks or the deal. I often get bad news that a deal fell apart and I couldn't care less within 10 minutes. I like to be juggling two, three, four deals, meaning getting close to the finish line, awaiting a contract, because if I could get to that point, I always get one of them. The inherent problem is when you're chasing too hard, like just on one specific deal, one of two things happens. One is you're missing out on all the other deals in the market. Or two, which is really bad, is you end up overpaying for that deal. Because the way you win deals in New York City is very simple. You pay more than the next guy. And the hardest part is, especially when you're managing other people's money, is where do you draw the line? You keep on creeping up, creeping up, creeping up. And if you fall in love with the deal or you're only working on one deal right now, you may end up just simply paying more for it. The only thing, it's so detrimental in a market like New York City where cap rates are so sharp and the margin of error is so small that if you overpay, there's no way of getting out of that deal. And that's happening right now. In 2015, the deals that were trading at sub 3 caps, there's no hope for those deals. It doesn't matter how good you are at execution. If you're buying at a 2.5 cap and you double the NOI, but you have lots of construction costs and other closing costs and buyout costs and all the rest of it. If you stabilize at a 4% yield on cost, you have to sell that for a 3.5 cap to break even, which is those days are long over. Your entry point on these deals is paramount, such that you're not in a position where you can either one, sell or two, refinance and take out your current equity.

Great point. Do you have an opinion on off market, on market as far as where is the best source for deals?

It's funny, it's like the old mantra. If you go pitch an investor, everyone tells their investors that everything they buy is off market. I think it's very cycle specific. I think as we hit the bottom of the market, you're getting much better deals that are marketed.

I agree.

And I think at the top of the market, it's almost, for us, it's almost a total waste of Time to work on a mass market deal. Unless we have a unique, different business plan that no one else has thought of. Classic example is Harry macalow at the GM building, which everyone's familiar with. He's the only person that figured out that we should make the basement space that I believe used to be a tennis racket store into the Apple store, which generates $700 million a year in revenue, not rent. But that's Apple by far their most successful location, and it's in a basement.

And I think they did a percentage rent, although that gig might finally be up. Absolutely. I think the point of when the market's going up, yes, you want to get in early, you want to preempt before it gets bid up, but when the market's flat, or even if the market's starting to decline, the job of the broker is to educate the seller, tell them where it is. Sometimes they say it's better to be the last buyer than the first buyer. I think that's a great point. You're at SG2. How long were you there for?

For about five years.

Okay. And you start elevating in the ranks, you're finding more and more opportunities. Did you know, at what point did you know you wanted to go off on your own?

From the day before I started.

Okay.

So I was SG2 Properties first hire. And so the day I started and the day I ended, I reported to my four bosses who were all partners at the firm. And the. I've had an itch my entire life to be an entrepreneur. I love doing lemonade stands when I was a little kid.

Right.

Not for the fun of meeting the neighbors, but actually just to make money as a pure capitalist. I. When I graduated college, I wanted to start my own real estate company and I didn't know anything. And it was very, very smart that I got a property management job because it taught me the fundamentals of how to run real estate. I graduated from nyu. I, like lots of other graduates from nyu, think that you are the ruler of the world and you know everything. And so I thought I was ready. But of course, I never did a deal before. And so I started at SG2 because I wanted to learn the entire deal side of the business with the. With the goal of leaving eventually once I learned the business. And so unfortunately, it's funny, in 2019, the problem is there's been too many billionaires created from the tech business. So I think everyone's view is like, if you actually still, if you haven't figured out your path to making A billion dollars. When you're in college, you're already behind. But the truth is I put In a solid 10 years of work, of hard work to learn as much as I could to start on my own. You still make big mistakes on your early deals. And I was fortunate that on the early deals I was buying in 2009, we were often buying a five and a half cap, six caps. We were buying buildings. I bought a building in Soho at sub 300 a foot.

We bought and for our national listeners, I mean that building's probably, I mean depending on where it is and what the retail is, it could be worth, you know, the peak could be a thousand, could be worth 10,000 a foot. I mean 300 a foot is, is unheard of in our market even today.

Correct. The relevancy is. It allowed me. I entered into a cycle that allowed for mistakes. It doesn't matter how much you know going into buying your first building, there's going to be pitfalls, there's going to be mistakes. Whatever time you think it takes to renovate, it actually takes a little bit longer. Whatever rent you project, you may get a little bit less. But when you're buying at a five and a half cap, there's enough room for error such that you can still make money. As my career evolved and I became more proficient in the buying process, the execution process, the management process, it allowed us to start to buy deals at sharper cap rates because we were good at it. The biggest risk is buying a deal, starting off your career at the top of the market where there's no room for error because everyone's going to make errors on their early deals for that first one.

What was the purchase price, what was the deposit, who put up the money and how did you raise the rest?

The first deal I bought two buildings in the village. One was 120 McDougall street and the other was 142 Sullivan. Purchase price $11.2 million. Project cost is about 13.

That's a pretty decent size for a first transaction. You're putting down what, a million three hard deposit?

Well, it was 2009 so we got two things. One is we got a 5% deposit which is very nice and two, we had a 30 day due diligence period.

Which is unheard of, common maybe elsewhere in the country, but here in New York, as we've said in some of the previous shows, it's show up 10% as is, where is no contingency. So you get a 30 day free look, so to speak. So you're able to start going out there. Who put up the deposit and the 600,000? You and your partner the time?

Yeah, my partner and I, we, we split it.

Okay, and you were able to do that because you knew if you couldn't raise the money, you'd probably ask for your deposit back in 30 days. If I had the guess.

That's right. We had what we called a filler kill number. So the total project cost for $13 million. We were borrowing 7 million. We needed 6 million of equity. Our view was if we could raise $3 million in the first 30 days, we were going to continue with the deal. If we couldn't, you kill the deal, you get your deposit.

Got it. So you made the 3 million. You beat your milestone, clearly.

So the good news and the bad news, we raised a little over 5 million in the first 30 days. Wow.

In $25,000 chunks or 50 or.

I mean, we have a handful of. I think There was about 25 investors and five of them came in for 25,000 each. I think the largest investor was 600,000, but most people were like 50 to $100,000.

And what were you offering them at the time? Because for them it was a little bit of risk too. Right. Because you all hadn't done this before. But I'm sure they're looking at your track record and saying, okay, they know what they're doing. But did you have to give them pretty generous terms to get involved in the first one?

No, no, no. I mean, we were offering them the dream, the dream of owning a building in New York City. The interesting thing with raising money for real estate is most high net worth investors don't have a whole lot of options. So something to keep in mind, the average investor isn't seeing a dozen deals from a dozen different operators and picking the top one. They're saying, I have a desire to invest in real estate. Everyone has a desire to invest in New York City because it's so alluring. And most investors, except for their home, own no real estate.

And so were these friends and families. I mean, had you been tracking these people over the years? I mean, to get 25 investors, did you go to 250 people or.

We went to 70.

You went to 70.

And that was by far the highest hit rate we've ever had. I'd say. Now, I like the rule of thumb is you need 100 investors to find one. This was. We need really. Oh yeah, oh yeah.

100 for one.

100 for one. So we do bigger deals.

So for Our listeners who might not have, you know, 100 high net worth families. I mean, maybe that's a separate discussion. I know there's crowdfunding out there, but you had not done a deal before and you managed to find 70 people out there, well, 25 at the end of the day, who were able to put up $5 million. How did you create that?

Yeah. First, let me just preface. 1 out of 100 is a good rule of thumb for institutional capital, which is much more selective. Selective, Much harder to raise that capital, but it's much larger checks. When they say yes. I think for individual investors it's probably one out of ten say yes. We got very lucky. My business partner and I made a list. Our criteria for coming up with 70 people was we both went through our contact list and we wrote down the names of everyone we know that we believe could write a $50,000 check.

Okay, these might have been some people from NYU that you knew or their family. I mean, you grew up in the city, maybe from school, just friends and family.

That's exactly right. True. Friends and family raise and you hit on the head. The list was a random group of people that I've known through my whole life at various stages of their career. The $50,000 criteria is not terribly difficult. Meaning when you reach a certain age, your high school buddy that may have gotten a bonus at a Wall street firm could probably invest with you.

Right. And even if he starts at 25,000, if it goes well. Because one thing that I know that you really perfected is getting these investors to re up and then they tell their friends, which I'm sure, I mean by the time, because now you're out raising institutional capital. But you know, fast forward. So that was 2001, right, that you did your first deal. Does that sound right?

2009.

Oh, 2009. Okay. Right. So you had basically a 10 year run where how many transactions and how many investors now?

Yeah, we just closed our 49th deal. We have about 350 separate investors now.

When you send out, and I know you've moved to the fund structure and we'll get to that next, but when you were still doing the deal specific, you just send out the email and at that point you've got this huge following. So I mean you probably were in the lucky position that you were oversubscribed in a lot of these and you just say, hey, is it first one who responds? Or everyone gets in? But then you might not get as large of a contribution.

Yeah, we had the issue in 2011, 2012, that every deal varied in size. The deals that were smaller, that we needed a $3 million equity check, we were oversubscribed too quickly, and the deals that were larger, that we needed 20 million of equity, we were sucking. When to raise money at the end. Raising money is never easy. Never. And except for Blackstone, every other person in the world struggles to raise money. It sounds funny as a joke, but I'm telling you, Starwood, who raised $5 billion, would suck and win too. At every stage in your career as the check sizes get bigger, it's always challenging to raise money. And I'm always appreciative for people that invest with us, but when we were in a position that we were oversubscribed for the little ones and we couldn't raise enough money for the bigger ones, that's when we decided to go into the fund model.

Right, but before we get there. So I mean, and you said every single time and as you raised the bar, I mean, there was probably a lot of situations where at this point you had your money on the line, you're not getting the 30 day diligence, it's non refundable. I mean, were there ever situations where you were down to the wire and you're thinking, you know, how am I going to do this? Because I mean, you have an incredible track record in the business. You're known as a closer, you know, do what you say, say what you do. Is that the, whatever the expression is. But you're, you know, you close. But I mean, I guess behind the scenes a couple times, you know, down to the wire. Imagine some success.

For the first four years. It was every time, right? Every time, the first deal, you know, the end of the story when I mentioned that we raised a little over 5 million in the first 30 days, 89 days in, and we had a 90 day toe closing, we were 600,000 short. We've had as the deals escalated, on almost every deal, Aaron, my business partner and I have put the vast majority of our net worth on the line to sign a deposit.

So you got to be a little bit of a risk taker to do this.

I have to be a huge risk taker. And if you always remain doing smaller deals, small deals, if every deal I ever did was 3 million of equity, we'd be oversubscribed on each one. But as you, everyone wants to grow. When you do small deals, you want them to lead to bigger deals. I think it's always a struggle because it's so hard to raise Money, Yes. There was deals that were over subscribed in a very short amount of time and you feel like a rock star. This is amazing. I sent out a book and the following day I've raised all the money. Guess what? The following deal I needed 25 million of equity. We could only get a contract signed if we did a 60 day toe closing and sleep for the next 60 days. And so it is, you know, it's a challenge. It's a very challenging business for our.

Listeners toe time of the essence. There's no extensions, your money's at risk. That $600,000 that you had to raise in one day, how did you come up with that? Did you go to Vegas?

Pure luck. Pure luck. We got one of our investors who originally said no to say yes. One thing I'm very proud of is we've never offered a special deal to any individual investor. And that investor wanted a special deal and knew that we were running out of time. But the pushback I've always said is if I'm not going to give a special deal to my best friend in the whole wide world, why could I give a deal to you? You should. Also the investors, I think really appreciated the fact that they knew that no one else was getting a better deal than them. We've done that. This is all pre fun but over. We did 23 straight deals over a four year period for from 2009 to 2013 and we raised $110 million in an average of just over $100,000 per check size.

Wow, what a run. So that gives you the track record now to go out and raise a fund. So do a discretionary fund where you go out and you present your private placement. But now you've got money that you have that you can either I guess call on, but you know you have it. So a lot tougher I would think, to raise the money up front because now you're not raising something for a specific deal, but more of a programmatic idea. So what was the process like? And I know you're out on the fundraising trail again and now you're raising money from institutions, family offices, endowments. What's that process like?

Yeah, so our first fund was a quasi fund. It was made up of the same investors that invested in all of our deals. And the pitch was very much of why invest in one if you could diversify. And we're going to raise a pool of capital, you'll get to invest in multiple different buildings. And most importantly, you don't have to do paperwork on every deal, from an investor standpoint, to have to review the operating agreement and speak to their attorney about it and fund the capital call and all the rest of it. You have to keep in mind for a four year period, we were doing a new deal on average every nine weeks. Our investor base, which we're very fortunate about, was a sticky investor base. We have investors that came into every one of those 23 deals and they had to read 23 different operating agreements. They had to show up at the bank and deposit a check 23 different times. And the part of the pitch on the first fund is this is going to make your life easier and you're going to get to invest into a pool of properties versus just one property. And so our first fund was made up of all the same type of high net worth investors. Our second fund was those type of investors and family offices. And now we're on the road trying to raise our third fund, which will be our first institutional fund.

So I know there's definitely rules against discussing returns fees. I'm not even going to ask that on the funds. But going back to that run of the 23 deals, what was your typical deal structure? How much money? You said you had the deposit up for 600,000 and then you raised $6 million. You had roughly in total, you had 10% of the equity, your investors had 90%. How did the economics work on something like that?

We pay an 8% preferred return and then take a 25% carry. The way that works is investors get 100% of their capital back first, then everyone gets an 8% annualized return and then whatever's left, we get 25% of those profits. Our investors get 75%, which is very standard in the industry.

So you're putting them in the priority position, they get all their money back, then maybe you get your money back, right?

No, we all get our money back.

At the same time, is treated the same until you hit that 8%.

But you have to get everyone's money back. You have to get an 8% annualized return before I make anything.

Got it?

And so it keeps interest in line where I can't do mediocre deals. If I do a deal that generates a 7.9% IRR, my investor may be very happy. They may be saying that that far exceeded what they were making in the stock market or bonds or any other investments they may choose. But I make nothing.

Right.

We only make money above that 8% return.

Right. So what would you say your key has been to success?

Hardcore Operations. It's such a challenging business. Everything in New York is challenging. And by the way, if you're not investing in New York, it's still challenging and every market's different. The challenges in New York have nothing to do with fundamentals. Like we operate in a essentially a zero vacancy market and rents are pretty strong. Problem is we're dealing with Department of Buildings, HPD Landmarks and all of the government agencies that make things more challenging. And you have to be an expert in order to invest in buildings. You can't believe that you're going to buy a building and you're going to made so much money on the buy that it's going to, everything's going to take care of themselves. And at the end of the day, the crux of our business is being highly disciplined in terms of really good management. Collecting rent, which is not always easy, keeping your expenses down and generating returns for your investors. And it's a real business. And I think that there's a myth that real estate is, it's easy and you're making money at night when you're sleeping because everyone has to pay rent, even when you go on vacation. But it's a tough business and I think that the, it all starts with operations.

So, and I'll add one more thing to your key to success because I think your product, very early on you realize that you were going to deliver a product that was above and beyond your typical rental. The thought that goes into how you design your units, I mean, almost and in many cases a condo level finish. And you know, we see the rents that you've been able to generate may be 20, 30, 50% above what the rents that are next door just because of the product and the experience. So you've done an incredible job with your attention to detail as well. So, Jordan, we only have a minute or two left before we have to go to a commercial break. But last question. So what advice would you give to the aspiring investor?

Buy.

Okay, buy anytime. Or I mean right now, buy.

Do it. There's many, many people that waste many, many years talking themselves out of doing a deal.

Okay.

And there is a benefit of real estate that I've made it sound today as if everything's challenging. But you have a very good inflation hedge. You have a asset that is cash flowing and so long as you don't over lever the deal, you will own it forever. And that's been tested and true over time. And so I meet with so many young people who say, I can't find anything. Everything's too expensive and very hard. The hardest thing is drawing the line what constitutes too expensive or what doesn't. But I'll tell you the secret. Overpay. You have to. If you do not overpay, the winner of the deal is always the person willing to pay the most. You have to be very careful not to over lever it. But you don't also want to waste your early career, your early days talking yourself out of a deal. Because there's not a I've never bought a deal where I didn't wake up the morning of the closing thinking, am I closing on a deal that's too expensive? And even today there's literally never been 49 straight deals. I believed even on that Soho deal at 281 a foot, I overpaid for that one too. Time will tell. If you over lever, you may have some trouble. But if you overpay a little bit, it means your cash on cash returns may be slightly lower. And so you just have to jump in somewhere.

Well, that's a great way to end this segment. It sounds like the Nike slogan of just do it. That's really encouraging words for our audience. Jordan, thank you again for joining us here today. Thanks so much listeners. Please stick around. This is James Nelson. I'm your host of Real Estate Investing live from New York on the Voice America Network. We'll be right back. Have you friended us on Facebook yet?

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Welcome back, everyone. This is James Nelson, your host of Real estate Investing live from New York. It is time for what was formerly our AAA segment. Now four as we have an accountant, two advisors, although Evan is also an accountant. As soon as I said we have four as here, my mind was starting to race on what else that could stand for. But no, these are professionals, mind you. Before we get into the very important discussion, I think I have to to out what was previously said. So just before we went on, Michael, I think you were talking about how much you love radio.

Yeah, I do.

Great. And Evan, what was your comment to that?

My response was that no one has to see his face. I think that's a fair comment. I mean, by the way, including myself, I love you, man, but you know what I mean, television's for certain people.

You guys will get your pictures on the show, at least on the webpage. So. Yes. So thank you gentlemen for coming back. So we have in our prior two segments, we talked about what each of you do. What is an appraisal, what is a feasibility report. We talked about general principles for valuation. So today would love to talk about due diligence, what it takes for you to do your job. So Michael, when someone comes to you and says, I need an appraisal, what is it that you typically ask for?

What are they willing to pay for it?

Right. Okay. That's the first thing.

Come on.

They have to wire in the deposit, of course.

So what do you typically get? Do you get a rent roll or.

We have a whole property request, depending on the property type, the asset type. If it's an office building, we want a current rent roll. We would like leases, we'd like individual tenant reimbursement, schedules, past three years of expense history, a budget, a current budget. That's a typical request for an office building.

Got it. And everyone, that's Michael Robinson, my fellow principal, Davis and Young. I was having so much fun with the intro to the segment that I completely failed to introduce you all. But that's all right. We're all friends here. So Jack Mullen up next, who is found? Founder of Summer Street Advisors. Jack, you do a lot of the down and dirty valuations for family offices, debt equity hedge funds. When someone comes to you and asks for your opinion, what do you typically get?

It runs across the gamut. Sometimes you get especially some of the especially coming out of the crisis work with banks, community banks, and sometimes we've been in Puerto Rico working for banks down there. And sometimes you have information, no information, sometimes it's dated, all that type. But generally we try to get a rent roll, financial statement, sometimes an Argus run, which is kind of a financial model. But James, the one thing about that, it's all great and the like, but we've got to verify and validate what it is. But the one thing I think kind of picking up from something we talked about last segment, talking with people, brokers in the market, market participants. One of the things, especially in this age of everything digital, we can all look like rock stars just by using some of the online sources. I think one of the things that we, if I'd like to leave anything with anybody here is it's all great information. We all have the same information. But I think it's real important to get tactical and get on the ground sometimes and see the real estate. Go stay at the Applebee's or eat at the Applebee's or the Hampton Inn right near the property, not at the the luxury hotel downtown to actually get smart about that. Because a lot of times you'll find information about a building, either commercial building or multi or hotel, that can really help in you evaluating that opportunity in terms of you're going to lose a major tenant, guess what? If you think you got 100% occupied building and you find out that one of the companies is closing, because a lot of the companies, sometimes they're private companies and you don't know these things. That's information. That's the material information you can know. So my point around due diligence is, and the people work for me. I always say, hey, guys and gals, we all have access to all the same information. But it's real important to work with administrative people through whatever to truly really try to collect that. And everybody has input in that exercise.

Really glad that you brought up the importance of actually walking the real estate. I know we were talking earlier, before the show, when sometimes you're looking at a rent roll, they're saying the unit's vacant. You show up, someone's in the unit. Okay, what's going on there? Certainly trust but verify. But also just walking around the neighborhood and seeing what's going on. If you're looking at maybe you're reviewing an old appraisal that took place a couple years ago. Maybe there have been new things that have happened in the area since. So. Great point. Next, Evan. Evan Weiss, COO from LWHA Hospitality. Evan, when your clients come to you, typically it's for feasibility on a hotel project. If you are to advise them. Let's say you've got a hotel that has their agreement with a flag has expired. They're thinking of their options. Am I going three star? Am I going four star? How many keys? What are the kind of things that you're asking for so you can give them the best advice?

You bet. It's interesting. The first thing I wrote a few notes when everybody was speaking, the first thing I wrote on there was a site inspection. Really understanding the marketplace, both what you and Jack were saying. I couldn't agree more. It's interesting. You can see all the data and analytics you want, but the hotel business, no different than most real estate, is very much a neighborhood business. As a neighborhood business, you really have to understand what corner are you on, what side street are you in, the center of the block, etc. Really understanding to your point about new developments, about office tenants leaving, going to restaurants, is there construction of any kind in the market? Are they building new homes? Are they building new schools? Even though that's not related to hotel demand specifically, it's still extremely helpful. A few nuances. Obviously the market is important. Historical information is important. There's a few nuances on the hotel side which I think are really important. When you're valuing a hotel or ascertaining whether a hotel should or shouldn't be built from a market study or feasibility perspective, you want to understand if there is an in place management agreement, if there's an in place franchise agreement, or what those will look like if it's for a new property. Also you want to understand, is this a union market? Is the property encumbered by union? How likely is it? Will you go union if it's new? And also of course, leases. What is the level of ownership? Is it a fee? Simple, it is a lease fee or is it a lease hold? In other words, what are you buying and what are you valuing? What are you evaluating? Those are the nuances, some of them that are very specific to hospitality, such as franchise management and union versus other asset classes.

I realized we could do an entire new show on this topic. But F and B, which I know is a big part of what you cover. If someone's investing in a building that has a restaurant, but how do they know if they're actually doing well? If they're going to pay the rent? In some of these F and B situations, there's not a lease where they might potentially have to come and operate. How do you get your arms around that?

Sure, historical information is key. Operator and or brand chef. If it's someone like Jean Georges or Daniel Ballou here in New York or in other marketplaces or. Or the Tao Group, which is probably one of the hottest restaurant groups right now. Are these the folks in there? What type of agreement do you have with them? Is it a percentage agreement? Is it just a pure management agreement? Is it an actual lease? Then, of course, the area. Are you in New York or Miami or la, or are you in. Not to speak poorly of it, but are you in a place like Louisville, where if someone puts $15 million in potential revenue coming out of a restaurant in Louisville, you may take a step back. If someone says, oh, your property in New York City on Park Avenue south and 30th street can do 15, $20 million in revenue from a food and beverage perspective, you'll say, okay, sure, look at the buildings around you. Walk the neighborhood for 10 minutes. You'll realize that it has the capability to do that. Then, of course, you're looking at the physical facility or in the case of a planned property, how many liquor wells will they have? What's the back of house look like?

Are you getting tax returns? Do you have any or no?

We typically don't get tax returns. We usually get unaudited financials. We get P&LS profit and loss statements. Oftentimes when we do an appraisal for a CMBS transaction, the CMBS lender will typically get something called an aup, an agreed upon procedure, where they can. I'm sure Jack does that and is aware of that. The AUP do the verification. That's basically getting a tax return in the sense that they're tying bank accounts inflows to outflows and they're making sure that every segment that P and L is in fact legitimate.

Michael, what do you do when you don't get all the information that you need to make an informed decision? Let's say you're missing a lease. What do you do in those instances? I can't imagine that every single time you value a property, you're getting everything you need.

In that case, we would make an extraordinary assumption and address that in the report. That's, you know, we have to take a leap of faith based on the lack of information. We explain that and present it in the report. And so the reader knows right up front that this value is based on this extraordinary assumption. And it could be multiple extraordinary assumptions. We appraised a property in California that started to get tenanted. It was a residential building and they had to vacate the building because the building department, the local community group, protested that they knocked down something historic that they were supposed to keep. They had to vacate it. They had to go through the whole entitlement process again. So we made an extraordinary assumption that within a year they were going to get it. We had to make some kind of.

Reasonable assumption downtime, the cost to get the approvals. Yeah, I know as a broker, rarely I get expenses. Usually I'll get revenue. And they say, oh, you know, the expenses. I mean, real estate taxes are generally publicly available. So is water and sewer. I think it is possible to estimate whether it's utilities, whether it's management. But are you typically getting expenses as well?

Typically we do. And we compare those to the market expenses of other similar properties to see if they're in line. And if we don't, we can for litigation purposes and it's contested type of relationship, we may not get those. And we'll use comps from the market and conclude based on that.

Perfect. Gentlemen, thank you again for coming back on this segment. Always a pleasure to see you and for our audience to hear you. Thank you again.

Thanks so much, James.

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Welcome back, everyone. This is James Nelson, your host at Real Estate Investing, live from New York. Back with us, the triple now quadruple. A panel here, Michael Robinson, appraiser Davison Young, Evan Weiss, COO from LWHA Hospitality, and Jack Mullen, founder of Summer Street Advisors. Gentlemen, thank you so much. We've had a lot of fun with the last three segments. Now I think it'd be a great time to talk about for our listeners, many who might be coming from outside the business, how to get into real estate and everything that you all do, incredible fundamentals to learn the business and figure out how to be an astute investor. Jack, let's start with you. If someone wanted to do what you're doing, how would they get into it? I mean, I mean, if someone's just graduating out of college, do you need someone to be running around doing the physical due diligence that we've talked about in the past or where does someone get started for the type of work you do?

It's funny, we work with a lot of young professionals, hiring them, mentoring them, interns. And one of the things we always try to do is again, start top down in terms of different collateral types and be able to what do you see? What do you see when you look at a hotel? What do you see when you multifamily big picture. So you can understand the differences because we get a lot in our space. You get really wrapped up in a lot of what's a class A building here in New York versus Memphis or wherever it might be, what's an apartment. So really you start basic there and I'm a big believer, starts my GE training. It all comes down to reps and experience. And I'm a big believer at least when you start your career being a generalist, I know Evan's a specialist and the like, but I think it's initially, until you figure out what you like to do, what aspect of the business, either on the brokerage side or valuation side or capital markets, wherever it might be, I find it's great to get a broad brush. I think at least that's when we train our folks. That's kind of what we do. You're doing a little bit of valuation work, you're doing a little bit of site inspections, doing some financial analysis, analytics, spreading numbers. Again, we have a very programmatic approach about it, but I would say, again, my perspective, start general and take it from there.

Perfect. Evan, how do people get started in your world?

It's interesting. Jack is right for real estate in general, but for hospitality, we look at ourselves in our firm as hospitality and gaming professionals in the valuation space as opposed to appraisers in the hotel space.

If someone's really good at Texas hold them, are they good? A good candidate for you?

Absolutely. Especially if they can make us money for the house. Without a doubt. We do not send that person to Las Vegas for a science fiction. It costs us too much money. From our perspective, I would say out of the folks in our firm, I would say more than 80% have gone to some level of hotel schooling, either on the undergraduate level or on the graduate level. From that, they look for opportunities. We look for folks that have some form of academic as well as opportunities. Operational background. In hotels, we love hiring people that have an operational background because they bring technical, real life skills to the valuation and financial process. We like people that have hotel academic backgrounds as well as, if not operational backgrounds, and then get into the valuation space, understanding real estate and finance and valuation and advisory from sort of the ground up. On the hospitality side.

Perfect. Michael, to take us out. What's your ideal candidate look like? What kind of experience would they have? How does someone get into your business?

On the junior level, we look at people from Fordham School of real estate or NYU's. They come out analytically, financially, they know modeling and Argus and Excel, but you also want someone that has a bit of the art to it because at the end of the day, anyone can analytically look at a property and sum it up. It takes time, years to learn that part of the business. Some people can't even learn that because it's tough to teach that. But really just junior people that have financial skills and then we train them, we train them how to write appraisals.

Perfect. Well, I think this has been really helpful for you all to give the, this, this advice, as many of our listeners think about how do they potentially break into the business. So, gentlemen, always a pleasure. Thank you for coming back on the show today.

Thank you.

Thank you.

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