18: Founders of 60 Guilders - How to Be the Best and Easiest Partner

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 to show number 18. This is James Nelson, your host of Real Estate Investing Live from New York. For starters, we have done it. We have cracked the 20,000 mark. Yes, 20,000 of you have downloaded listened to the show. Thank you for your support. Thank you for spreading the word. Thank you for supplying your ratings and your comments on all the various podcast platforms out there. Cannot thank you enough. We've been having a lot of fun here. So we've got a really exciting show for you today. We've got my friends Kevin Chisholm and Bastian Broda from 60 Guilders telling their story. And then we have Lisa Maki from Avis and Young's Nashville office with a city spotlight. Before we get to that, let's do the Week in Review, powered by the Daily Beat. In breaking news, Rick Clark has stepped down from his day to day roles at Brookfield. Ben Brown will be taking over. Rick will remain chairman of Brookfield Property Group, Brookfield Property Partners and Brookfield Property REIT and as a senior advisor. Wow, what a run though for Rick. And if you have not heard our interview that we did a few weeks back on the show, you got to check it out. What an incredible again, leader and power of example. Brookfield has been busy this week in that they have have acquired 315 W. 33rd St. And an adjacent underdeveloped parcel of land from SL Green for $446 million. The mixed use building known as the Olivia spans almost 500,000 square feet and contains 333 residential units plus commercial space. Elsewhere, Savannah has entered into a contract to acquire 1375 Broadway from Westbrook Partners for $435 million. The Garment District office building spans roughly 500,000ft. Accounting firm Ancient Block currently occupies roughly 120,000 square feet there. For you sports fans out there, Ophir Yardeni has partnered with AROD and Adam Modlin and they've closed on their acquisition of 340 E. 51st St. From Solstice Residential Group for $66.25 million. That was a 4.1 cap, according to the Real Deal and the New York Post article in Real Estate Meets Politics. The rent laws have continued to reverberate. Anthony Gazevoda has acquired 118 East 93rd street from Kress Realties for $27.3 million. The property, with 45,000ft and 38 units, was slated for conversion to condos, but then the Tenant Protection act halted those plans and as a result Kress sold for a substantial loss as they had paid $39 million years back. Interestingly to the new buyer's uncle. So unfortunate set of circumstances there. But again, the reality of this new reform setting in. In other Legal News, at 200Amsterdam Avenue, a 52 story tower on the Upper west side have culminated in an unprecedented decision. A Supreme Court judge has ordered that the building must lose as many as 20 floors in accordance with the zoning for the neighborhood developers. SGP Properties and Mitsui Fudasan are planning to appeal the ruling, according to the curbed NY article. Elsewhere, cell tower owners have been among the fastest growing companies in the real estate investment trust sector as consumers use more data through mobile phones and tablets than ever before. With carriers and the federal government poised to make more investments as 5G networks begin to roll out this year, the value of these towers is expected to rise. The promise of self driving cars offers additional upside in the future. Lastly, Airbnb racked up a $322 million net loss for the nine months through September, down from a $200 million profit a year earlier. The slide in the red could affect the company's price tag in its highly anticipated IPO. The company was valued at $31 billion in its last private funding round in 2017. However, its most recent internal valuation was sharply less. Any IPO this year would likely be in the third quarter or later. Okay, so that is for the week in review. We're going to go to a quick break and we'll be right back with that interview with Kevin and Bastien who are in the studio.

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Welcome back, everyone. This is your host, James Nelson of Real Estate Investing live from New York. And it is time for our investor spotlight. Although today we actually have a two for one special because we have two people joining us. Kevin Chisholm and Bastian Broda, friends and clients who managing partners and founders of 60 Guilders 60 Guilders has acquired 2.9 billion of New York City retail office residential investments. Before 60 Guilders, Kevin and Bastian were both at Savannah, expanding their office portfolio. Kevin before then was at Ritchie Capital Management and Credit Suisse while Bastien was at nyu. I also see a note here that Bastien is fluent in French and Spanish. So for our global listeners out there, maybe you'll have an opportunity to speak to them as well, if needed. But let's dive in. So you all met at Savannah, is that right, Kevin?

Yes. So just by way of background, I went back to business school to switch into real estate. I had a couple of jobs out of undergrad, not in real estate and mainly in telecom. And I had a job working for an Internet company. And after both of those industries just sort of suffered massive distress in wholesale layoffs overnight, I went back to school to switch into real estate and in my first full time job met Bastian, who initially started out working as our, I say unpaid intern, but he wasn't entirely unpaid. He was allowed to charge as much as he desired at the local deli where we had a corporate account. And we connected with him by putting a 3 by 5 card with a help wanted ad for an intern on the job board at nyu.

There you go.

Yeah, they were looking for part time help. I said, I don't have a job, so I'll work full time. Okay, good, good, good for a few sandwiches.

And what kind of this, what year was this?

Was this 2009?

Okay, and what, Kevin, what were you working on then at the time for Savannah?

So I had joined Savannah in 2006 and in 2009 we were in the pit of the financial crisis and was pretty Much just working on trying to figure out how to make a living. And the main investment opportunity that we were focused on was trying to buy debt and seeing if there was an interesting way to maybe purchase a debt instrument and leverage our rights as a lender to gain control of the real estate.

And you had never. This was your first job in real estate. So how did you figure out how to do this?

Fake it till you make it. This was my second job, second job in real estate. So I had interned at Savannah while I was in business school and then my first job in real estate was as the junior guy on a two man team at a multi strategy hedge fund called Richie Capital where we were charged with making 20% IRRs in real estate by investing in debt equity, every part of the capital stack in between in any asset class across the country. I worked there for three and a half years where at Richie I was really just allocating capital and investing in local entrepreneurs who had already had a property under control and switched to the other side of the of the table and joined a local operating partner who was in the process of changing their business model from going out and finding a deal first and the money second to going out and finding the money first, that is raising a fund and finding the deal second. So I joined Savannah shortly before they raised their first fund and I was there and in 2009 we had joined, just raised our first fund and told all the investors, hey, we're going to buy properties and we're going to reposition them. And just given what went on in the market, that opportunity really wasn't there. So we were trying to capitalize on where we were in the cycle and the underlying premise. I remember walking back into the office right after Labor Day and 2009 and thinking, hey, there's all these loans sitting on the balance sheet of these banks who have typically sold it off. The people who typically bought the loans from these banks through securitizations or just through some sort of syndication are no longer buying. Why don't we go meet with them, with the lenders and ask them if they'd be interested in selling to us. We just raised all this money. We're trying to figure out how we can do it and have them tell us how we can make money.

How did that go? So you were actually calling the banks and trying to set up the meetings or what was your role?

Exactly what you said. Put together, pulled up a commercial mortgage alert league table of the largest securitized lenders and then cold calling on the bank sometimes calling a loan originator who had sort of solicited Savannah's business and said, hey, we'd love to make a loan on one of your properties. Or just otherwise networking our way in the front door and saying, hey, I work at a company that just raised a bunch of money. We're interested in buying your loan. We'd like to buy a loan on the types of properties we typically own and operate. Do you have anything we can discuss? And I would try to make those initial calls, source deals, and then sort of screen them and underwrite them until we weeded out the ones that weren't interesting and, you know, landed with something that looked and felt pretty good.

So, Bastian, what were you doing at the time? Were you underwriting these investments? Were you trying to make sense of them? And what kind of background did you have at school?

I went to NYU in Stern to study Finance and Management. I graduated in 08. Couldn't find a job in real estate.

So I found great time to get.

Into the market, right, for a job. I got a job through a connection in a French bank. I'm from France originally, and it was in their MA practice 2008. French bank, MA business. Not a lot of work to do. So I would spend most of my time looking at brokerage sites for real estate investments and likes. And then after a year, I said, this isn't for me. Let me go do what I want to do, which is real estate. So I quit my job in July of 2009. Great time to go look for a job again. Saw this help wanted ad and I said, hey, will you. Will you teach me how to do or how to invest in real estate? And yeah, started as an intern and then went to analyst, then went to associate until 2013 when Kevin and I left and started 60 yielders. But my job was deal processing. So processing information, preparing investment memos, putting together market analysis, cash flow models, anything that you need to put together to make an institutional quality investment.

So it sounds like you pretty much learned on the job. And a lot of the listeners of the show, they're aspiring real estate investors. They're trying to figure out how to break into this. And do you try to do it on your own? Do you go work for a big shop?

The number one, I always tell people, go learn first before you try to do it on your own. It's aspirational to try to do something you know nothing about, but you have interest in it and you need transaction experience, especially if you want to be an investment person. So the more deals you see, the more analysis you make, the more analysis you prepare, the better prepared you are for an investment position.

Perfect. No. Great advice. You see a lot of deal flow, Kevin, for you, after you go out and try to buy these loans, eventually the market does recover. I remember one of Savannah's claim to fame is this office portfolio. They were able to really build up and I know you had a large part in that. I remember it. Really a value buyer. Back in the days when you started acquiring these office buildings, you were picking these up at pretty attractive prices per foot. What year did you all start expanding the office holdings?

2010. So between 2010 and 2013, Bash and I purchased 12 office buildings totaling 4.25 million square feet, where the aggregate purchase price was 1.1 billion. So it was a pretty good price per square foot. A couple hundred bucks per square foot. And it's of those 12 buildings, eight of those investments started off where we bought some type of loan, whether it was a mortgage loan, where sort of the subordinate part. So it was a B note supporting a part of a mortgage loan or a mez loan. And we ultimately ended up with fee simple ownership within 12 to 18 months of making an initial investment in the.

Deal, I would imagine. And I know you also bought the assets directly and that's probably. I'm sure there was competition. I mean, this is one of the toughest markets in the world to break into. So I mean, acquiring that kind of square footage over that many transactions, what was the key to getting those deals? I mean, you had the funds, so I guess when you walked in there, the sellers knew that you were a sure thing. But how else were you able to differentiate yourself?

One of the ways that Bastian and I have always tried to differentiate ourselves, whether it was at our current shop or where we worked before, is just being as research focused as possible. And there's no substitute for hard work. And our view is that you don't want to bank on getting lucky and you don't want to hope that you get lucky. But through being methodical and sort of doing all the legwork, you can put yourself in a position to get lucky. So with respect to buying office buildings in Manhattan, if you know your subject there, you can sort of be very particular about where you spend your time and put yourself in a position to get lucky. So as an example of that, one of my favorite games around the office is called Stump the Broda. There's this company out there called RCA who sells real estate comp information. And the Guy from RCA would constantly come in our office back then and still every now to this day, and he would pull up his database and he'd say, I want to charge you however much for this database. And they'd be like, you know what, let's just focus on office buildings. Throw out an office building and I bet you Bastion can give you the owner when they purchase it, who the lender is, and how many square footage before you look it up in your database. And to this date, he hasn't been beaten before.

You try me on that.

If I drop a pack of matches, will you tell me how many matches there are?

What are we talking about to match? Counting, unfortunately.

Got it.

It's a very specific scale, but we.

Built a database and we tracked the 1100 largest office buildings and just tried to learn everything you could know about them based on publicly available data, as well as just following up on a boots on the ground approach, walking the building, talking to everyone we know who is involved with the building, whether as a tenant or a vendor, tracking it in Excel spreadsheets, and then constantly reviewing it and calling through the information and saying, you know what, there might be something interesting going on here. Let's go try to figure it out.

How would you find out when they're going to sell? Were you approaching the owners? Were you doing these deals off market? Were you getting them through brokers? So you're tracking the assets, but then, then how do you deal?

Source? I know this because we just. The stat, I'm about to say because we just updated our company presentation over the New Year's break, But in the 10 years that bash and I have been working together, we've purchased 38 properties in Manhattan, totaling. I'm sorry, in New York City, totaling 9 million square feet. Of those 38 properties, four of them were sold through a process where a broker had an exclusive to sell it. So the other 34. So the 34 buildings that were sold off market, that totals about six and a half million square feet. That's a good 10 years. 34 off market deals, 6.5 million square feet. Now, some of those, we were a market of one and we were the only person talking to the seller. I think that's like two. Most of them. There's always somebody else there. That's just some context to what I'm about to say is, so how do you figure out if someone's a seller? You put it in writing and you submit an offer. Just like with anything else, things start to become a little bit more real. Once you put pen to paper and you just lay it out in front of someone. So we run around all day long and make unsolicited offers, or through reverse inquiry, just shake the trees and we say, hi, here's what I understand about your building, and here's where we say value, and we'd love to buy it from you. And then they may say, I'm not interested in selling. Well, would you sell a piece? Would you create a ground lease? Are you interested in a loan? Then you just do that over and over again. But the initial point of introduction is just submitting an unsolicited proposal, hopefully through a trusted intermediary who can give you a warm introduction.

So, Bastian, how do you determine what are the assets that you want to approach? So you're using publicly available information, so maybe you're getting a rent roll, maybe not. Maybe you get a sense of who the tenants are in the building. But when you're making an unsolicited offer and you don't even have the full information, how do you know what to.

Bid in New York City? And I can't speak for the rest of the country because I don't. I don't know, but we have an incredible amount of information available to anybody. We're the most transparent real estate market, I would imagine, in the country, where you can know a lot about a particular property without the owner giving you information. You can find out how big a building is, who the lender is, who the owner is, when they bought it, when the loan was put in place, what the income and expense is of a particular property, violations, and the list goes on. And, you know, we have that kind of information that's available, and then we're, you know, we are geographically focused, so we're New York City experts. So it allows us to understand the, you know, what rents are, what expenses are, how much it costs to renovate certain things at any point in time. So we do a lot of guesswork until an owner gives us information for us to translate that guesswork into more accurate numbers. We always say, here's our offer, but if you give us information, maybe we can pay more. That's not always the case, but more often than not, better information yields a higher price.

Wow.

Well, it seems to have worked. I mean, 33 dozen transactions, 9 million square feet. I mean, that's quite a portfolio. So you're at Savannah for how many years, Kevin?

Six and a half years?

Okay.

Four years.

Okay. So at what point did you all decide, okay, you know, we want to Go off on our own and start our own firm.

I think we were both, we have entrepreneurial spirit within us and we looked at each other one day and said, hey, can we do this on our own and do for ourselves what we've been doing for others for some time? And so we put a presentation together and we left, put a presentation together, went to talk to a few investors about seeding us. We found a group of New York City real estate individuals who believed in us, gave us some seed money without.

Even having a deal. They just said, we like the two of you, we like your view.

Here's what we've done, here's what we think we can do. Please help us. Provide us some working capital in exchange for a minority interest in our business. And those investors are still investors in our company and they've been a tremendous resource for us. But we took a one time investment and did what we used to do for others, for ourselves. So look for investment opportunities within New York City and try to put deals together. The one thing that we did not have when we started our own company, because at Savannah we had a fund, so we had the money already, is we had to go out and develop these money relationships one by one. Which was on top of having to go out and chase opportunities, we were now raising money at the same time that we were chasing opportunities, which adds to the complexity of getting any deal done.

Sure. And I would imagine also, I mean you were leaving the infrastructure. So it's just. Now is it just the two of you or there are other people in the company?

At the time when we started out, it was just the two of us in a room about less than half the size of this room.

Was it at least above ground or were you also in the basement?

It was only until six months ago that we no longer share an office.

Yes. I remember going to your office the first time and I'm looking at around and you had sublet space, but I think there was only four or five of you in there and the size of the transactions you were doing. I said where's the other hundred people? But I know. So how does that work? Because I know you've outsourced a lot of the expertise. Right.

So we're now a 10 person company and we are a vertically integrated real estate operating platform. So we do in house construction management, property management, asset management and investment management. Over time, our strategy for growing our team has been let's grow our fee income first and then have a very specific need for hiring someone, then bring someone on Board. So we didn't want to grow our overhead without first growing the fee income. But we've been able to build a very high performing team of superstars over the past six and a half years. And I'd say that sort of the team that we've put together is the one thing that I'm most proud of and I think our biggest accomplishment to date. But it's up until, up until just very recently we got, we were the, generally speaking, we are the operating partner and all of our deals and we outsourced a lot at the beginning. And then over time, as we grew our business, we brought specific functions in house that we had historically outsourced, but now we do it all in house.

You're investing in all different types of assets. I mean, your focus is still here in New York City, but you had an office background. But I know you've invested in retail, now you're doing residential as well. So maybe tell me about that. The first deal of 60 guilders, what was the first deal that you purchased and how did that work out?

We bought a 30 year leasehold on a 180 unit, 150,000 square foot residential and retail property. The southeast corner of 46 and 2nd Avenue. 300 East 46th Street. We bought the ground lease from the estate of Irving Schneider. It was one of two of three properties that were left in that portfolio. And yeah, we found the opportunity and it was like Kevin said, it was just the two of us and we're like, oh, wow, now we got to go raise the money, figure out how to operate this investment.

How big of a deal was it?

It was a 30 million dollar deal.

Wow.

And you sourced this? This was off market?

Yes.

So you just call them up or you find out about this?

A friend of ours told us, hey, this leasehold is in play. It's complex, but it seems pretty well priced. Why don't you go meet with them and we meet with them and we thought it was an interesting investment opportunity. We bought it close to a 10 cap. Granted, there was only 30 years left.

Right. I was going to ask. A lot of these leaseholds today are 99 years or close to it. With, with only 30 years left on the clock, what was the business plan? I guess you could say if you're getting a 10 cap, you hold onto it for 10 years, you get all your money back. But were you thinking, okay, we're going to improve this and then we're going to try to sell it with even less time? Or what was the game Plan.

You want to figure out what your returns are going to be if you can now make a deal with your landowner, and what is your yield to maturity. At the time, we thought we were making 12% yield to maturity, which doesn't exist anymore. I would say today these things price at 8 or less.

You're going to try to go to the fee and see if you could either restructure the leasehold or you were going to just try to buy them out and collapse the lease.

We were comfortable with our returns if we did not make a deal with the landowner. And so that's one scenario. You have a probability that that scenario pans out, and then the remainder of the probability is we make a deal with our landowner that's economically positive for the deal, could be buying the land, extending the ground lease. And we had these conversations. We were not successful in doing so, but things that we were successful in is we were successful in reducing expenses which were meaningfully above market. And we were successful in growing rents from $46 a foot to 60 to 65 by primarily marketing it more aggressively. We hired a brokerage firm, put together some nice renderings and nice pictures, which the prior owner was not doing, not doing as well. And rents, we were able to raise rents that way. We also renovated units, so we grew noi during that period of time, and we sold it two years later.

So what did you end up selling it for?

50.

50. Okay, so how did that. That probably worked out pretty well for your investors. So it's a $30 million purchase price.

$20 million loan.

$20 million loan. Okay, so how did you raise the $10 million?

It was a $27 million purchase price. We were all in for 30.

30. Okay, so who came up with the. Who came up with the deposit, for starters?

Our partner.

Our partner.

Your partner. Okay, and then did they. Did your partner come up with the whole 10 million? Or then did you raise money from additional friends and family or.

That was a 8020 split on the equity. So our main LP invested 80% of the total equity requirement. Yeah, and then we. We just, like, we raised the lp, we raised the GP requirement as well. And we had another institutional fund invest the lion's share of the 20% GP required.

So when you signed this contract, you didn't know who was going to put up the money, or did you kind of negotiate this all simultaneously with the contract?

The third Friday in August of 2013, we got a call at 8pm at night by someone who was a new analyst in this fund that we had been talking to and that we had just worked with to underwrite the deal. And we were on track to post a hard deposit the following Wednesday. And he called up and said, hey, the head of the group's going away on vacation starting tonight. And he just went through the pipeline, decided which deals he really wants to do, and he decided that we're actually going to pass on this one where I know we had told you we were going to post a hard deposit next Wednesday. So anyway, I just want to let you know that. Have a great weekend. That was the first of several times.

Did you send him the press release when you made the $20 million profit? I want to know that. Did you? You probably thought about it.

We may have more than once.

But we. By Sunday night, we. So we sent the deal to four other funds that we really didn't have, that we had never worked with. And we only knew these people because we had competed against them to buy deals when we had worked at Savannah. And we said, hi, I know. Really don't know us all that well, but you may have heard, we left Savannah. We just started this other company. We have a deal. We thought we were going to go hard with this other partner. They just left us. And I know it's the third Friday in August, but we need to post a hard deposit. Can you take a look at it? And give us a term sheet by 9am on Monday. So we got three term sheets by Sunday night.

How's that even possible?

And we went hard the following Friday.

How's that even possible? Was it just that apparent that this was an incredible deal?

Everything starts with a deal. You find the deal, you can figure out the money, the operation.

Right.

So they just posted a deposit. You said, we'll figure it out by.

The time we close.

We also. When you're starting out, one should know the golden rule. He who has the gold rules. JV agreement negotiation was quite easy.

Thank you, sir.

May I have another? Please sign it.

Good, good.

Okay.

So.

So that was probably a great way to kind of get things started, right? You had a deal now, you had a track record. Now what deal came next? What'd you do after that?

We bought a $2.2 million retail condo from a condo board on the corner of Northmoor and Varick. I remember that one.

25, right?

25 Northmore.

Okay, good. You still have that, right? Or did you resell it?

We sold that. You sold it? We bought it with Pass the Hat Around. It was a small deal.

Okay.

And third deal was partnership interest. Oh yeah. We bought a 36% partnership interest in a million 2 square feet office property in Long Island City called Queens Atrium.

So you're buying minority, non controlling stake. So did you know the general partner or did you.

Yes, you did.

So you felt comfortable that you could kind of align yourself and help them execute a business plan.

They're fully vertically integrated, long term owners that have owned and operated real estate for decades and they own successfully and.

They didn't want to buy the rest of the stake.

There were political issues that sort of created the opportunity for us and they did us a favor by giving us a look at the opportunity.

So far we have three transactions that are all very, very different. I guess the theme is just being opportunistic. And what do these three deals have in common?

They're all in New York City.

Okay, good.

And they were available. And they were good deals?

They were available.

Complicated, right? Well, I guess the retail condo seems pretty straightforward.

They were all relatively complex.

There are value add opportunities at the property level. We're buying it at a good basis and we are buying the deals through a off market, non competitive process, which for us is important because we need time to go out and raise our money.

Right.

And some people are like, oh, you can, you know, some people, I hear some people say, you know, I buy off market because I get a better price that way. And our view is that you can make money, you can just as easily lose money on an off market deal as you can on an on market deal. The key thing for us is just the money raising component. We buy, we've bought a couple million square feet in New York City. That takes a lot of equity and a lot more equity than we have personally. And we need time to underwrite the deal and then go find the right capital for the deal. And a lot of times or more often than not, a widely marketed auction doesn't sort of give us the time we need in order to get our capital lined up.

We also, at the beginning, when you have less operating expertise, you need to give a reason for people to pay attention to you and bring them an opportunity that they otherwise would have not seen is a compelling one. I think we've graduated from that. We still mostly pursue off market opportunities, but now that we're vertically integrated, we can chase a marketed deal and say we can run this deal for you.

What is it like working with some of these institutional partners? You've had all different types of capital partners. What is that negotiation like at the end of the day? How do you select who you ultimately want to work with. I'm sure the terms are obvious, but what else are you looking for in an equity partner?

The terms are so obvious, it's like they all go to the same conference and they're like Capital Partner Conferences. 2020. Here's what promote structures are going to look like. I think the main thing we're focused on is just protecting our economics and we're a minority capital partner. Someone else is staking the majority equity risk, so they're taking the majority of the risk and they control decisions. Occasionally we'll have an opportunity to get an option in our operating agreement where if our partner ever decides to sell, we'll get a last look or we'll get a first look, or we can cause the partnership to put the property on the market if certain things happen. And as time has gone on and our business has become more mature, we've been able to get more rights in our operating agreements. But by and large.

I don't think.

We'Ve ever gotten more than three turns of an operating agreement. And we're simply looking to protect the economics that we earned under our JV agreement and make sure that they can only go away if something really bad happens that should not have happened.

I guess for advice for the listeners, because you did have this background at Savannah before, so you did have that track record. You could look. So it wasn't a complete leap of faith. But let's say we have someone listening who they found what they think is an incredible opportunity. What is the advice? And maybe this one, let's say they're a real estate broker, maybe they find it, or maybe they're an architect, but they don't have what. What you have is the advice to go find cogp, go bring it to someone like you and say, hey, I found this great opportunity. Can I sit with you? Because you guys are great at raising the capital. What's the advice for someone starting off doing the first deal who maybe hasn't worked at a bigger shop before?

I think you need to have a sense of what you want and what you want, your sort of day to day to look like. What we do isn't easy. And a lot of people say, oh, you guys on the principal side, you have it so easy. And I'm like, principal. I was like, I'm a service provider. I'm a 5 to 20% operating partner in each one of our deals. And just like we syndicate the lp, we syndicate the gp, we answer to many people. So if you have a deal and you have a deep desire to become an operator, and that's really what you want to do in your heart of hearts. I'd say go for it and try to figure out how you can make it happen, either through a code gp or even if something you want to do, just try to get it done on your own. But before you make that leap, just think through carefully and try to inform your decision with as many viewpoints as possible, particularly people who've been there before, to just make sure you know what you're getting into and it's something that you really, truly want.

Bass, what would you say, kind of looking at the transactions that you've done at 60 guilders out of all of them so far, what's the one that you all are most proud of? The one that's maybe it's still yet to be realized or any that you can point to to say that this was a big success?

I'd say probably just our first investment that we talked about, 300 E. 46th St. A, was our first deal. It's likely the hardest one to get done because of all the complexities we just highlighted. We got it done, it made money for our investors, some money for ourselves. And so. And it's again, it's your first deal, so it's sort of sentimental. We were in business before that. We were just two guys running around.

I'd say it also, it's just a huge stress relief when you strike off on your own and you're running around every day trying to figure out how to get your first deal done. The level of stress that we had on a day to day basis was significantly greater than after. You can just breathe that sigh of relief like, we got it done. And then, wow, it turned out to be a great one.

Right? Because you were all in also. I mean, even though you had partners, I mean, you were putting your own skin in the game for these and it was your reputation, Right. If that first one didn't go so well, then maybe it probably would have been a lot tougher to raise money for the second one.

100%.

And to add onto your. The earlier point about someone trying to do this on their own, like, if you want to do this, you should focus on getting the deal done. I wouldn't be focused. You know, you can get hung up on your economics, your partnership terms, you know, your role, but you got to get, you got to be in the game.

Is it still any asset class that you're open to? You're still just focused in New York City Are you thinking elsewhere?

I mean, geographically focused, property type, agnostic. That's our expertise. We like New York City. There's a lifestyle component to it. But second, it's the largest market in the world. So there's a lot to do here at any point in time. There's times where it's easier than others. But we're New York City experts. That's what we tell investors, that's what we tell the market. That's how we'd like to be viewed. And so there's a lot to learn here. And what it allows us to do is to. You can scale your business because every piece of research, everything we put together, everything we look at or work on, can be reusable at some other point in time. We go through this incredible amount of research saying let's look at, we own a warehouse in Sunset Park. Let's go map out every single owner of every property in Sunset park and let's understand every single property.

Perfect. Great. Well, I really appreciate both of you coming in today and really great advice for our listeners. So thank you again.

Thanks.

Thank you.

Jim Good.

From the boardroom to you, Voice America Business Network.

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The bottom line in business. And now it is time for our City Spotlight. And even though our show is based here in New York, we want to teach you about investing across the US and so thrilled to have with us today Evason Young's own Lisa Maki, who is our senior Vice president out of Our Nashville office, Lisa, focuses on all asset classes, office and land in particular. Previously she was at Cushman and cbre where she's worked on over a billion dollars of sales and leasing transactions. And she's had a lot of credentials to add, not only being ccim, but receiving NIOPS office and lease Deals of the year. Also a member of uli, she also does incredible things on the charitable side, working for the Leukemia Society as well as the University of Memphis. So, Lisa, thank you so much for joining with us today.

It's my pleasure, James. Thanks for having me.

Tell us about your market now. Did you grow up in Nashville?

I did not grow up in Nashville, but I am a native of Tennessee. Spent my elementary years in California, but definitely was born in Tennessee and went to high school in Tennessee. So my family moved back because my dad just, you know, missed the culture here and loved Tennessee. I ended up in Nashville in 02 and have watched this market just boom in the last, you know, seven to 10 years.

Absolutely. What's the primary driver? Because I probably know it more as a tourist and, you know, you see Broadway and the music scene, and I'm sure that's a big part of it, but that's only a small piece of what Nashville has to offer. So when did it really, the real estate boom start in your market?

Yeah, so that's definitely a big driver. I think our economic development group and the mayor's office and the governor, they all came together and decided they would brand Nashville to really put them on the radar. And we always laugh about the national TV show and, and the branding of Music City, but I think entertainment sells and it really just kind of caught the attention. A bigger piece of that is our stability really comes from having a diversified economy here, which now includes more than 500 health care companies, accounting for almost 47 billion in revenue here, along with 103,000 jobs in the tourism and hospitality industry. So I think that diversified economy really has helped Nashville a good bit.

Why are these companies setting up shop there?

Well, I think the cost of doing business, the quality of life. We have a talented workforce. We have over 18 secondary colleges and universities here. We capture about 60% of those graduates who decide to make Nashville their home. So that's a huge factor, you know, the cost of energy here. I think the, you know, the new focus on technology jobs. And I just think you can, you know, our economic development group also put together, you know, some road trips to both New York, Chicago and several cities up on the west coast. And they were really able to prove to them that the cost of doing business here is so much less. And I think that really caught the attention of some of the bigger groups like Alliance Bernstein and Jackson national moved their headquarters here almost 10 years ago. And I think that's where we really started to see this shift is about 10 years ago, but it really caught on in the last five years.

Well, I've always said that job growth is the biggest driver in any real estate market. And it really does seem. I was going to bring up Alliance Bernstein if you didn't. But yes, seeing that move from New York and then Amazon as well.

Absolutely.

What I read, I think was a couple hundred thousand feet in your market.

Well, that's exactly right. And I don't even think we've seen the residual effect of the Amazon announcement which came last fall, which really spurred, you know, somewhat of a frenzy of multifamily and office development. And it's, it's really driven the land prices. Where you could find land, you know, $25 to $60 a square foot around the urban core. Today, those prices are closer to 300 to $500 a land.

Wow, that is unbelievable. I mean, in New York, we're probably our average in Manhattan was in the six hundreds a foot. So to think that you all are now approaching pricing for New York land. Wow. Now, is zoning pretty restrictive there? I mean, are there limits to what you can build or is it like Texas, where you can, you know, kind of the sky's the limit.

I think that's where, you know, the development has hit such a stride because our zoning is pretty level here. They created what they call the downtown code, which is more of a regulating plan. And so you can pretty much build what you want. There are certain height restrictions in different areas, but the city has worked really, either so pro business and pro development. You know, I think the challenge is doing it responsibly. But the demand is so high right now that they've really fast tracked quite a few developments in order to keep up with the demand. It's pretty liberal.

Yeah, I will definitely say, and just anecdotally, when you talk about demand, when I speak to our investors up here in New York who tell me that they're looking elsewhere in the country, Nashville is always usually the top three or five. I would say Austin, Texas is maybe next. But just a lot of excitement about your market. How big is the market as far as the amount of office square footage? What kind of dollar volume is selling every year? Do you have a sense of that?

Yeah, so on the office side, I'll tell you, we've got, you know, we're hitting almost 50 million square feet of office inventory. The majority of that new development, which we've got about 3.7. I'm sorry, 3.8 million square feet under construction today. 2.7 of that is in the CBD, if that tells you where the demand really growing. You know, in the CBD, we are at a 6.8% vacancy. We look for that number to shift a little bit as, you know, supply comes on the market. But honestly, if you look at the last trends of the last five years, it just continues to grow. We started, I don't know, 2010, we sold 32 million in volume. 2019, we sold 1.1 billion. So you can tell the investment, you know, the investment demand is there for Nashville. Some of our CBD towers have traded not once but two and three times over the last five years.

And what kind of cap rates are we talking about and what are the existing rents there and what's the business plan? I think Blackstone actually just bought one of your towers in the six hundreds a foot.

Yeah, that's right. And so, you know, down in the cbd, you're looking at cap rates compressing to five, five and a half percent, where historically they've been closer in the six to six and a half. You know, and it just depends on the tower too. You're correct. The 222 that, you know, just about to trade is expected to trade at 700 a square foot, which we've never seen those kind of numbers. That's right.

What about the multifamily market? So do you have regulation in your market? Is there affordable housing? How does that work?

We do not. I mean, there is a lot of talk about, you know, and they've been trying to do it probably the last five years, especially just with all the, you know, the demand and the regentrifying of this, you know, the sub markets, especially in the urban core, in trying to create more workforce housing, there have been some incentives given to developers, but we don't have a true regulating plan yet as far as the multifamily goes.

Got it. And are a lot of multifamily units being added?

Absolutely. We probably have. I want to say we have somewhere in the almost 8,000 units under construction right now.

These are all rental. Is there a condo market?

You know, we have a small condo market. Tony Giratana, who's a very notable developer here in our market, just completed the 505 Ray Hensler has done several and he's getting ready to start a new project here in 2020 downtown. But you know, definitely the demands there, if you talk to to the downtown partnership, they'd like to see more ownership downtown. But primarily what you're seeing being built, and maybe it's lender driven, is multifamily rentals.

And what kind of cap rates are those trading at either for the newly completed buildings or the kind of the 80s 90s value add properties?

That's right. It depends really where it is in the market. But James, if you're looking at downtown assets, you know, if they're class A, newer construction, you're definitely looking at something between 4 and a half to 5 caps. We have broken that threshold for sure.

Wow. Lastly, I guess with retail, unless if you want to maybe touch on industrial too. But I mean, there's no doubt that Broadway is still alive and well, not only just on the ground floor, but the second, third and fourth floors. In fact, you were kind enough to take when we had our principals meeting down in Nashville. It was some kind of speakeasy on the second floor. And if we weren't with you, they clearly would have never let me in. But how's the retail market doing?

It's thriving. I think what we're starting to see where we historically have not had a retail market downtown other than the honky tonks and the few restaurants here and there. You've definitely seen the food scene grow, more music venues. You know, a lot of the country music stars are starting to jump in the mix not only for their name being used, but, you know, Blake Shelton, Dirk Sidley, Luke Bryan, Jason Aldean, they're all jumping in and creating, you know, space on Broadway. But you know, Tootsies has been there 50 plus years. But we're also starting to see the higher end retail come to our market like the Golden Goose and Gucci and Ralph Lauren. With the development of this and Broadway, they just brought in the African American Museum. So we're adding a bit to the culture scene as well, other than just the music scene. But they'll have a food hall. So I mean, I definitely think the retail is on the incline downtown given the residential footprint. We just had public Whole Foods land as well in the cbd and we historically had two very small local grocery stores that were local family owned here.

This all sounds like incredible news. I'm sure the market still has some challenges. What I wanted to ask about was infrastructure. On one hand, it's such an easy city to get to because you, you're 20, 30 minutes from the airport, depending on traffic. Right. But the traffic is in, like several of these growing cities becoming more of a challenge. And there was a proposal, I remember, for a light rail that I think was overturned. So is the infrastructure. Can you. When you talk about adding 4 million square feet, you're almost increasing your office stock by over 10% and all the apartments that come along with it. So is the infrastructure up to it?

I'll tell you, I think that's the million dollar question. And it's definitely our Achilles heel here in Nashville. It is still at the forefront of. We have to solve this. The city has come in, or, you know, the state really has come in to improve our 440 loop around the city, which will give us additional lanes and help hopefully when that project is complete, to move traffic a bit smoothly, a bit more smoothly. But traffic and infrastructure, you know, both the interstate system and utility is definitely at the forefront of our biggest concerns and our biggest challenges to face as we grow.

So we'll have to keep a close eye on that. Well, Lisa, we only have a minute left, but this has been incredibly informative. So I guess closing question. If someone's going to Nashville for the first time, what restaurant and what music venue? If they only get, if they can only stop at one place, what's the pick?

That's great. Gosh.

And where should they stay? What hotel?

Yes. Well, I have a couple. I'm going to have to throw in a couple.

Okay.

I would definitely check out the Dream Hotel and the Thompson Hotel. More boutique. Ish. You know, definitely we have the JW Marriott now, which is a fan favorite, but those two boutique hotels, I think are just two of my favorites to recommend. And then for restaurants, I have a couple, definitely King prime, which is one of the top steakhouses in the country. You definitely want to try that. And then I would also say Henrietta Red in Germantown, which the chef was a former per se chef, so she's great. Yeah. So definitely. And there's so many more that, you know, wish we had time, but we have hundreds of new places to visit, so hopefully you won't be limited to one choice when you come here.

Good. Well, if you're planning a trip to Nashville and you're looking to invest in that market, definitely look up Lisa Machine. You'd be happy, I'm sure, to show you around. And Lisa, thank you again for joining us today.

It's my pleasure, James. Thanks for having me. Have a great day.

Thank you. All the best.

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 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.

Sam.