17. Thomas Campbell of Thorobird - Building for Good is 99.9% Relationships

Welcome. This is Real Estate Investing Live from New York with James Nelson, the principal and head of Avis & Young's Tri State investment Sales Group. In this program, you'll learn about the world of commercial real estate and find out why it is one of the largest investment opportunities in New York and around the world. Now here is your host, James Nelson.

Welcome back to show number 17 of real estate Investing Live from New York. This is your host, James Nelson. Thank you again for tuning in and wow, what an incredible show that we had last week with Rick Clark from Brookfield. If you did not tune in, make sure and go to wherever you download your favorite podcasts, itunes, Spotify, Stitcher, and please give it a listen. Please keep the comments coming and continue to rate the show. Really appreciate the support. Tonight we have a fantastic lineup. We have my friend tonight, Thomas Campbell from Thoroughbred Properties who's going to be talking about affordable housing, a segment of the market that is really expanding. And this is something that you're going.

To want to learn about.

And then after that, we have our first construction, design and architect panel with Gene Kaufman, Mike Santora and Avison Young's own Kirsten Beck.

But before we get to the show.

It'S time for our Week in Review powered by the Daily Beat in news this week, Simon Property Group is buying rival mall owner for Taubman centers in a $3.6 billion transaction that demonstrates how the largest US mall owner is pushing ahead with expansion despite headwinds in the industry, according to Wall Street Journal. Elsewhere, Simon Property Group, Brookfield and Authentic Brands Group are moving forward with its $81 million bid of Forever 21 after no rival bids emerge. Simon counted 98 Forever 21 stores occupying 1.5 million square feet in its US portfolio at the end of the third quarter. In New York, New York City's FC's owners, in conjunction with Mad Equity's LED Development Group, are nearing an agreement with the city's Economic Development Corporation that would allow the team to construct a privately financed 25,000 seat stadium in the South Bronx. The project would also allow affordable housing, a new school, a hotel and shops. The Yankees are part of a venture that owns NYCFC with the Abu Dhabi Investment Group. Randy Levine approached Mad equities and said the team would be willing to scale back its requirement for thousands of parking spaces in the immediate area of Yankee Stadium, allowing the developer to purchase them. The proposed development would cost more than 1 billion and rise near Yankee Stadium on River Avenue by purchasing six scattered parking lots from the Bronx Parking Development Corp. For 54 million. The development group will help the not profit get out from under crippling debt, according to the New York Times and the Wall Street Journal. Elsewhere, the Moynian family will break ground on its new $200 million Hudson Arts building at 220 11th Ave next week, according to the New York Post. The boutique office project will take up the entire block front between West 25th and 26th Street. In leasing, Target will replace the longtime Union Square supermarket, the food emporium at the base of zeckendorf Towers. In 2023, the big box retailer signed a 16 year lease for 32,579 square feet at Empire State Realties Trust, 10 Union Square East. Asking rent, according to the Post on the deal, was $183 a square foot. In politics, Mayor de Blasio unveiled proposals for a citywide basement apartment legalization program, attacks on vacant storefronts and more low income housing, and payment plans for renter security deposits, according to the Commercial Observer. Elsewhere, a New York State judge on Monday temporarily blocked the state's week old ruling that effectively barred tenants from having to pay a broker fee, issuing at least a short term reprieve to an industry scrambling to respond to brokers can continue to collect a commission from tenants for rentals. The decision is expected to stay in place until at least March 13th. Finally, in tech CoStar Group has agreed to buy RentPath for $588 million as the real estate data giant pushes deeper into the fast growing business of helping renters find apartments online. Rentpath controls real estate websites apartmentguide.com rentals.com and rent.com In December, the three sites had about 28,000 properties listed on its network and combined for 7.1 million unique visitors. The all cash deal was announced by the companies as Rentpath said it would seek Chapter 11 bankruptcy protection. RentPath has been struggling financially and recently hired financial advisors to help it restructure more than 650 million of debt. Worth noting. Private equity firm TPG acquired RentPath in 2011 for 525 million, including debt, and Providence Equity subsequently purchased a 50% stake in the firm in 2014, according to the Wall Street Journal article. So that is it for the week in review. Please stick around for just a brief moment while we have an announcement from our sponsors and we will be right back.

When it comes to business, you'll find the experts here.

Voice America Business Network.

A different approach to putting our clients first Avis and Young's Tri State Investment Sales Group sells multi family office retail development and Specialty sales throughout the New York metro area. As experienced thought leaders in our industry, our 35 member group is available to help you make informed investment decisions by advising you on your current holdings or identifying new opportunities in the marketplace. Our one unified team is built on an industry unique platform which promotes unparalleled collaboration and teamwork. We share core values of hard work, integrity and expertise. We put our clients first, providing tailor made strategies to achieve superior results. Please Visit us at aytristateinvestmentsales.com and and follow us on Twitter, LinkedIn and Instagram amesnelsonnyc to learn more.

When it comes to business, you'll find the experts here.

Voice America Business Network.

Welcome back everyone. This is James Nelson, your host of Real Estate Investing Live from New York. And it is time for our investor spot. Thrilled to have with us today my good friend Thomas Campbell, who is founder and principal of Thoroughbird Companies, llc, a leading development, acquisitions and operational strategy. Thomas also serves on the Albany Budget and the New York City Budget Committee of the New York State association for Affordable Housing. Prior to founding Thoroughbird, Thomas worked in finance for Merrill lynch, managing a $300 million portfolio of investments, and later for Morgan Stanley as an institutional advisor to corporations and most importantly, another fe Colgate grad. So, Thomas, great to see you again.

Good to see you, James.

Now, what year did you graduate again? I'm trying to remember.

Colgate.

Yes.

2000. Best class.

So, yeah, I remember we overlapped. I couldn't remember which. Yes. But I was the proud class of 98. So we've got a great string here now. We had our friend Dan Hurwitz, who came in, Chad Cooley. So, you know, for a school in the middle of nowhere in upstate New York, we didn't turn out too bad.

That's right, that's right, that's right, that's right.

So let's talk about where it all started. Where did you grow up?

I grew up in Lakeland, Florida.

Oh, okay.

Have you been to Publix Supermarkets? Yes, we gave you that. That's about it.

Oh, thank you. Wow. Okay. Did Publix ever make it up North? I mean, I've been down in Florida. It's still a pretty big footprint.

Southeast, they do really well down there. They're like. They're like the whole foods of the South. Yeah. Best produce in the South.

Got it.

So I was born in my little tiny town of Lakeland, Florida.

Nice.

With a spring training home of the Detroit Tigers. There you go. And. And population about 80,000. About all I got for you.

And what did your parents do?

My parents worked as factory workers for a company called Owens Illinois, later turned Owens Brockway. It was. They made glass products, bottles. And when I was a kid, there was Mott's applesauce, there was Anheuser Busch, there was Heinz ketchup, there was everything got it. And then the older I got to get to high school, then he sends all those jobs to other countries and they had one contract left. When I came out of high school, that was the only Anheuser Busch contract. And then by the time I graduated from college, that factory sort of shut down. And so it was a big hit to that little economy. But fortunately my parents planned okay and so they were able to survive a bit. But yeah, small town with a couple those types of businesses that exist and that are really important to those local economies.

Perfect. And what did you have any odd jobs growing up or through high school?

Chuck E. Cheese, mouse. Sometimes you were the mouse and the cook, you know, so. And the mouse would always be a cook. So you just run behind the curtain, be the mouse for a while, then go back and make pizza.

Would kids try to kick you or what was the.

You're not real. You're not real. You know, they could see like your ankles or something. They were like, this is a person behind that thing.

That probably prepares you for the real estate business though, if you're used to getting kicked by, you know.

That's right.

That's right.

That's right. That's what I took from that. That's exactly right. Play the party line, be a good sport and get kicked around a little bit. There you go.

So from Florida and you went to school locally, then you go up to Colgate. So you go from 70, 80 degree weather to, you know, we're used to having a couple feet of snow in the middle of October. So did you know that when you were headed up that way or what was.

It's always greener, you know. You know, if it's Christmas day and it's 80 degrees outside, you're like, what? That doesn't look like it looks on television. You know, you want to see something a little bit different. And, you know, I always knew that I wanted to get away a bit and expand, you know, one thing that's cool about New York is just, you know, the culture you see so much, you know, and growing up in Florida, it's so, you know, it's nice, the beaches are nice and the weather's nice and you could play football all year round, which I did and I loved. I always wanted to get here and I've always seen myself. But I planned to go to school up north and then come back to Florida, but I didn't realize that no one's gonna come up there to get me. So I wound up working in New York and fell in love with the city. You know, it's either you love it or you don't. And I fall in the love bucket with New York.

Wow. So right after college and what did.

You study there at Colgate? Yeah, I majored in international relations. Econ. Again, culture was always a big deal for me. So international relations IR with a focus on the Pacific region. I studied the Russo Japanese conflict over the islands that separate those countries. And then I wound up studying the language for studied abroad there. That's where I met my wife. She just got back from. As I just talked to you about.

Are you fluent in Japanese as well?

I don't call myself fluent conversation enough to get around. I gotta be able to talk to my in laws, right? So I talk to my father in law. And men in any culture mumble when they talk. So if you can understand your father in law, you're doing okay.

Good, good, good.

So.

But up until now, no exposure to real estate at all?

Not at all. You know, if you'd have told me I was gonna be in real estate at Colgate, I looked like you had two heads. You know, because that's why I think this is such a great thing that you're doing here, James. Because it's such a mysterious business. Because it's really a derivative business. Everything that we do depends on understanding another business. There's another business or some other function inside of what you do. I think you really have to be smart and sharp and really understand. Because everything about your economics depends on what some other business is doing. I think it's the most widely used, most misunderstood asset class in the world. I didn't know what a developer was. Not many people still know what a developer is. I thought developer wore a hard hat and rolled around the ground. And that's not what it is in development. It's finance, private equity, it's politics. It's a lot of the things that you don't see happening, but the things that are important that make projects happen. So no real estate at that point. I went to Colgate. But I was always looking for a way to marry my mom. She had two nicknames for me. She called me Einstein. And then she. She didn't really call me Martin Luther King. But she always made these references to Martin Luther King for me. Like I was supposed to make. To make the world a better place somehow. So I knew that I didn't come from a background with much, much money, great background, the most best parents in the world, but we didn't have much money. But also I needed. And I wanted to make a difference that way, but I needed to make some money. So the issue is, how do you marry the two? So I was always trying to find a way to do that. Colgate offered me that. So my senior, my junior year in college, I studied at the Woodrow Wilson School at Princeton public policy program called the PPIA program to really try to learn what are the avenues in public policy, which was great. And then I would on the weekends hang out at Wall Street, Goldman Sachs and some of the Wall street firms. And I really just had to make a decision about which area I wanted to go first, whether it's politics first or business first. And I chose business. And then I wound up working for Merrill lynch investment managers in Princeton on the buy side, doing investments. On the buy side, I was a quantitative analyst on emerging markets and high yield debt funds to try to learn how to understand investments. And then I graduated to be a portfolio manager on large cap stocks and the like. And then I wound up moving down to Florida. I asked to be moved to Florida so I could help out at home a little bit. And I met a developer when I was down there. And he's a guy who had learned about development from his work at Florida Power and learned about the power of tax credits. Because at Florida Power he was in a finance division that leveraged depreciable assets like airplanes and things along those lines. Real estate's a very depreciable asset. That led him to become a developer. And then he became his community developer. And then he essentially became this really successful developer in Florida. And he and a partner of his had. They came up on a plot of land in an economically depressed area and they were going to do condos. But then the community said, look, we don't need condos. Look around you. We don't have access to basic necessities. We need food, for example. And it was just an area where grocery stores or any sort of retailers of that type usually build their models around revenue per capita, as opposed to revenue per capita times capita. And these areas usually are densely populated. So if you could really adjust your models a bit to track the dollars going in and out of your store as opposed to what the demographic is going in and out of your store, it can really make a difference. So that wasn't enough. He was able to get revenue subsidies for that store and were able to get contractors to believe that they would get paid. He was able to get to find a grocer, which it was a grocery store called, used to be called Cash and Car, not sure if you heard of them. They were acquired by another firm called Sweet Bay Supermarkets. They came in and wound up being development of the year in 2005.

And I'm sorry, were you involved in this as well? You were just watching him?

I was sitting in his back pocket just kind of watching him. He took me along as like, little skipper. And I mean, little, you know, grasshopper, I should say.

Right, right. Did you get involved in any. You went to these community board meetings. I mean, I would imagine I've seen the community board meetings here in New York. I mean, I gotta imagine if anyone who's listening has not seen, you know, one of these in action. I mean, you get. It's Americana, its finest. Right.

They're really powerful here in New York because New York's a very progressive place where people or the population has a lot of. Has a big voice. Community. Boys aren't as powerful down in Florida. Right.

But it sounds like in that case, that there was clearly a need and it was ultimately addressed at the end of the day. So it seems like that was a huge success. And I guess in its simplest form, the subsidy that's available, I would imagine is meant to level the playing field. Because if he was going to do condos and sell for profit, maybe subsidies for an affordable project, it's a different type of proposition. Right. Because you're doing this more for the long term. But you said in the process there was tax credits. So he did this project. And I want to get to this a little later in your story about how these projects are actually, actually capitalized and the benefits for those who build them. But, yeah, it sounds like it was a success also financially because he was able to get some of these tax credits that he could sell off.

Florida has both state and federal, what's called new markets tax credits. New York doesn't even have state level new markets tax credits. Florida has those. Plus the city just gave revenue subsidies to the grocer at the local level. So they were really just kind of killing it. And then there was the performance as well. I mean, really gross. Well, even if it had no subsidies, so. Wow. But it takes that level of subsidy to catalyze things that just don't happen. So it's like the city and our project. And we'll talk about a bit later, our modular project. We have a modular project that we're doing. We have 176 unit modular project in Brooklyn. And that's because the city understands the value of modernizing construction techniques as a way to save money and help to create more affordable housing. But real estate development is so capital intensive. Our products are so capital intensive that they're so risky that there's not much experimentation with the production process. You can't scrap our product. We're not making bicycles, we're building buildings. Right. So it's tough. So innovation is stymied a bit. So they put in an RFP and said, if you do a modular deal, we'll give you land for a dollar.

Wow.

So getting land for a dollar in a city like New York, where land can be 40% of the cost of a deal, that catalyzes that type of innovation. And that's really what community development is all about.

Wow. We're going to definitely hear more about that. So at this point, I'm assuming you're hooked. You got the bug now. So are you now looking to. Did you end up joining him? Did you do some more real estate down in Florida? You come back up to New York?

No, I made the decision. I was still involved. I was still working for Merrill at the time. And I said, look, this is what I want to do. I was big fish in a small pond down there. I was on the board here, board there. I was on the board of the chamber. And one of the guys who was on the chamber with me, he had a client here in New York who was a developer. He said, look, Mike, if you want to go to. Want to go back to New York, do community development, one of my clients does that. Why don't you talk to him? And so what I use is business school as a career. So I went to Columbia Business School and I used that to switch into development. And so I worked literally 30 hours, 25, 30 hours a week while I was full time in business school for this little developer here in Florida. I'm here in New York.

And is he still around? Did you end up.

That's Genesis Company. There's a guy named Karim Hudson, Harvard Business School guy, really smart guy.

So he really taught you how to do it here in New York?

I built all my relationships with him. He had a very small shop. I joined a small shop on purpose so that I could build relationships. I probably wouldn't have done this business to work for someone else. If I did, I wanted to do it entrepreneurially. So I joined a small shop on purpose so that I can get exposure to all of his relationships.

This is a really, really good point because we, our listeners, they're aspiring investors. Some of them are investors looking to take their game to the next level. And, you know, working at a big shop, they have a lot of resources and a lot of infrastructure, but you could also get pigeonholed into just one specific line. Whereas I would imagine if you're at a small shop, you get your hands involved in everything.

Yeah. My very first day, I was down at city hall with the developer, in a meeting with him, meeting with city council people, getting entitlements. And it was an amazing experience because here's this guy. He's a very smart guy, but he was still fairly young. As a developer himself, he was trying to get this entitlement up in Harlem, and he's got this rabbi who's late to the meeting, and he was just tap dancing, trying to get it done. And then all of a sudden, this guy walks through the door and puts his arm around him and everything changed. And wrote down in my journal, this is 99.9% relationship driven. You don't learn that lesson sitting in a cubicle. You learn that lesson at the table. I needed to be at the table. So it was really important to understand really how things get done, because that's just kind of how things get done.

And there is give and take, and that is the foundation of these public private partnerships. So, I mean, at that meeting, you're trying to figure out from the city council person, what does the community need? How can we? I mean, on one hand, you know, this project does have to be able to stand, you know, on its own. I mean, we can't. You know, there needs to be a mix of uses there. But how does that discussion go when you're meeting with.

Well, the issue is that city council people understand their people and they understand aggravate what they think need to be done, but they're not finance people. And this guy has a very good idea. It's financially sound, which makes sense economically for the community. But city council person really doesn't have the ability to evaluate because that's not what they do. So they need to. So relationships are important because you need someone to help you to sign off with someone else. Right. And so the issue is you can have the best idea known to man, but you can tell them it's an economic benefit to Our community. But that city council person, that's not what they went to school for.

So that's gotta be incredible experience. So you were there shadowing a lot of these projects, but what else are you doing while you were at that shop?

So running numbers. I had some great experience doing financial modeling and things in my previous career. So I took that experience and really harnessed that firepower to work in his business. And I really gained a lot of responsibility at his small shop to the point where he actually asked me to partner with him. When I graduated from Columbia, he actually asked me to partner. I don't want to partner under your umbrella though, because I am planning to spin off. So let's do a joint venture. So we did a bit of a joint venture. I was able to negotiate a piece of small piece of four of his projects. There was 5% in one deal, 5% another deal, 20% in one deal. I think like 7% of another one. Just working these deals. And then there was this one deal that became sort of my baby. And after I was the only one that went to those deals meetings and I said, you know what? And we closed two deals together. One deal in Jersey in Jersey City and another deal in Harlem. So I felt like I had two markets, two deals. I know everything now, right?

Yeah. From start to finish. And with a lot of these, my understanding is this is a fee driven business. Right. So when you say you've got this percentage of the deal, there's a certain amount of profit that is made available for the project and so you're participating in that, then I don't want to say you're building a break even project. But typically when you're building the affordable, the fees are made up front and then I guess there's additional tax benefits.

Maybe talk about how, why did it make sense? Look, affordable housing, you're exactly right. It's a hybrid of private market deal and a public project like a toll road. It's really fee driven. You don't invest in affordable housing for the cash flow and to sell in five to seven years you invest in affordable housing for the fee. Most I guess by and large and market rate deals fees are, I don't know, 1 to 3% of the deal. In our projects they're 10 to 15% of the deal.

They have to be because there's no profit afterwards.

That's to incentivize.

And who are your partners on these? Because I mean I know the tax credits. These used to sell to the oil companies or maybe Google or whoever has these massive gains. And so they buy these tax credits to offset that, but also clearly to do good for the community. And I think that's. We had a couple weeks ago, we had our head of Global research, Nick Axford, talking about socially responsible investing and doing this not only for profit, but also for good. Certainly that's a key driver for this.

Yeah, oil companies, the Googles of the world. Most importantly, the types of companies that have very predictable cash flow because the tax credits are taken over a period of 15 years. So when you invest in a deal, you're investing for a 15 year run of tax credits. So who knows what their tax bill is going to be 15 years out. The most predictable source of the business that has the most predictable cash flows really tends to be banks. So banks are really the number one investors and they have what's called Community Reinvestment act responsibilities. So wherever they have deposits, the policy has changed to the degree that they must invest in communities where they have deposits. When they have deposits, they're basically borrowing money from the public. So they're going to be borrowing money from these communities. They should be give back to those communities. So in that way they're the investors in tax credits. So wherever they have the most cra need, it could be Albany, it could be New York, it could be Houston. That's where they're going to be investing in those tax credits.

And I know these credits sell sometimes at a discount. So if you get a dollar tax credit and this is a dollar off your tax bill. Right. Sometimes those can sell. Maybe, you know, five, 10 years ago, maybe when not a lot of companies were making profits, maybe that sold for the 80, 90 cent a dollar range. Now I've heard that they can be as high as 97, 98, 99 cents. And in some cases which I still haven't figured out, they can actually go for over a dollar. So why would a company. So maybe you could talk about how these tax credits sell.

You get a dollar for dollar refund of the taxes that you paid. And so if you're the 20% tax bracket and you paid, say you have 100 bucks, your 20% tax bracket, you pay $20 in taxes. But if I give you a credit for those 20 bucks, you put that money back in your pocket, that's basically a 20% profit for you. So you may be interested in paying a 5% cost for a 20% benefit. So there is a benefit to essentially paying over a dollar for a dollar for dollar benefit in your tax bill.

And I'm Sure. Also, there's different demands in different locations.

And you said, yeah, and then different locations. Banks tend to have a different Community Reinvestment act responsibility. So if they have deposits in a certain area, lots of deposits, they're going to pay more for those credits and be willing to accept a lower yield on that investment.

Got it. Okay. So you do four successful projects, you're ready to go out on your own. Okay. Now what you start Thoroughbird is that you open up for business. But where'd you get the name from?

So the name, you know, because me and my laptop writing. So essentially I wanted to have the idea that I could be as thorough as. And I was young as well, so thorough as an analyst, but as wise as a principal. So thorough is the, you know, being a sharp analyst and then, you know, to be as wise as principle. The bird is the owl, which is the symbol of wisdom. And that's the symbol. Wow. Business card. Yeah. So I wanted to.

That has real meaning.

It does have real meaning.

Good.

I put a little thought to it. I went to Colgate like you did. There you go.

I like it, I like it. So you start off your own shop and it's just you at this point. It's you.

Just me. You know, I leveraged a little equity I had in my guys deals, used that to raise little friends and family money and got off on my own.

So what was the first deal?

First deal was a deal. It was a deal that I worked on for a long time. It never happened, but that's where I really learned the business. You gotta have something to talk about or else, you know, no one, not even, you know, the public sector is gonna talk to you unless you have dirt to talk about. So essentially we had a site with the church. I was looking for a no money down value creation opportunity, right? And so I found a church.

Now you've got the listener's attention. And by the way, I've always said this show is not about flipping homes or buying real estate. No money down. I mean, you probably don't remember Carlton Sheets, but he used to have that 2 3am infomercial, you know. You know, create millions, buy real estate, no money down. And I've always been telling people, no, it doesn't work. You got to actually get money. You got to put it down. So. Okay, so, but go on. So. So you're looking for a no money deal, no money down deal.

Exactly. Looking for a no money down deal. Looking for value creation. What's the best way to create value? Get real Estate for free. Out of thin air. Air raids. Right. So I knew that I had a site that was a triangle. And that building code wasn't designed for triangles. It's really designed for perfect school.

And where is the site? This is.

It's in the Bronx on 165th in the Grand Concourse, actually. Still there, sitting.

So that's probably like 20 blocks from Yankee Stadium.

20 blocks from Yankee. Very close. Very close from Yankee Stadium. And that whole corridor just catacorned from the Bronx Museum, which I know. You know that building.

Sure, yeah.

So we're right there. And I knew I could get a variance because it's a triangle. Right. So that's my value creation. And then.

And this is a church that owns it now, owns Triangular Church.

And they've been, and they've been vacant for a while. So they want to desperately want to get back there. So it's no money down because my implicit acquisition process is building them a space so I don't have to give them money up front. Deal. Right. So it's like, oh, I don't have to put any money down. Well, sounds great.

Five years later sounded great on my.

Laptop, you know, on the second floor of Columbia Business School before I was, you know, you know, out of my own. But the one thing you learn is that when you cash is king, you need to have money to control real estate. What you want to do is control real estate on your own, get it in your ownership and do that. And you don't understand the value of site control.

So you went to the church and you said, okay, here's the deal. I'm going to go get this site up zone and then I'm going to deliver back to you a brand new church.

That's right.

And they're looking at you and they're saying, and how old are you? And you've done this before before?

Yeah, no, no. It's like, oh, you're going to be great. You're our savior. This is exactly what we want. They bake cookies for me and everything because, you know, they didn't really think I could really do it. And then the issue is that once we really started creating value, we did a good job with the variance we got the zoning. Once real things started happening, you really have to be careful about managing expectations on a multi period transaction. On day one, the things that they agreed to sound very good. Right. And then once you're into a deal for a while, all of a sudden it's like, okay, well what are you getting out of this Deal. Why are you being paid? You're sort of a. You're a consultant, you know, and I'm like, no, I'm a developer. My balance sheet is going up and the like. And so preferences change. And then there was. There was an agency issue with the fact that the church itself didn't. Didn't make their own decisions. They had a diocese involved in the diocese, and the church had a bit of a dispute diocese. That was one of the churches that I found that the diocese really wanted and didn't have a high regard for. So you really have to really understand. Yeah, they weren't. It's one of the.

If it was easy, everybody would be doing it right.

If it was easy, everybody would be doing it right. So we really found our way ourselves into sort of, you know, sort of religious sort of politics.

You were able to win everybody over.

Ultimately, or we won the church over. And then we had to get the diocese, and we won the diocese over. But then we can't prove to a diocese that their church is worth developing. They decided that they couldn't.

At the end of the day, what's the alternative? I mean, you're telling them that you're going to. They have no rights at all to speak of. No development rights. It can't be built as a triangle under the current zoning.

That's right.

You give them a free church. I mean, what else could they possibly want? And they're just saying, no, it can't be done.

Money.

They want money. So.

If the church is built, then. Because in that particular. Well, in any church where there's a diocese and a church issue is that it's owned. It's in the name of the church, but the diocese owns the church. So really, the diocese owns it as well. The diocese okays the deal, then they're implicitly investing in the deal. They're investing in that church. They're saying, we don't really have faith in this church.

Oh, they were just saying, let's let it go.

We'd rather. So I'm like, okay, well, then, you know, close the church and sell the land to me. But that's a real political thing for them. Shutting a church down is something that they'd like to do, but it's like, so what happened? End of the day, we did an excellent job elsewhere. We were able to raise all the capital. We were able to get entitlements. We had all types of tax credits known, demand public subsidies up.

So you did this deal you built on this triangular set?

No, we raised all the money.

Oh. But then you took it elsewhere.

At the one yard line. They pulled the deal and it was a big black eye for us.

Oh, wow.

So we really had to respond. Either we were going to die right there or keep going. So fortunately, at that time, I had raised. Yeah, I built relationships on that project and I had people that really wanted to see me win.

So you had to go find another triangular site.

I had to go find another triangular site.

Maybe a trapezoid or some type of obtuse. Right. So you find another site and you say, all right, guys, I got everything ready to go. I'm just changing the address on you right there.

I wanted to be on the concourse and say, this is a transit oriented. This was about transit oriented affordable housing. All these things. We're going to do the exact same thing.

So you found another couple blocks up.

On the underground concourse. It wasn't a triangle. It was as of. Right. Same far right.

And you just bought this one, you bought out. Right.

Oh, cash.

And how much that cost?

That one cost 1.5 million.

And how much could you build there?

We could build 50,000 square foot buildings. 50 unit. What was it, 45,000 buildable. 55 units.

That's a lot of air for a million five. I mean, that was. I mean, I'm sure this. What year was this?

2000. We bought that one in 15. 2015.

That's still pretty close to, I mean, 30.

30. $31 a foot. Wow.

Okay. What would that be worth today?

Probably 75, 70. 75, 80. Okay.

That was still, you know.

Yeah.

And obviously the acquisition cost is a small piece to it. So using this whole formula that you told us about. So you got your acquisition cost, you know what it's going to take to build, and that's the capital stack. So now that you've got this, you go to the city who's giving you money to do this.

To do on the developer. Yeah.

Who's sponsoring this.

They have a very well developed capital framework for affordable housing, essentially. And it has to be sort of financial engineering. The one thing that they want to accomplish is for rents to be low and those rents to be capped and for those rents to not rise very much over time. Right. So to do that, you have to essentially make cash flow less important. The way that you do that, the city has a couple tools in the toolkit. One, tax, tax abatement. Two, tax credits. Three, low basis loans called subsidies. So on a market rate deal, you have debt, equity, and then in the middle, that's mes which is sort of a blend between debt and equity. Right. So those rates are blended between debt and equity. In our business, our mezz is 1% money. So it drastically reduces the cost of capital for your whole capital stack. So bottom line is that you're borrowing, it reduces your cost of capital. So your rents, even the little amount of rent that it is, it's all coming to you as opposed to going to a bank. So essentially our borrowing costs are very low. Get tax centers and then the equity requirement really isn't. The long term equity really isn't private equity. What we do essentially as private guys is we privately finance the pre development process. Once we close and all these sources of public funding come in, it reimburses our costs. Right, right. And we get, then we get paid a fee and then we do it again.

Got it.

Essentially, yeah.

So fast forward to today because I know you've told me you've got six projects going on right now. Is that right? How many units are we talking about?

866 units.

Wow. So, so five years ago you were trying to pull together your first few dollars to do a 50 unit project and now you've got a half dozen in the works.

That's right.

So I would imagine once you're in, you're in because when you go into the city, they're saying, okay, Thomas can deliver, he does the right thing. We want to create affordable units. The city really needs it and this guy's a sure thing. So we're gonna keep, you know, keep going with them.

Yeah, I mean they really care about who are gonna be the custodians of affordable housing. They wanna have folks who gonna really understand what their goals are, understand, you know, gonna do a good job in the community, is gonna be a good ambassador for what they're trying to do in the communities. There's this really elaborate sponsor review process that they go through and yeah, they have their stable of folks that they really have to trust that are gonna get it done.

So do you ever think about doing the, I mean when you went into affordable and that's what you were exposed to first, but is it really that social good and that's why you do it, or do you think about doing the fair market for profit? I mean, where do you land on that?

Well, the downside to affordable housing is that the pipeline is very thin and long and these deals take a long time to do sometimes. So I think you need to do market rate deals just to, you know, market rate deals. You have your cycles, but the Deals move a lot faster and you get in and out of the development process in nine months. Sometimes in a private deal, that period takes much longer time in affordable housing. So essentially we want to do deals that move a lot faster. So yes, we need more speed. So I tell you what, I think that ownership of affordable housing is a less risky thing to do. But development of affordable housing is fairly risky, but because you do the same things that you do in private deals, but you have to align that with political cycles and that kind of thing to account for that. We want to do more private rate, private market deals as well, and we're going to do more of that. I am thinking about it and we actually work on a couple concepts for.

Our listeners who might be thinking of getting into this business. What advice would you give them?

The good thing about affordable housing is that again, it's a hybrid public good, so there's always going to be a market for it. And so it's a good way to get moderate returns. Actually in tax credit deals, your return theoretically is infinite because every dollar that you spend, you get it back, plus a fee.

And who's managing? So you've built these projects. Who technically owns them now and who is getting that cash flow?

So I technically own it. We technically get the cash for the cash flow, though it's not very substantial. As I said earlier, cash flow is.

You know, it's designed to almost break even.

Designed to almost break even, Exactly. Right. Well, we do it for the fee.

And now do you manage them also? I mean, do you have.

We hire third party managers, but some developers are vertically integrated, have their own property management. We may entertain that going forward. Some developers build on their own. We don't do that either. We're pure play developers at this point. We're still, you know, really just perfecting our craft as pure play developers at this point. What we. We go into the construction vertical. Yes, we will. You know why? Because we want to be able to control our destiny there. Depending on third party contractors sometimes can add an element of risk that we're looking to sort of try to manage a way. So we will do contracting, but property management. I'm not sure that we do that. I'm sure that we do that, but we probably will get into the construction. Yeah.

Really great to have you here and really excited to hear how this modular project is coming out. Well, Thomas, thank you again for coming in and what an incredible show story.

Thank you. Appreciate it.

All right, we're going to go for a break for our sponsors and we'll be right back. When it comes to business, you'll find.

The experts here Voice America Business Network.

Hi, I'm Mark Rose, Global CEO of Avis and Young, the world's fastest growing real estate services firm. And we are proud supporters of Voice America. With over 5,000 professionals in 120 offices in 20 countries, Avis and Young delivers local expertise in partnership with global reach. Because we are principally owned, Avis and Young prioritizes client success over shareholder profits through our open architecture. Our firm's experts provide value added client centric investment, sales, leasing, advisory management and financing services to clients across the office, retail, industrial, multifamily and hospitality sectors. Our culture is the bedrock for collaboration that enables each assignment to benefit from the collective intelligence garnered from a company wide database partnership performance. Learn how we deliver different@avisonyoung.com to learn more.

When it comes to business, you'll find the experts here Voice America Business Network.

Welcome back everyone. This is James Nelson, your host of Real Estate Investing live from New York. And it is time now for our panel of experts. And today we're going to be talking about architecture, design and construction. And with us, very thrilled to have Gene Kaufman, who founded his firm back in 1987 here in New York. And over the last 30 years he specialized in urban development, notably hotels, multifamily, adaptive reuse. His firm GSKA, his internationally renowned having won more than 100 awards including the industry's highest honor, the AIA Firm Award. Next we have Kirsten Beck joining us from Avison Young. Kirsten is principal and vice president. She's in charge of our project management and with over 20 years experience, she has been responsible for overseeing project management activities in the New York metro area, including renovations, tenant representations, owner rep and capital improvements. She has performed or managed almost 3 million square feet of capital projects. And last but not least, Michael Santora who is principal of SB&C Architecture dbc in New York City for formerly Crown Design. Mike is a great friend and has been an incredible resource. He is an expert at building code, zoning and the inner workings of municipal agencies. So welcome everyone. Thank you so much for joining us. And a special thanks to Gene, who I understand actually built the studios or designed the studios that we're sitting in right now at CUNY headquarters here on Fifth Avenue. Jean, is that correct?

That's, that's right. This was once upon a time a department store, but the whole conversion for cuny, including the studios, was our project some years back. Perfect.

Well, thank you for giving us this space. We really enjoy being here, and it's done great things for the community. For today's discussion, because we're advising investors across the country on how to buy property, how to improve property. A lot of the investors we hear from are interested in, we call it value add, repositioning. It's not uncommon. They find a building that maybe has been vacant for some time and they're looking to improve it and maybe change use. Kirsten, I would imagine you get a lot of these initial calls. Hey, I saw this great old loft building and I want to turn it into office. Where do we begin and how much is it going to cost me? I think that's probably how it goes.

Those are the first two questions. And to be honest, the first person I call in that situation is Mike.

Okay.

Because the use of the building has to be changed for something like that. And in New York, at least, buildings are specifically designated for one use or another. Commercial, you know, commercial interiors, education, retail. And if you're going to change the use, especially from residential to commercial, there is a process and a rather lengthy process that you have to go through, no question.

And I can tell you from the broker's perspective, because I get these calls all the time where the broker calls and they get really excited because they love the neighborhood and they love to look at the building and they say, I've got the perfect client for this. They want to live there. And I say, well, wait a second, this is a manufacturing district. Mike, how do you find out if you can actually do what you want in a building?

Well, the first step is always zoning. And New York zoning is more complicated than it is anywhere else. But every city has some type of regulations that you have to file that dictates the use. But I think what's more important, what people forget about, is the things that are triggered when you change a use in a building. And it's not just New York. Other cities do this, but they look at changes of use as opportunities to force the developer to upgrade the building, to bring it up to current standards. So it started with means of egress, with life safety and fire safety systems, with the type of structure that the building is built out of, if it's combustible or non combustible, the amount of loads it can hold. And now it's even evolving into energy code compliance and things like that. So, you know, we have a lot of new local laws in New York where we really want buildings to be more green. And these are all things that impact the development. So it always starts as can this. Can this residential building go commercial? Does the zoning allow it? Yes or no? It's somewhat straightforward. But then it's all of the other things that you're going to trigger along with it. And do all of those other improvements fit into your development plan and fit into the budget you have, or you're going to end up doing more than what you anticipated for? And that obviously comes back to you and changes their offer and how they value the site. And I think that we discussed how people were starting to devalue certain sites because of how far off they were by the energy standards that we want to have, because they've got to account for those changes and those improvements they're going to have to make over the life of the building.

Gene, how early do you get involved in the process when you're dealing with a developer? And let's stay on the theme of a conversion for now. At what point do you get involved? Are you helping them from the start, helping them understand what they can do with the property as well? Once they've determined they can do it, are you then drying up the plans?

Well, I'm sometimes the second person for somebody to reach out to because they come to me with at least a little bit of information in hand. They wouldn't have made that phone call otherwise, but frequently the information they have is the starting point. And I think that what they really are looking for is not only what do I have to do, which of course is critically important, but what else can I do that maybe somebody else isn't thinking of somebody else is not doing? Why is this property going to be more valuable to me than to someone else? And inevitably, potentially, can I actually pay more, get the site? Because I can make more money doing it. So that kind of investigation builds on what Mike is saying, the things you must do, and takes you to a place where you're looking for highest and best value.

Well said. And I want to get into development and air rights and how that all works. But before we get there. So, Kirsten, what is the team that a buyer needs to have in place? Because I know here in New York, things move super fast. So whenever new buyers come into the market, my first piece of advice is have your team ready. Because if you put in an offer and I say, okay, we're going to send you a contract, we're not sitting around and waiting for you to do your numbers and figure out what it's going to really cost you to build this. And as we know, we're looking for, for Hard deposits on the spot, quick closes. So our advice is always bring in the team in advance. Know who you're working with before you even maybe find the project. So who is the team when you're looking to do a renovation?

The initial team for what we call due diligence, a feasibility study, is a code expert, architect, engineer, typically also a structure engineer. You want to make sure the building's stable and in good condition. And then depending on what the business is, there may be some other specialty folks that you want to look at things. You might want a vertical transportation consultant to look at elevators and things like that. So it's a relatively small group, but there are probably a good five or six people that you need to even just take a look at a building, do a walk through and figure out what issues or major costs you might be incurring. Because a lot of those things, I would know some of them, but I wouldn't necessarily know all of them. So each person on the team is going to bring a different perspective and point out different things, and then all of that feeds into my helping put together a schedule and a budget, which are both of which are driven by all of those things.

Right.

And I know you also do a lot of owner's rep work, so you can also serve as the quarterback of the whole project. So you say, I'm going to put together the whole team and I'm going to be watching over every, you know, move and you know, who's selected and you're going to bid it out. So is that typically how you would get involved?

That's, you know, I'm, I'm best off when I'm the first person called, but I'm not always the first person called. Sometimes a client already has an architect, somebody they've been working with, but then, yes, we put the rest of the team together and that's really our role as the terms get kind of tossed around. You know, project management, owners, rep, tenant rep. At the end of the day is you're managing the entire process on behalf of whoever the project owner is, whether that person's a tenant, a developer, or a building owner. So we bring on the entire rest of the team, we bring the right players to the table, and we, we manage that entire process of getting pricing, vetting them, making sure everyone knows what the schedule is, preparing the schedule with the input of all of the other consultants, and then executing what we agree to do.

So, Mike, you fulfill the role, and your firm is vertically integrated. So you go in and you do a lot of the due diligence. And you already referred to it earlier, but how do you. And again, I know this varies city to city because I know New York is probably one of the few places that has this expediting industry because you actually need help going in and locating documents. Where I've heard if you're down building in Raleigh, North Carolina, the people show up to your office, the job site, and say, how can we help and make this happen? So maybe give us a little flavor of what goes on in the world of expediting, or do we not want to know what goes on behind the scenes there?

New York, York is obviously the most complicated for that. And they do kind of restrict it where if you're not. If you don't have someone on staff that's licensed that knows where to go, they make it very difficult for you to walk in. Other cities, as you mentioned, are totally different. We were doing a large project in Denver, and within one day of walking into their department of buildings, I got all the records I needed. I walked in with nothing, just said, I'm interested in seeing what was on this property previously. We have to do some due diligence. Okay, sir.

Did they even ask you who you were or.

Okay, they didn't. And by the end of the day, I was sitting in the assistant town planner's office having a conversation about what zoning variances would be available. You know, their interpretations of certain code sections that I had read before and I wanted to understand better before getting into it. You know, in New York, sometimes you even need a lobbyist to get to a person that can answer those types of questions. And you need to have somebody like that on board. A good expediter, a good architect that has contacts can probably get to someone too. But, you know, you and I have worked on projects or I said we have to submit a determination or we have to see the commissioner. It could be two or three months before we get a formal response on this. Where other cities that are pro development and don't have as much going on are much more welcoming and open and want to have a conversation and be involved in the process. Not that New York is obstructionist, it's just. It's a bigger machine and it's a lot more layers to peel through.

Gene, I'd actually love to give you a chance to respond to that as well, because as challenging as many levels as it takes to get something approved in New York City, there is still what's known as, as of right zoning. Now you could say, well, again, in Some places in Texas, you can do whatever you like. But how would you the process of getting things approved and how you help shepherd that through. Do you want to talk about that?

Well, as of right is a beautiful thing because actually, although you need to do some due diligence, you actually know what you're allowed to do. It's all of the conditional approvals which happen actually all across the country and in some cases in New York that make it very complicated because you don't get a hard and fast answer. So we like very much to do as of right projects, and we like very much when we can figure out a way to do that without having to spend a lot of extra time trying to figure out what the alternatives are, because time ends up being money. And I think that what you really want when you're in a position where a property is, let's say, potentially available, is you not only want to find a higher and better value for the outcome, you want to go about it fast than other people. And if you're able to figure that out within those constraints of as of right, you're in a very good position. And being able to get in and out of that process is very critical. The fastest I've ever analyzed a property and give somebody recommendation and had to make the phone call to buy it is 10 minutes. But of course that's not really normal. And I think in the case like that, somebody had the feeling that you had to be really, really fast. And I was able to analyze it literally while we were still on the phone with the broker. But I think that you need a version of that, preferably not that fast to be able to do that. Because if the property really is a good deal, you're not the only one looking at it nine times out of 10.

And just to carry that arc further and then the approval process. So once you've opined on what you can do, actually getting the plan submitted. And again, if we're talking about an alt one renovation, a very basic renovation, that might be one timeline. But what's the actual process of getting something filed at the buildings department and getting Kirsten and her crew in there to start work?

So normally a major project, major alteration, a new building takes six to eight months at the building department to get it approved, to get it approved from the day that you walk in the door to the day you walk out with your approval in hand. That being said, about two hours ago, we got approval of the largest hotel we've ever done. We've done over 100, and it took us seven weeks.

Wow.

That was an as of right.

It's as of right. And it's fortunately a vacant lot, so we have to take a building down. So not only we have great result, we're actually able to start work. I mean, sometimes you can get your approval, but then you can't start work for one reason or another. So that was really all beneficial to ownership. And, you know, when the carrying costs of the property are quite high, every day counts a lot. I mean, from an architect's point of view, that's money you can put into the project. From a developer's point of view, sometimes that's money they keep in their own pocket.

No question. So we only have about a minute or two left and we're going to have you all back on a future show because I want to get to ground up and so we're going to save that for another show. But, Kirsten, just your role as far as the approvals. Once Mike has signed off and he's done his work and vetted it, Gene's got the plans ready. How much more in the approval process do you need to actually start swinging hammers?

Well, you know, it was interesting because I was thinking as Gene was answering that that's the time from which you actually file with dob. The period of time to get there can be on a major job up to a year because you can't just go to the DOB with an idea. So you first have to get the rest of the consultants, not the first four or five, but the other 15 or so that you're going to need for a project of that size and go through the design process. So it's. We're actually doing a major renovation now. We literally just started and we're anticipating reoccupying the building in May of 2023.

I thought you were gonna talk about our office because you are also overseeing our office moves, so.

Well, that's a very straightforward interior renovation in an existing office building.

We like to hear that.

It's especially when we have a lease.

Expiring and there's not a lot of leeway, so. Well, wonderful. Really want to thank you all for joining us today and we'll look forward to having you back on future shows. Thank you.

Thank you. Thanks, Gene.

Thank you.

Thank you for tuning in this week to real estate investing. Live from New York, please join your host, James Nelson for another program next Tuesday at 7pm in New York, 4pm Pacific Time on the Voice America Business Channel. All shows are rebroadcast Wednesday mornings at 7:00am Eastern Time, 4:00pm Pacific Time, as well. As always on demand. We'll talk again next week.

SA.