19: Know Your Market with Ian Ross

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.

This is show number 19 of real estate Investing Live from New York. This is your host James Nelson and we have a fabulous show for you tonight. We have Ian Ross who is founder of Samara Road and Ian is going to tell us how in just a couple short years his firm has racked up 70 properties across the U.S. just incredible stuff and talking about why you need to know your market. On that note, Michael Fay from Avis and Young is going to give our city spotlight talking about the Miami market at the end of the show. But before we get to that, it's time for our Week in Review powered by the Daily Beat in last week's sales, Amazon has been in Talks to acquire 424 Fifth Avenue, aka Lord & Taylor Building from WeWork and Roan Group. Talks remain fluid and a potential deal still faces hurdles. WeWork is currently undertaking a gut renovation of the 10 story, 106 year old building at a total cost believed to be close to $200 million. Completing the renovation is one of the conditions of a potential sale to the e commerce giant. WeWork's acquisition was funded with a $900 million debt package provided by JP Morgan and Starwood. Hudson Bay Company still maintains a $125 million preferred equity stake in the building, according to the Real Deal article. Elsewhere, Ian Bruce Eichner has found a buyer willing to pay $45 million for two penthouses atop his Manhattan Square park tower. The trophy units, which span 13,000 square feet across three floors, were most recently listed for $52 million. This deal brings the East 22nd street building to more than 90% sold, according to the developer. Sales began in 2014 and Eichner bought more time to sell at units with his $167.5 million inventory loan from Madison Realty Capital in 2018, according to the Wall Street Journal article. In Retail Walmart, Target and other retailers are adding thousands of self checkout machines to US Stores to save money on labor as they spend more time to staff new services online delivery. But self checkouts come with new, sometimes costly challenges as retailers try to curb theft, cut wait times and keep customers happy, according to the Wall Street Journal article. At Target, about 1/3 of shoppers choose self checkout elsewhere. Apple has signed a 220,000 square foot lease at Vornada Realty Trust, 11 Penn Plaza, taking over space formerly occupied by Macy's. The five year deal covers the 11 to 14 floors Apple has an option to extend, but Macy's is still on the hook for the remaining term in its lease, which runs into 2035. Macy's remaining space of over 300,000 square feet is up for sublease with pricing in the mid-60s per square feet. In other news, the coronavirus impact on global travel is sending tremors through New York City's hotel industry, which is sagging from declining occupancy and revenue. Even before the city originated pandemic struck, Chinese visitors to the city were the market's largest growth segment over the past 10 years. The city attracted a record 70 million tourists in 2019, compared with 48.8 million in 2010. However, the oversupply has begun to make its mark as there will be 144,000 hotel rooms by the start of 2022 compared with the 87,000 in 2010. RevPAR was down through last November compared with the 11 months of 2018, according to the New York Post article.

And now it's time for our investor spotlight. I'm here with Ian Ross who founded Samara Road in 2014. I had the chance to hear him speak to REBNY's Sales Brokers Committee a few weeks back and was blown away. I've known Ian for some time, but he has an incredible story which I know you all will enjoy hearing. Before founding Samara Road, Ian was Managing Director at Triangle Capital Group where he focused on purchasing hard real estate, non performing loans and securitized mortgage products. Before that he was an analyst for Jefferies and companies in their investment banking division. He has an MBA from Wharton and before that had graduated with honors from Emory and a really impressive charitable background as well, giving back at Manhattan's Community Board 5 where he sits on the Quality of Life and Transportation committees. He's also the founder and chairman of the Asperger's Awareness Council, a 501c3 founded in 2009 to raise awareness for high functioning forms of autism. So Ian, welcome. Thank you so much for joining us today.

Thanks for having me.

So Ian, I know I guess where it started because you had said that you grew up on Samara Road. So this was in la. Is this where I'm from?

LA is where I'm from. Exactly.

Okay, so usually people are on the west coast with the weather, the quality of life. I would not have blamed you if you decided to stay out that way. But you did ultimately come out to the East Coast. But before we get to that, tell us early on, what was your childhood like? Did you have that entrepreneurial knack?

Yeah, no. I grew up out in la. My parents were not in business, but I always kind of had an entrepreneurial spirit. Whether it was selling candy at summer camp or selling lemonade on the corner or organizing limos for my senior prom or promoting parties, whatever it was. I was always kind of the class entrepreneur. I always really kind of wanted to hustle and make something happen. Did my undergraduate work at Emory University in Goizaweta Business School. And early on kind of realized I wanted to get into investment banking. I had an experience before I graduated Morgan Stanley doing CMBS origination and securitization at a very interesting time in 2007. You know, the first part of the summer, we were originating product like crazy. Whether it was equity office stuff or Hilton's spin out, but originating commercial mortgage backed securities. And then towards the end of the summer, the world was falling apart or beginning to fall apart, and it was really all about securitizing as quickly as possible and punting risk. My Morgan Stanley group blew up. Ended up taking a role instead to become a generalist investment banker at Jefferies, which quickly led me to Triangle and then eventually to Somara. But I'll never forget a comment. You know, I was sitting there at Morgan Stanley during, during that internship and there was an amazing piece that Sonny ca had just given for. What was it called? It was Morgan Stanley's real estate investing. He's. He's green oak now, but at the time he ran famously or infamously, it's been either way, I guess it was the time. But he ran Morgan Stanley's former real estate private equity investing division. And I remember hearing him talk and he was talking about how much he loved real estate because of the tangibility of the asset class. And that really resonated with me. And I think I'll never really forget that piece. And kind of determined at that point that that was really where I wanted to be. I went to Jefferies to do investment banking in a generalist context because it was more of a graduate degree in finance, practical finance. I think banking is tremendous for that. But soon after I got there was really okay, how do I get back into the real estate space? It's 2008. The world is going to start coming back to stability. How do I start? How Do I find a role where I can have some involvement in picking up the pieces of this mess that has been caused by the global financial crisis?

But before Jefferies at Emory, fantastic school. I imagine a lot of fun down there. I know they do have a real estate club as well. I mean, and then Wharton. I mean, was this even on your radar at the time or what did you think you wanted to be back in college or even grad school?

Yeah, you know, I majored in real estate and finance at Emory. I had some side hustles at a club. Promotions, business and a bunch of stuff going on. But, you know, investment banking provided a tremendous opportunity to open a lot of doors. So that's really kind of where I wanted to go. I was, you know, I was always looking at buying small properties and figuring out maybe there was something to do in flipping homes. But I was a young kid trying to make my way. And, you know, once I got to New York and kind of absorbed that New York hustle and the pace and the velocity here and the excitement, you know, I got sucked into that. And banking was a good place to really cut my teeth and get started.

So you weren't thinking of going back to the west coast and you had your mind focused on business here?

Yeah. You know, people always laugh when they hear I'm from LA because I don't really fit the mold. Right. I'm, as a. I'm a pretty intense guy. Love working hard, love hustling, love deal making. I'm very much kind of New York through and through at this point. I always say I love the LA lifestyle. I don't necessarily love the LA work style. That New York work style, the hustle, is truly infectious and it really keeps me driven here.

I'm jumping to the end of the movie, but I could have shared this in your bio today. Samara Road has sourced and executed on 66 distressed deals at a valuation of 1,000,005 across 49 markets in nearly half of the continental. I remember when you spoke to our group, it was kind of, look, we've got so much on our plate. We're working seven days a week. And part of it now. You see so much opportunity out there and how do you capture it all? But it does not surprise me, knowing you now that you're not someone who's just hanging out on the beach waiting for it to happen. Talk about. Because I think a lot of when our listeners hear distress, everyone automatically their ears perk up and they say if it's distressed, it's gotta be Good, because maybe someone failed. You're getting in at a better basis. You really learned in this CMBS space and I think where you really were entrenched in early in your career. But maybe because a lot of our listeners are first time investors, they might not even kind of understand those markets. But tell us a little bit more about when you first started out. How did you find this distress? Where did you kind of play in the capital stack?

Yeah. First off, update, we're at a little over 70 transactions now, almost at 2 billion. We're now 24 professionals and we own about 20 million square feet. Wow. So it's been tremendous growth. We're opening an office in Nashville right now. We have an office in Cleveland and we're going to be opening an office in Kansas City before the end of the year.

And this is all deal specific because the other thing that blew my mind is you said we're not doing a fund. I've got a stable of investors and I want to get to that later and talk about that because you're a prolific capital raiser as well. But this is all on a deal specific basis, which I think makes it even.

We've raised almost $500 million, all deal by deal. But I'll give you some of the background you were looking for. So in terms of what somal road does, we buy distressed value, add opportunistic deals, all sourced off market, largely in secondary and tertiary markets, looking for largely a asymmetric risk profile where our downside is highly limited because of how we source the deal and an opportunity for an outsized upside return where frankly, we can work our butts off and create our own risk and add value to real estate. Put differently, we like solving problems, finding problem assets, finding hairy situations on the way in. We don't look at marketed broker flyers. No offense, James.

No, no.

We're looking for hairy, unique stuff.

I want to talk about this because I think it's a really important point. There's two. Clearly you can't argue with success here. Right? But the two sides of the coin is in a market that's flat or maybe even declining, the job of the broker is to educate the seller to really understand where the value is and the service to the buyer is. You know, what you're getting yourself into because hopefully it has been vetted. You know, that broker who's representing the property can tell you, look, this is where the deal stands. This is where you need to be. You know, it could be said that for an off market deal, you don't really know what you're getting. You could be going down the road, you think you have it, and then the last minute they pull the rug out from under you and someone else gets it, and you say, hey, you didn't even tell me this, but clearly not having to compete with a bunch of buyers is very appealing. How would you respond to.

Yeah, so let me take you back a little bit in terms of how we source deals off market. Actually, let me give you a little more context of what we do. 20 million square feet, all asset classes, all geographies. We own a lot of office, a lot of industrial, a fair amount of retail, some cold storage, some other storage, some multifamily, a little bit of hotel, a little bit of student housing. We're in markets from coast to coast. I'd say largely in the middle of the US and the Southeast. But we're in Modesto, California, Las Vegas, Tucson, Austin, Kansas City, St Louis, Memphis, Nashville, Louisville, Greenville, Huntsville, Pittsburgh, Minneapolis, Allentown, and a lot in between.

That just blows my mind because I have spent over 20 years studying one market, and New York is such a massive market with so many neighborhoods.

That's exactly it. Right.

Okay.

So I actually, I love all the markets we invest in. Save a couple. But I really do have a deep love for, whether it's KC or Pittsburgh or Nashville or Memphis, we become entrenched and really embody a lot of what being a local investor in those markets, about those markets. But, you know, people in New York always ask me that question. They go, how do you figure out a market? First off, everybody on our team is as intense and passionate as I am. We love what we do, and we love understanding the who, what, where, when, why of real estate. Where people are living, where people are working, where they're playing, where they're staying, and why they're going to be there and why they want to be there. But Greenville or Louisville, these are not New York City markets. These are markets that you can figure out in a matter of days, Right? So there's a. There's a wall in my office that says in big black letters, above a map of all the Sumara assets, it says, know thy markets. And what that means is, everybody on our team better damn well know their markets. How do you know your market? But when we're acquiring something in Indianapolis, which we're working on now, my team, two of the guys and myself went out there and we spent a matter of three days touring every building, met with every broker in town, toured every neighborhood, went and stayed at Two hotels went drinking and eating and hanging out, went to coffee shops, wanted to understand the fabric and the culture of the community, how people were living, working, playing, moving around that city.

But there's no inside information. I mean, if you had lived there, worked there for years, you would know, okay, this area could be getting rezoned or hey, maybe there's this tenant coming or this is working or that. I mean, I would imagine that some historical, historical perspective would be helpful in a market.

You can learn that in those markets, they're not as deep as a New York City market. I think we also have the New York City in the national perspective. We see a lot of what's working in certain places. Oh, adaptive reuse of historic structures for office conversion to creative office spaces working. Let's find something like that in Indianapolis, because that might not necessarily exist. I think the other thing you've got to realize is when you take out land value, which land really only exists as an extremely valuable, high priced asset in your top 10 MSAs, a lot of markets also start looking economically the same. I'm kind of diverging from what I was talking about in terms of feeling the fabric of the community. But in terms of the economics, I can tell you office outside of your top 10 MSAs is largely a 19 to $25 full service gross product save new construction, which is probably closer to 34 to 38, with a few variables. My point being a lot of stuff across the country when labor is fairly similarly priced and costs of goods sold are fairly similarly priced like raw materials, when land gets taken out of the equation in a lot of Midwestern or southeast markets where land isn't as limit of a resource, economics start blending together very similarly. You still have to understand the community. And that's what we take a lot of pride in doing, in finding spots and in finding unique assets that have a value proposition that we can improve and make better.

So how do you then source the off market? So I want to get back to the question. So you go into this market, you don't know anyone there, you reach out to a couple of brokers and then where do you find the deal flow? Because if you're meeting with the brokers but you're not buying their stuff, they're happy, I guess, to help you out, they're thinking that maybe they will sell you something. Or are these brokers turning around and saying, well, I'm listing this, but you should really take a look at this other thing that I know about. Is that kind of what you mean by off market?

No, not exactly. First and foremost, my background going back to Morgan Stanley and Triangle Capital was largely around trading CMBS product and understanding CMBS product. So when we started Somara, we got control of about 5 to 6 billion dollars of legacy CMBS product by buying controlling class pieces within the CMBS capital structure. And that probably provided us an opportunity to buy about a third of our portfolio. So when we think of kind of sourcing mechanisms, one way that we've acquired real estate has been out of the CMBS universe and that's just buying non performing loans or REO assets out of trust that either we control or we're exposed to because of our activities within the CMBS space. So tick deals and tick recaps were a lot of kind of our another piece of the sourcing pie. Third, we've been very active in the bankruptcy space. So we got introduced to Gibson Guitar pre, during and post their bankruptcy and ended up buying pretty much all of the real estate off their balance sheet, helping them inject liquidity into their capital structure as they tried to pay their debt current and pay off their debt during some tough times for the company. The company's now been taken over by a private equity firm. But in the process we were able to buy a lot of their real estate in Memphis and in Nashville. In Memphis we ended up doing a phenomenal transaction with Federal Express FedEx building their first downtown creative class A millennial leading urban millennial leaning urban core creative office space for their logistics division. And we're now building another project next door. It'll be another class A office building in Nashville. You know, the Gibson stuff got us into that market and that market's been exploding. I think we were early there. We've now done about a dozen transactions in that market and are opening an office there as I mentioned, without giving.

Away the secret sauce, so to speak, because the idea again of buying distress, buying out of a bankruptcy. Is this something that is available? I've handled over the years 363 sales. Where there's a public auction, we have to advertise. I'm not sure if that's how you ultimately bought these. If you were a stocking horse bidder.

It was more just a distressed company that needed the property liquidity and that.

And how did you find out about that? Did you just. You got a tip or.

We have our ways.

Okay, all right.

But, but lastly, I'd say, you know, and, and we look for just hairy, messy situations wherever. But, but I think the, the last way that we're sourcing deals is we've planted our flags in 45 plus markets around the country. And we take a lot of pride in how we do things in those markets. We're responsive, we're responsible, we move quickly, we're entrepreneurial, we're aggressive, we're problem solvers, we're well capitalized and we do what we say we're going to do. And I think, you know, those attributes are expected in a lot of your gateway markets. I think finding counterparts in the real estate space in secondary and tertiary markets that display those attributes is a little bit more challenging. And we've developed a reputation in our respective markets of being a reliable counterpart, being a liquidity provider, being somebody that can move quickly, that's sophisticated and they can get stuff done. And because of that, we've seen follow on opportunities in markets like Cleveland and Louisville and Indianapolis and Nashville and Kansas City and Pittsburgh, where we learn those markets, we get smart on those markets, we come in through some unique debt, uniquely sourced opportunity, then we learn the market, establish our footprint and expand from there. That's really been a great way of developing our growth.

I'm really glad you brought up the credibility piece, the certainty of execution. I just finished Steve Schwarzman's book, Whatever It Takes. And he talked about when Blackstone went into real estate and they did one of their first transactions. It was basically a handshake after the transaction closed, I guess as the story goes, the seller said, we were just waiting for the retrade. We were just waiting for when you were going to come back with a whole laundry list. And Steve said, well, nothing materially changed. And that's how we do private equity deals. And we're handshake people and that's our reputation. And in New York, it's, I mean, here it's a 10% hard deposit. There's no contingencies. So you know, someone's credible. I mean, yes, we're interested in reputation and track record, but at the end of the day, if they sign an airtight contract, there's not a lot of places they can go. But I mean, some of these markets you mentioned you might have a $20 million deal that you can tie up, I would imagine for 60, 90 days of due diligence with maybe.

But we, we create an advantage and we make ourselves more attractive by not behaving like that. We move extremely quickly. We know what we're doing, we know what stuff is worth, we know what we're willing to pay. So in that 20 million, I mean, we're Negotiating a deal right now, off market approach. Somebody who may or may not be looking to sell their real estate. It's a $25 million transaction. We're going to put a million dollars hard day one and we're going to do 30 days of due diligence and close in 30 days thereafter. And I think finding a buyer that can move at that speed with high level sophistication, reliability is hard to come by in a lot of these markets. A lot of these markets just haven't been institutionalized. And Nashville's been an interesting experience for us. I got to see Austin call it in 2011, 2012. We participate in and participated in that market, but got to watch the institutionalization of that marketplace. Nashville's getting there. You know, there was recently a trade where Starwood bought out Heinz on an office building downtown at $700 a foot, I believe. And you're starting to see some institutional buyers come out and participate. On the stabilized side, I'd say you're not necessarily there. The developers are there, the stabilized cash flow buyers are there, or maybe looking for 100 basis points of spread on yield. But the value add, roll up your sleeves, do the dirty work kind of institutional capital that's everywhere in your top 10 MSAs isn't in that marketplace, but they're certainly coming. But watching the evolution, institutionalization of a market like Nashville has been very interesting and it's led us to look and say, hey, what are the next Nashville's right? And what are the next Austins? And we're constantly thinking about that because it's definitely a market that we're in. I think it's hard to find a secondary market that we're not a participant in. And we very much look at kind of a portfolio view and say, hey, which of these markets have interesting tailwinds, have similarities to some of these other markets that have taken off? Our more macro view on America is that America is urbanizing and continuing to urbanize, that primary markets are becoming too expensive and difficult for employers to hire. The cost of living is high, the cost of labor is high, the quality of life is low. The ability to retain and hire talent is challenging. And we see a lot of employers and just a lot of creatives say, hey, technology enables me to really locate anywhere. If I why be a struggling restaurateur in Brooklyn when I can go do this in Kansas City? I mean, one of the best pizza chefs in America is this guy in Phoenix, right? Like you can kind of do anything anywhere in today's America. In today's technologically connected world. And we think a lot of these cities are going to see a real rising tide.

And I was going to say, I think you get $10,000 if you move to Kansas City. Is that still the deal? Wasn't there a really wealthy family who said that he. He was going to give money for anyone who set up business there?

I got to check on that. You know, I remember what you're saying, but I don't think that was Kansas City. I think it was a.

Maybe Tulsa.

It might have been a different. It was Tulsa.

It was Tulsa.

That's exactly correct. It was a foundation in Tulsa. If you came and did whatever creative thing you were doing and brought it to Tulsa, it was the. It'll come to me. But it was a big family in Tulsa. Yeah.

So what is the most important metric for you? I mean, you talk about getting to know a market, but if you had five or even three drivers in a market, what's the most important stats that you're looking for?

Yeah, we are not macro focused, even on a market by market basis. We're really real estate. We're building specific focused.

So job growth in a market. That's not. Because you're probably saying if the cap rate makes up for it, if the, you know, the price can compensate for that. So you would invest in a city, just for sake of argument, in a declining job market. If.

No, definitely you would. Okay, definitely. I mean, there are markets that are no fly zones for us. I'm not going to name them because I don't want to. We might actually be in them and have had that experience. But, you know, there are markets where there's massive population decline and there's no exciting tailwinds or job growth stories. And it's just. It's tough to put together a positive story around a market where, you know, it's just not. Juice isn't worth the squeeze. I really don't want to be a participant. Erie, Pennsylvania. It's a very tough market. Have looked at some assets there. When we got into the Opportunity zone game. I'm sorry, Erie. When we got into the opportunity zone game, we looked at a couple transactions there. We're invested in Cleveland down the road. We're. We've spent some time in Buffalo up the road. But it's markets like that where it's just a very challenging story on a state and on a city level. But by and large, we'll invest anywhere where we believe in the market's fundamental story. But more importantly, we believe in this all, it comes down to believing in the value proposition of the specific asset. Can I put heads in beds? Can I put stuff on shelves? Can I put butts behind desks? Right. Will I lease this office, this retail, this multifamily? Can I create a value proposition at some price where I'll make money, where my asset will be worth more than all the dollars I have to spend to generate that cash flow? I mean, you mentioned urban versus suburban. We do a lot in, in Kansas City. We've generally been urban core investors there. I mean, it's a highly robust suburban market. Still very much more suburban than urban. When you look at Lee's Summit and Mission and Overland park and all the large corporate users that are out in the suburbs there, and we'd be ignorant to say, hey, we love this market, we're long this market, we're opening office here and we're not looking at the suburbs. So as of today, we're moving forward on a couple transactions out in the suburbs. Why? Well, because at our basis, we believe in the value proposition of that real estate. We're buying an asset at $40 a foot that we believe is going to generate.

That's what you rent space for in New York.

Yeah, exactly. I mean, does it have some fundamental flaws with the building? Is there going to be some dead space? Is there a, a high base building cost to improve the real estate and make it leasable? Is there a large TI and LC to get at least? Sure, but we're going to do $22 leases on a $10 opex. We're going to generate $12 a foot if we find a single user. It's got 200,000 square feet, 200,000 square foot block of space, which is highly desirable for a lot of these large call center users that are out in the suburbs in Casey.

Are you solving for a return then or what? Is it a cap rate and an irr?

We're largely solving for whole dollar profit.

Whole dollar profit. And what is that multiple? Is it a two, three times, four times more.

Keep going deal by deal.

Okay, so in your agnostic, we're just.

Looking for arbitrage opportunities, right? I mean, we've bought fully leased grocery, anchored retail. Right. That would seem kind of off the run for what we do for these value add transactions or opportunistic deals we're looking for. But I bought a value add deal in Atlanta. Sorry, a fully leased, gross rankered deal in Atlanta at a. It was a nine and a half cap. We levered to a 17 is that something that's like directly in our wheelhouse? No, but that deal should have probably traded at a 7. It should lever to like a 1112. And I'm finding arbitrage, I'm finding a unique value proposition if I can buy it that wide. And that's a compelling yield to me, to our investors and we can figure that out, we can do it, we can do anything. Right? And that's kind of the attitude we take. I mean we're not trying to fit everything into a box like oh, what's your multiple? Or what irr do you need? Or I only buy this amount of vacancy, I only buy this cap rate. I only buy office in New York, I only buy multifamily in Chicago. We'll buy all asset classes, all geographies, as long as we can wrap our hands around it, look ourselves in the mirror and know that we can solve the problem and lease it up.

Take us back to the first deal. What was the first Samir Road and how did you raise the money for it? Because again, we know where the story has gone. But for our listeners who want to break into Investing, yeah, we're 500 some.

Odd million dollars of capital raised later. But I'd say the first 5 million bucks we raised was some of the hardest dollars ever.

These are friends and family.

You know, our minimum check size today is half a million bucks. On a deal by deal basis, our average check size is probably closer to a million one. At the time those thresholds were a little bit lower. But we're always, we're not kind of past the hat, friends and family. We're looking for highly sophisticated, highly well.

Capitalized groups and you had those right out of the gate or what was the first deal like?

There was some effort in getting there. I put 10% of the capital down myself. So I put my money where my mouth was on the transaction. It was a non performing loan on a tenant common deal on 102,000 square foot office building in Kansas City. You know, it's a great example actually, James, I had never been to Kansas City. The first thing I did was I flew out there and I spent about five or six days in the market including a weekend which my wife wasn't ecstatic about. But you'll never understand a place unless you spend a weekend there and you.

Were already in contract on this or you were making a bid.

I was making a bid. It was a non performing loan. I had a relationship with the debt holder. I felt like it was, if I remember correctly, the par Value amount on the loan was like $21 million. The. The prior purchase price in 2006 was around $30 million, and I was buying the note around 10 million bucks. A little under $100 a foot.

And how much equity did you have.

To raise for that 100% vacant? It was a $5 million equity check.

Wow.

So you found a lender for $5 million?

No, it was about a $15 million capitalization with your future funding. So call it a all in $10 million loan and 5 million bucks of equity capitalizing. At least the majority of the business plan.

And at this point, I mean, you had. How many people were in your company? Was it. It was just.

It was just me and my underwear at my desk at home.

And you found a lender who was still willing to give you a $10 million loan?

I had done about a billion dollars at my prior firm of real estate acquisitions on the loan and fee simple side. Had been very involved on the CMBS and CDO space in kind of CUSIP World and had a lot of relationships with lenders across the street, but found a group that loved the deal and liked our story and was willing to kind of give it a go with us. They've now been a programmatic lender of ours. I think we've probably done nearly 20 transactions with them. We're closing an $85 million loan with them next week.

Makes things so much easier. I mean, I've seen being a sales broker, seeing what it takes to get a loan and the amount. I mean, it's more complicated to have a loan closing than.

Absolutely, yeah. So I came to Kansas City. I dug in deep, started meeting. You asked earlier about meeting with brokers. I mean, one of my favorite things to do is sit in a broker's office in a market that I haven't been in before. The right brokers are extraordinarily passionate about the market they invest in or not. Excuse me, they work in. I love when they pull the map up on the screen and we just sit there for probably an hour and a half, two hours, and we break it down. Where are people living? Where are people working? Where do they go out? Where are the cool trendy coffee shops and bars? Where's the creative office today? What's going on downtown? What's going on in the suburbs? Where do your worker bees live? Where do your decision makers live? What are the nicest suburbs? What are the up and coming neighborhoods that are regentrifying? Where is that downtown multifamily occurring? Is it occurring what's the retail story here right now? Where is the industrial component? Where is the airport? Where's the convention center? Where are the sports teams? What do people do here on the weekend? How does this market function and work? How do people work within this market? So I've done that probably in 30 some odd markets around the country myself. Honestly, it's one of my favorite things to do, to sit there and learn a market and talk a market. You know, as a follow on to that, my team is probably reading 50 local real estate rags a day. I mean broken down by the markets they're covering, but it's, they're expected to. If you're covering, if you're covering Memphis, you're reading the two or three the Memphis journals and you're following the Memphis grizzlies. You got to know your market, you got to know what's going on. And it's not like New York City where 50 leases are signed a day or there's a bunch of transactions every day, but you got to know what's happening and you got to know what's going on in that market. Anyways, Kansas City is one of those markets that we follow in depth and that we learned very early on and we've now been following and developing, networking for four plus years. But going back to the deal. So got to know the market, got to know the fabric, got to understand the value proposition of this amazing 100,000 square foot leed gold certified beautiful glass and steel building within the river market, within the urban core, right off the streetcar. 100% vacant. Vacated by a tenant that wanted to stay but couldn't stay because the prior ownership, this TIC group was under, capitalized, over levered, didn't have money to reinvest in the building for a renewal. TI didn't have money to pay a new leasing commission, didn't have money to renew the tenant. So the tenant just said, hey, screw it, we're going to leave. So the building became vacant. But it's an incredible asset. It's one of the highest quality assets. One of the newest construction office buildings within downtown kc. So we bought the note, we foreclosed out the borrower, we took title. It's going to sound a lot easier said than done, but we leased it to, I was thinking that, yeah, we leased it to 100% occupancy, we returned all the capital in the transaction. It's been an amazing deal and we still hold it today. That was a foray into Kansas City.

We only have a minute or two left. But I want to end on this because when I heard you speak what you had to say about your fiduciary with your investors, I know there's a reason why you've been able to raise the half a billion dollars that you mentioned and that you have these repeat and investors because someone asked you what keeps you up at night and thinking about preserving investor capital. Maybe you could just take us out on that note with how you view that.

Yeah, I wake up every morning and I get an email from my team that talks about risk we have on. I wake up every day trying to de risk everything as quickly as possible. Whether that's a sale, whether that's a refi where we're distributing cash back to repatriate equity, whether that's signing a lease, where that'll be an attribute that can allow us to monetize. I'm constantly thinking, hey, how do I de risk this investment? But yeah, that is the only thing that really keeps me up at night right now. How do I get in and out of these investments as quickly as possible? Or how do I de risk investments that I want to hold long term? But yeah, as you alluded to, we've raised capital on a deal by deal basis. We see ourselves continuing to do that. I think what resonates with our investors is the idea of they want to select deals on a deal by deal basis. They want to maintain their discretion. They want to find the opportunities that fit with the risk profile, the asset profile, the timeline profile, the tenant profile that they're looking for. You know, we've been oversubscribed on every transaction we've ever gone out with. We've provided some tremendous returns to our investors. I think we only of the 67, 68 some odd transactions we've done, I think we today only have risk out on about 15 deals. So we're constantly trying to return capital. We're working our butts off to create value in that real estate, to execute leases, to execute refinancings, to stabilize our product and provide great risk adjusted returns and great P and L to our investors.

That's fantastic. And it's because you know your markets. I think we have the title for this podcast. So, Ian, thank you so much for coming in. Really appreciate your sharing your story and I know our listeners are going to really benefit.

Thanks for having me. I really appreciate it.

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.

We're with you wherever Alexa and Google.

Are at home in the car, on your smart TV and your connected devices.

Hey Alexa.

Hey Google, Play my favorite Voice America podcast on tunein. It's just that easy. But make sure you actually mention the name of the podcast show to make it work.

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

And now it's time for our City Spotlight.

And with us is Avison Young, Principal and Managing director for Martin Miami, Michael Fay. Michael, how are you?

James I'm doing great. How about you? It's always nice to hear from you and it's always nice to be a guest on this radio show which has been awesome from what I'm hearing from everybody. I enjoy it myself.

Awesome.

We're having a lot of fun and.

I think our listeners are getting a lot of benefit. And although we are based here in New York, these principles you can apply all over the country or for the world for that matter. And part of this is going and spotlighting various cities and Miami is certainly at the top of a lot of people's list. I know you've been a rainmaker there for 35 years. I'm reading your bio. 12 billion in closed transactions. I know you've done a lot of REO work as well, which gets investors a lot of excited from our company's standpoint. I can't thank you enough. You're the chairman of our executive committee for US Capital markets, so you're someone who really is a go to source for information.

Well, thanks. It's been a great run. I don't have to tell you, being a part of Davis and Young is just such a great partnership for all of us that are really conducting business across the country, but also really connecting the dots and really delivering great results for all of our clients and really handling everything that we need to do It's a great, great, great platform. And it's been five years for me now, so this is really. And it just continues to grow and get big. It gets better and better. And having you a part of this is really also just fantastic.

Awesome. So Miami in New York here, we've seen a real shift in our political landscape and certainly the tax treatment. And Florida has always been high on a lot of investors list because of the tax advantages you don't have. State income tax that now becomes even more pronounce with salt. But it seems like you all have really been the recipient of a lot of investment, not only from investors here in New York, but I would imagine all over the world. Maybe talk a little bit about the appeal of the Miami market for investors.

Absolutely. Well, I think we're the eighth borough of New York anyway, so I think that works out pretty well. Yes, we are seeing a huge amount of traffic from a lot of New York investment firms, individuals, investors coming down to Miami and really looking at it. When I say Miami, I'm also talking about Florida in general and also South Florida, which is Miami, Fort Lauderdale and Palm Beach. Miami right now, from some of the reports I've seen, is the sixth wealthiest city now on the globe. And we're just continuing to garner continued interest across all the product types. And I think that it's interesting, for years we've had what I would call flight capital coming out of Latin America and Central America and Latin America. And coming up, whether it's been issues in individual countries, it's families, business owners. So that was driving a major part of our market. And now institutions have really, institutional investors have really come in and really hammered in on this market and they understand the certain dynamics that we have. I mean, you've got the Everglades to the west and the Atlantic Ocean on the east. And so everything's landlocked. So there's just a certain amount of real estate that is here. And so it has to be used wisely, but also it drives up pricing. It's very similar to New York in some ways. We just don't have the snow. So we continue to see a lot of foreign groups as well. About 34, 35% of our transactions here that we do personally on our team is foreign related capital. We also have a lot of other, I would say individual sponsors that have got either foreign capital behind them and or other institutional capital behind them.

Yeah, I remember that the last cycle and you all had kind of the same challenges New York did with a lot, lot of spec Condo development. But my recollection was the South Americans really came in strong. A lot of them bought for pied a terres or for investment. So seems like that interest has resided and now it certainly has become an institutional market.

Yeah. So it's kind of interesting going back for two seconds in 2008, we were foreclosing and representing over 47 banks. In 2008, 9 and 10, we had about a 12 to 15 year condo supply. It was literally evaporated in about three years. And the amount of building that has taken place since then has been unbelievable. We have some really unbelievably class A condo buildings with unbelievable amenities, hotel components. And what's interesting is that a lot of those now the sales were very brisk. They've kind of slowed down. We've got a larger shadow market in the condo market. So I will tell you it's a great time to be buying a condo here in Miami. So for your New York listeners, if you want to come down and be in downtown Brickell, anywhere in Edgewater, there's some great, great deals going on. But let me highlight something, James, which is important. We are now marketing some larger parcels. These are hundred million dollar parcels that are going to build 2.8 million feet, 800 to 1500 unit complexes with hotel components. We're seeing a lot of major developers coming back in and saying, okay, we're already pricing in for the next cycle. We're looking at the next cycle. It's going to take two or three years to go through plans, to go through all the rest of the engineering drawings, the construction, and then when they start up the construction and then the sales take place, a lot of these newer developers want to be ahead of that curve. So while we've dipped and we're starting to come back out, developers are starting to look to the next cycle.

And is this mostly rental or is this condo development?

Well, look, that's mostly on the condo side, the rental side. We've got several markets where the market rents can go from 275 a foot to 550 a foot just depending on the market. And each one of these submarkets has got a really interesting component of livability and or transportation. Here in Miami, that's one thing that lacks that is one of our Achilles heels, is our transportation. So everybody wants to be in and around livable areas. So that falls into place. So that also continues to drive rents. So Miami, I just read an article the other day, it's almost the first time now where it's Almost cheaper to buy the median price home of $350,000. And again, I'm using a median price than it is to rent a two or three bedroom apartment.

And where are these people coming from? I get the luxury condos on the beach and whether those are pied a terr, stick with the rental for a bit because what are the businesses that are powering this? Are you guys getting some of the tech companies down there? Who's setting up shop down there now?

Well, you know, we continue to have a tech drive that's in the Wynwood area. We continue to have other areas of what I would say innovation and that innovation is bleeding all throughout the city and certainly certain areas that are heavier than others. We also got, you know, we're very large in banking. We've got a lot of other things. You know, our banking is one of our largest industries in the tourism. We also have the cruise industry. So we've got several major driving forces that are down here doing certain things. We also are continuing to see a large amount of what I would still say, you know, foreign, you know, Latin American related import, export, which is also very, very big. So a lot of those employees are trying to fill in some of these gaps. And that's where you've got the average wage earner from, call it $40,000 to $150,000 that wants to live an urban lifestyle and wants to rent as opposed to own. So we continue to see a little of that millennial factor that everybody talks about, but also ease of living. We've got some very interesting luxury buildings that have got great amenities and they're dispersed throughout the Miami proper, which, you know, could be in Coral Gables, it could be in the Dadeland area, it could be in Aventura, Doral, downtown Miami, Brickell, you know, all those other areas in between.

Perfect. Now I want to talk a little bit about the appeal for investors because I know a lot of our exchange investors, especially if they've established primary residence in Florida, they really appreciate the fact that you don't have state income tax. So how exactly does that work? If I'm spending 181 days a year down in Florida, why would it be a good idea to buy income producing property in your market?

Well, again, Florida has so many benefits through what we're doing, especially in the tax side. What I like to tell a lot of our investment groups that come down here, one living down here, it's very easy to manage if you're going to be in Orlando, Tampa, Jacksonville, anywhere here In Miami, Fort Lauderdale, Palm beach, it's an hour and a half drive, so you can kick the tires, manage the property. Well, it's very, very simple that way. Our insurance is still one of the major factors, but it's been very leveled out. So our insurance is not an issue at this point.

Are you talking about flood insurance? I know there is concern about it right now.

No. So the interesting thing, that's a whole other thing which I'll talk about in one moment, which we'll talk about Sea Rise, which we'll come back to one second. But you know, owning and managing and driving rents down in these markets are very, very part of the whole idea of what you're going to do down here. And there are certain areas that everybody wants to flock into, whether it's a retail component, a retail building, or whether it's an office or even industrial or multifamily. Multifamily on any sector. And we have got units as small as 1220 units to 300, 400 unit buildings. And those cap rates are 3.5 to 4.5%. It's amazing to see still the continued cap rate compression. The only difference I'm seeing right now is we're seeing a little bit of a twist from the multifamily into industrial. But the amount of industrial players, it's been very, very few. It's the normal groups. But Miami's got a lot of smaller bay warehouse. We don't have the larger. We're building a lot more, larger space. I mean, we have an Amazon facility that's almost a million feet. We're building, you know, taking care of the logistics. So we're starting to see that twist from a multifamily being a darling of assets to industrial being the darling of assets down here. You know, we continue to have our port, the airport as well as the seaport. And so a lot of that starts to focus in on a lot of opportunities for all of us as well as rail. So you start to see a lot of that pull into play.

Perfect. Yeah. I would imagine when you start talking about those cap rates in the 3.5%, 4% range, it's because you have a lot of investors who believe that there's a lot of upside potential in the rents. And it doesn't sound like you have some of the regulations in your market either.

So none of the regulations. None whatsoever.

So you got a lot going for you. So we only have a minute or two left, but this has been very, very helpful. Before we go though, if someone's taking a trip down to Miami. What are some of the top picks restaurants, what should they check out while they're there?

Well, first of all, I would suggest everybody goes through, I would call it our Brickell, Brickell City center area, which is in the downtown area. Really, really neat area. We like Coconut Grove, of course, we like Miami Beach, Wynwood. Those are some of the fun spots to see as general areas. Of course, Little Havana is great up and down a street for some great culture. Miami is such a diverse city which we love. I was born and raised here. So we get to see that from the restaurants. We continue to have so many great new restaurants and so many world renowned chefs that are coming in. But you know, some of the staples, of course, you know, Joe, stone crabs, Il Gabbiano, Zuma, just to name a couple. And there's a, you know, there's just so many more to even name. But I will tell you, it's a great, great city that we live in. And you know, again we welcome, you know, the eighth Borough here, as we like to say.

Well, I know when I was down spending time with you and then at the Bisnow Ascent Tour, I did an E bike tour where went by Wynwood and Little Havana. So it was a great way to see the city. And maybe if our listeners are lucky enough, they come down, they might get a ride on the, you know, the Fishel. Is that the name of the maybe do a little wakeboarding with you?

Yeah. Well, we'll come down here, we'll leave, we'll do wakeboarding, wake surfing and then we'll get out and go out on our other boat called Sails Call or Ship for Brains, one of these boats and we'll have some fun.

That's awesome. Michael, thanks again. This has been a lot of fun.

James, thank you so much. And by the way, last thing but not least, Sea Rise. We have to be very, very cognizant and not to panic and to be very, very thoughtful in how we discuss these things. Because I will tell you, we've got to take care of mother Earth, but at the same time we've got to be just cognizant of what our world is doing. But at the same time, we really have no issues down here, which has been nice. And I believe that we will continue to be smart in our building codes and how we do this. I just wanted to add that in there before we cut off.

Well, you heard it here on Real Estate Investing. Live from New York, this is your host, James Nelson. Thank you again for joining us.

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.

Sam.