31: Risk Game with Francis Greenburger

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 31. This is your host, James Nelson of Real Estate Investing Live from New York. And tonight have a great show for you. Lined up with us we have Francis Greenberger, the legendary investor who started his career decades ago in New York, Co oping 10,000 units across the city and then spreading his company's empire time equities around the world. So he's going to be talking about some of the insights that he wrote about in his recent book Risk Game. And then back with us, we will have the second part of the brokers panel with David Checkman, Marion Jones and Brandon Polakoff. But before we get to that, we will do the week in Review Powered by the Daily Beat the story driving the day is that the owner of Mall of America has reportedly missed two months of payments for a $1.4 billion CMBS loan. Triple Five Group said in a statement that it continues to make partial mortgage payments as well as meet other operating expenses. The mall operator's not alone. Other owners reported Rock bottom April rent collections, including about 12% for T Factory outlet centers, roughly 20% for Brookfield Property Partners and 26% for Makerich. Mall of America is the largest shopping center in America with 2 million square feet, boasting the Nickelodeon Universe indoor theme park and over 500 stores. Elsewhere, a growing number of national restaurant and cafe operators say that social distancing guidelines restrict them to 25 to 50% capacity, forcing them to modify their operations and cut expenses. Even blue chip names that have made rep payments in April May are now asking for relief, including Starbucks, Chipotle and Shake Shack franchises. Dunkin, Applebee's and Yum brands are also negotiating with their landlords. Why it matters Landlords are generally reluctant to cut rent because accounting rules still allow them to book income if rent is deferred as long as it isn't reduced. Victoria's Secret's parent company, L Brands is about to shut more than 200 stores in malls and shopping centers across the the country this year, according to the CNBC report. In Real Estate Meets Tech, Facebook CEO Mark Zuckerberg said that the social media giant will start allowing many of its 50,000 employees and new recruits to work from home on a permanent basis within the next five to ten years. Zuckerberg anticipates that about 50% of Facebook's workforce will work remotely. Only 2% of Americans permanently work from home on a regular basis, according to Nicholas Bloom, a Stanford economics professor has done extensive research on the topic. He believes that it will more than double after the pandemic. A recent study from the University of Chicago estimates that 37% of U.S. jobs can plausibly be performed at home. But worth noting, Facebook's 740,000 square foot lease with Vornado at the Farley Post Office is still expected to close. Elsewhere with Tech SoftBank now values WeWork at $2.9 billion as of March 31, down from 7 point billion in December 31 following its failed IPO. SoftBank has reportedly invested 18.5 billion in the company, historically disastrous investment that will be studied in business schools for years to come, according to the Daily Beat recording. Elsewhere in mortgages In April and May, 354 apartments and office properties started missing payments on 7.1 billion in mortgages, which only includes loans packaged into mortgage bonds. That is up from 4.2 billion billion in February and March. Looks like this distress will be met with open arms from the investment community. One report from Bloomberg cites that the world's biggest real estate investors are sitting on piles of cash, preparing for a once in lifetime opportunity created by the pandemic. With economies around the world sputtering, commercial real estate prices are expected to come down. How much they'll fail fall is the key question. Private equity firms across the globe globe hold an estimated 328 billion in dry powder. And that is one more thing to note. One of those participants is Goldman Sachs who announced it closed a $2.75 billion fund known as its Vintage Real Estate Partners 2, vastly exceeding the investment firm's $1.25 billion topic. That is the week in review. We'll have a brief word from our sponsor and we'll be right back.

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So now it's time for our investor spotlight. And with us today, thrilled to have Francis Greenberger I've had the pleasure of knowing for almost two decades. Francis is the founder and CEO of Time Equities Incorporated, a multi billion dollar real estate investment and development company, as well as chairman of the Sanford J. Greenberger Associates, a literary agency representing some of the most successful writers of our time. He's also the founder of two important not for profit organizations, the oh My International Arts center and the Greenberger center for Social and Criminal Justice. He has served on the board of over 15 nonprofit organizations for the arts, education and criminal justice reform and most recently the author of Risk Self Portrait of an Entrepreneur who I've read now for the second time and so really thrilled Francis to have you with us. Thank you so much.

My pleasure to be here. James.

Wonderful. So your story and starting with your childhood and I was just so amazed to read about how even early on you said at the age of 12 you were already in the office helping your father working on the family business. Maybe not so much a fan of school at the time, but maybe talk a little bit about those early days.

Well, I think even as a very young child we sort of had a fascination with kind of business protocols and even things as simple as sort of forms or I remember, I don't know, I was probably four or something and I remember playing with my grandmother and I had like one of those things that waitresses or waiters and restaurants have to write down orders and I remember, you know, her dictating orders to me and I would write them down on this piece of paper thinking that was wonderful fun. Which in retrospect I guess it's a little odd that that would be 4 year olds idea of a good game to play. But it appealed to me and so I always had this kind of entrepreneurial gene business gene. And When I was 12 I started coming to my dad's office after school and he gave me a job as very simple basic bookkeeping. But you know, I was thrilled to have it and also to be in the environment of his office and see what went on.

Yeah, I know. Although it sounded like school wasn't incredibly interesting to you, but it wasn't because you were a slacker by any measure. Quite the opposite. I know early on in your book you stated that work gave you a purpose. So talk a little bit about that.

Well, I guess it was a focus. It was sort of where I kind of naturally, intuitively decided to put all my energy. And it was great to find this release in it. Now, I suppose other students, I mean, I wasn't a terrible student. And in fact, I went. Eventually I went to Stuyvesant, which was a hard school to get into for a while, although eventually I didn't find that a good environment for myself and left. But academics were not where my real passion lied. And it was just this business of entrepreneurial above.

What amazed me about your story. So your father has this literary agency, and again, for all of our listeners, you really have to order this book. I mean, it's such an unbelievable story, and we're not even going to have the chance, I guess, to go into the half of it because there's so much to talk about on the real estate end. But it was really interesting to me that your father had these great literary contacts, but didn't really have the business savvy, and you were the one, even in your early teens, who is suddenly cutting these deals with these publishers. So how did you figure out how to do this? Did you always kind of gravitate towards kind of the business aspect? And is that what really prepared you for your future in real estate?

Well, you know, as I mentioned, I started as my father's bookkeeper and I guess eventually became his, quote, controller, and really were responsible for, among other things, his debts, of which he had a disproportionate amount. So at that very early age, I basically learned how to manage debt. I also was able to understand that he wasn't earning enough money, which was part of the reason that he had debt and saw how modestly certain of his clients were paying him. And my father, who was very much kind of an intellectual and publisher in the best tradition, you know, he wasn't focused on money. He worried about money because he knew he didn't have any. But it never occurred to him that he wasn't getting paid enough. And so I went to him and I said, look, dad, they're paying you a very small amount for a lot of work that we really have to ask to be paid fairly. And he thought, oh, well, we're asking for. I think they were paying US$300 a month. We asked for a couple hundred bucks more, whatever it was. I said, no, dad, that's not enough. We have to ask them for 1500 or something. And he was like, Totally taken aback. And then I said, look, I'll do it because I was friendly with my father, was very friendly with the owner of one of our major clients, but I was friendly with him too. And so eventually I, I went and spoke to him and he readily agreed because in fact publishing, his publishing house was very, very successful. They could easily afford to pay what we were asking.

And how old were you at the time, would you say?

You know, I was 13, 14, something like that.

So this big publisher on the other end, you know, he's hearing this from a 13 year old, I'm just amazed, I mean, that he took you seriously. I mean, clearly you were able to convey that you certainly had decision making capabilities at that time, but amazing at that age that you were taken seriously.

Well, I mean, I did have an unusual amount of presence for somebody of my age. I also looked older for whatever reason, but I also had a very special relationship with this man and he went on to become one of my important mentors. But he was exceptional in many ways, really a legend in his own business and his industry. And you know, part of the things that I learned from him was how well he listened to people. And he listened to people from all walks. It could be secretary or it could be a senior manager, but he was very open and solicited feedback from a wide variety of people and found that information valuable. So it was partially that he empowered me by his openness and willingness to listen to do what I did.

So fast forward now and at some point you decide to go off on your own with your own agency. And I believe it was that you fell into real estate almost accidentally because you took on some extra space that was basically maybe not the most desirable space for an owner. But you said, I'll take it on, I'll manage it. So maybe tell us what happened there.

Well, I was actually still working for my dad part time. I think by this time I had decided, dropped out of Stuyvesant and going to high school at night. So I was working a full day and I had started a couple of small book businesses. One wasn't really an agency. We were exporting books to some, to a very. To a company which is now famous Bertelsmann, but in those days was unknown and also had a couple of small book distribution businesses. Anyway, I needed a one room office and I went to Rent. I saw an ad for cheap office not too far from my father's. My father was at 57th and Madison and this was on 59th street between Park and Lex. So it was inexpensive. And I went there, and the guy says, well, you know what? I really have two offices, two rooms here that I want to rent. I don't want to rent just one. I said, well, I only need one. He said, well, you'll rent both, and you'll sublet it to somebody else and make money. And so I was thinking about it, and that afternoon I went to visit a partner in one of my businesses who had a bookstore nearby. And I mentioned what I had looked at this office, and he said, oh, there's a guy in the back who I think is looking for an office. Why don't you go talk to him? He was my first tenant, and I got enough rent from him to cover the rent for both rooms. So I thought, well, okay, there's something to this.

So you were the very early version of wework. You were already subletted before it came into fashion. So at this point, so now you have a little bit of exposure to real estate. And I guess, did you have. You had a client also, or you came to meet someone? I believe your first real estate deal, you said, was on 29 West 15th street, where you found even more space. And did you then realize, maybe I can make a business out of this and I can, you know, rent out a larger chunk of space and then sublet and profit? Was that the business model?

Well, actually, what happened was that a. My father's lawyer was also a friend, was kind of a partner. He was the Larry Wein of his operation, and he was a partner in the real estate business in addition to practicing law. And he. His partner. And he had a building in 28th street that was in trouble. They weren't able to lease it up. And I went and looked at it and said, okay, well, I can help you. And I basically did the same approach, made small offices where there were larger offices, and it worked there. And that was kind of another leasehold kind of deal that I did with it. But then the partner in that business said, oh, you know, I'm looking at a. There's a building here on 15th street, which we're thinking of buying. Why don't you partner with us? And that's how I got to the loft building at 29 W. 57th St. At 15th street, which was the first building that I had a partnership interest in. And they took responsibility for raising the money.

So you become an owner of this building, and at that point, you didn't have to put any money into it. You had the sweat equity, so to speak.

Speak correct.

So you were off to the races. So clearly, you know, you got the bug for real estate. You're starting to see that this works. At what point did you then decide to transition to multifamily? Because, you know, reading your book and you said in the early 70s and this was when rent regulation came into effect and no one really seemed to want to have anything to do with investing in multifamily at the time. So how did you make the jump from office to multifamily?

So in 1971, as you may know, historically, there was a major change. For over 20 years, New York had been locked into a rent control system that was so restrictive that it didn't allow increases. And the buildings were being starved and many of them couldn't even pay their maintenance and their other costs. New York housing went into a tremendous decline and people who had invested in those buildings in the 50s and even into the 60s were all bitterly disappointed because they had seen their hard earned investment turn to dust. And then in 1971, the law changed and there was a system of deregulation that came in which said when a tenant moved out of the apartment, the owner could charge market rent. But frankly, so many people were discouraged by their ownership experience and there was just a dearth of buyers that when properties got put up for sale, they sold for very little money. Even though this change in the law offered long term appreciation and the ability to increase rents and to build, repair, you know, have the money to repair the building and make things better. But people were so disillusioned that they weren't buying in. I and a few other younger people, I'm sure you know them, James, people like Mark Scharfman, a few of us started saying, okay, well this makes sense. And in those days, owners, there were no banks giving mortgages on these kinds of small buildings. But owners would give you purchase money. And so I found a small building in the village on Barrow Street, 23 Barrow Street. I was first one that I was going to buy by myself and syndicate. I can't remember what I paid for it, probably 50,000 or something, maybe $10,000 down. I went to a couple of friends and asked them whether they would invest, which they did. One guy put in $2,500, somebody else $3,500. And we raised the 10,000 and it was off to races. And that was the first building that I bought.

And you called these stretch transactions. I mean that was just so brilliant where you would go to the seller and you would give them 50% more than anyone else was offering, but you would say, I can't close with you in the typical 60 to 90 days. I need a year and a.

And so that happened a little bit later. Okay, so in, in the late 70s, there was a revival in the business of converting rental housing to co op ownership in New York. There had been somewhat of movement, I think a little bit earlier, but I and a few other people began to realize that there was a market for people to buy apartments. So actually what I did was I went to owners. The reason that I could afford to pay ultimately more than the average investment buyer was because I was going to co op these, but I was going to pay the owners when the, when I was collecting the money from the tenants, which was a process that would take, let's say, 18 months or two years. You know, I recall a funny story. There was a building, 194 Riverside Drive, and it came on the market. It was a 40 unit, nice seven story right on Riverside Drive and I think 93rd or 90 and there's a beautiful building, giant apartment, seven room, west side Apartments. And, and it was for sale for like $80,000 for 40 apartments. And. But it lost money before debt service. And I didn't buy it. Well, somebody did, somebody did. And then it came back on the market a couple of years later and the guy wanted a million bucks. He paid 80,000 two years before, which was a very, very high price, even though the market had strengthened somewhat. And so that's when I said to him, hey, okay, I'll give you the million dollars that you want. Which was his dream. He wanted to be a millionaire because I knew that the apartments would be worth a lot of money, each one. But I said, I'm going to pay you that million dollars, 25,000 as I sell each apartment and if it takes a number of years, you'll just have to wait. And he agreed. And so that was my first so called stretch deal. And I think the first apartment we sold there was for like $500,000 instead of the 25 that I had to pay him. So it was a pretty good deal.

So you had two or three consistent partners where you had the capital. And to me it seemed kind of a little bit of a domino effect where you'd sell out one building that would give you proceeds to go put deposits on others. So that lasted, I guess for a couple years because still, as you said, the banks were not lending. But at some point it sounds like the banks suddenly woke up and they said, wow, this is an incredible business. And we'd like to get involved. And so at what point did you go to the big banks? And I remember one of the stories, I mean that the credit line, I mean one of the first credit lines you secured, I mean this was a seven figure or maybe even eight figure type advance. So it sounds like once you could tap into that, right?

Numbers were smaller in those days. I think the first credit line I had was, this is all happening around 1982 was maybe $50,000 from the Irving Trust Company and which is no longer, you know, they got merged and then I went down. Then shortly thereafter I was introduced to somebody from M and T Bank. And they said, oh, well, we could give you a bigger credit line, give you 200,000 or something. And then so I switched over to M and T. And then one day, not too long after that, I met these guys from Chemical bank. And they came, actually came to my office, I think cold calling me or something and they said, well, we would like your business. And they said, okay. They said, we can give you, if you want, we'll give you a credit line. And I said, oh, okay, how much? And they said, how about 2 million? They said, oh yeah, that could be very helpful. I said, what do I have to, you know, what application, what information do I have to give you? They said to me, no, we know who you are, we know your business. You got it? And I said, I said, wait a minute, what do you mean I got it? What's the process? They said, no, that 2 million is in our authority and we'll get, we're approving it right here and now. This cannot be true. And I said, well, you mean if I want to draw on the credit line tomorrow, I can? And they said, yes. I said, okay, tomorrow I'm going to draw $250,000, which I just drew to find out whether it really worked or not. And in fact it did. So long story short, the banks became much more flexible, partially, I guess because they saw my business was growing and then I was successful. But it was a period of liberalization and credit availability and Chemical. Within couple of years, you know, my credit line went from 2 million to 50 million. And my business was exploding because co op conversion business later, the condo conversion business was just booming. And in a relatively short time, you know, I went from doing one and then two and then three buildings. Ultimately we converted a hundred buildings, buildings in New York. And it was a massive undertaking, but we did it.

Yeah, 10,000 units, I think was the rough count. I mean, unbelievable. And some of the projects, I know there was one project in Clinton hill with over 1200 units and then also Tudor City. I mean, that was really one of your. Well, both of these were very unprecedented. So I don't know if you want to talk about either of those.

I mean, Judy City was Of course about 2,300 units and that was in the center of Manhattan. Both of them were unusual. The first one was Clinton Hill, which I also did on a stretch deal as you would asked about. And. And it was owned by a very nice man, Sidney Levy, who had owned it for many, many years and he had syndicated it in the early 50s, I guess. And he had like 800 investors and he was worried that something would happen to him and then his wife would have to deal with all these investors. But the property under rent control, had been run down and, and had been run down. And he was also worried about the mortgage which was held by Equitable and thinking that they were going to foreclose or I don't know what. So he made a deal with me. And the complex was primarily occupied by African Americans, but it was a very much of a middle class, was a place where people from the African American community aspired to live as their circumstances got better. And we put in a conversion plan and really had no idea what was going to happen. Was kind of unprecedented.

And.

We had terrible trouble getting financing because frankly, in those days the banks were redlining certain neighborhoods and they had redlined this neighborhood as undesirable, even though in the eyes of the residents it was very desirable. And then about a few months after I had, I think I went to 100 banks, including Citibank, and Citibank had turned it down among all these others. And then one day I got a call from, I think his name was Len Druger, he was head of credit policy at Citibank. He said, you still have that project in Brooklyn? I said, yeah, so if you want to talk about it, you can come in. I said, okay to come in. Tomorrow at 11 o' clock I went in and what had happened. And I go in there and I suggest it's available. We need this. We need financing for the buyers. We need a mortgage. He said, okay, well, I think we can help you with that. And I really couldn't understand this turnaround. He said to me, look, if I call the borough president of Brooklyn, will he support this project? And I said, yes, I think he will because I made a presentation to his chief of staff when we were undertaking it because it was such an important project, 1200 units, 13 buildings. And he said that he thought it was worthwhile and a good thing for the neighborhood. So he said, well, if he tells me it's okay, we're going to do it. What had happened behind the scenes that I didn't know was that there was a congressman from Queens, I think his name was Rosenthal or something like that. And he had come down heavy on Citibank for redlining. And so they had to do something quick. And that's where they all of a sudden changed their point of view. Anyway, they did finance it and it turned out really, really well. I think in the very beginning we were selling apartments to people, insiders for $15,000 and outsiders for 30,000. Today you can buy an apartment there for about between 750,000 and a million.

So the common theme in a lot of these investments and today time equities, is global, almost all asset classes. But I would imagine that your investment strategy has stuck with you all these years. And one of the things you talk about in the book is your ability to predict outcomes and how that determines success. I mean, maybe talk a little bit about that and then also talk about what you mean by risk game because there certainly was a lot of inherent risk at the time. You were doing a lot of unprecedented things.

Well, I guess it starts with a premise. When I'm not. I wouldn't have necessarily articulated that at the times, but I certainly retrospect, I think it's true. I think in business when you do things generically, if you do the same things that everybody else does, it's often very hard to achieve real margins and you're often paying very high prices. And inherent in that is taking big risks. I prefer to buy something that's less generic, have a vision of how to turn it into something better. And when you're able to do that, often the financial rewards are more compelling. And because not everybody has a vision for these things, the properties themselves often sell for low prices. And if you think back when my career and some of the things we've talked about today, when I went into those, buying those old rent control buildings, that was a non generic thing to do because people thought of them as negative, as bad investments and et cetera. And when I bought the Clinton Hill complex, people didn't dream it was possible to take middle class workforce housing and turn it into co ops and condominiums. They thought that that was something that rich people on Park Avenue did. And they didn't identify the fact that middle class people had similar ambitions and they would buy if they could, if you could find a way to make it possible, facilitate it for them. And when you think about even the so called stretch deal giving people a larger price, but in return, in essence for financing the transaction by deferring their sale purchase price until I could arrange to sell to my buyers and pay them, that sort of equals what I call all intelligent risk. So intelligent risk is where there's a good relationship between the risk and the reward. And basically you minimize the risks in whatever way you can in these cases by having small amounts of money invested. So if I take an option on a property in a so called stretch deal, I'm just putting down option money. If it doesn't work out, I lose the option money. But I haven't bought a property for a big amount of money, which I also don't have. So it was both a good financing technique but also risk mitigation technique. And then of course the upside was the reward, which was disproportionately large. And so that's kind of a fundamental approach that I use and most of my investing.

Would you say that is consistent with 50 West Street? Because this is where you begin your book. And originally when you bought it, it was as an office property, but then you had figured out a way to assemble air rights and you had this massive 50 story project that is ready to go underway. And then 911 hits, and many thought or advised you that this site no longer had value, you should let it go. And yet at this time where there's incredible uncertainty, you pay down the loan and if I'm not mistaken, you put a $22 million personal guarantee on the site so you could salvage the project. So talk about the risk game with 50 West.

Even though that was incredibly difficult period for us and actually wasn't 9 11, it was the 2008 world financial collapse that this all transpired just as impactful, certainly on the business world, not on the loss of life, but very, very difficult period. And you know, to some degree I did it. I decided to hold on as much for reputational reasons as any other. I didn't want to disappoint the banks involved. And also. But I also had an enormous desire one day to realize the project. It was a vision that I had developed together with people who worked with me. I wasn't alone. A young man named Rob Singer, he was Governor Greeby of New Jersey, was his chauffeur or driver. And then he came, very, very smart guy, don't misunderstand, came to work for me and his boss had actually started this project and then his boss left and he kind of inherited it. But he inherited it and it fell into ruin. And so he sat there for a couple of years babysitting it well while we were just trying to hold on. And then he was very inventive in reconceiving it. And together we ultimately were able to come to a modified vision of the original project and of course get it financed and eventually get it built. And it's a building that I'm certainly very proud of. And it also was a departure for me because I, although I had done two or three ground up buildings, nothing of this scale and ground up construction was not my forte. But I am very design oriented so that as I got into it, I could identify with all of the design details and really work totally integrated way with our architects and our interior designers on every nail and screw in the building is something that I came to know personally.

So looking throughout your whole career and really defining what has made you successful, what would you say those key attributes are?

You know, I always, I often give lectures to groups of college students and talk about entrepreneurship. And what I say is that in my experience, being an entrepreneur requires three things. First, it requires a tolerance for risk. So if you're uncomfortable with risk, you're uncomfortable with borrowing money, don't become an entrepreneur. Got a good job, you can make a major contribution and you can go home at night, depending on your level of responsibility and not be worried. But if you feel that you can tolerate risk and it's not, not going to make you crazy. People often say to me, how do I sleep at night? I sleep fine. I sleep fine. Particularly when I know I've done my very, very best in whatever the circumstances might be on whatever I'm working on or whatever project, I've done my very best to solve whatever problems. So as long as I've acted responsibly, I can tolerate a lot of risk. The next thing that I always tell people is what we talked about before, that you have to be creative. You can't think generically, you can't do what everybody else is doing because there'll be people in the market that are much bigger than you, more established. Those are the ones that sort of can compete on price. They have access to cheap capital because of their size. And the average entrepreneur cannot be a capital accumulator and control assets on that basis. If you're Blackstone, you can do that or some of these. Not that they're not ambitious about their returns. But the average entrepreneur is not in that position. And the last thing I always tell people is that you have to be lucky. Luck counts. And so tolerate risk, be creative in your thinking and be a little or a lot lucky. And those are the ingredients you need to be a successful entrepreneur. And that's part of what I think has made me successful. I've also always had, I've always valued integrity is a very important value. My mentor in the real estate business was a man named Charles Benson. And Charlie, as a lot of people knew him, had an outstanding reputation for his integrity. And it's part of what appealed to me about him personally as well as his business ethic. And I tried to adopt that. And I try to apply a sense of fair dealing with all of the people that impact all the stakeholders in my business, whether they're investors or banks or number one, really the people I work with because they're investing their lives in what we're doing. And I try to be fair with everybody, not take advantage. Doesn't mean I don't like a good deal. But I try to be fair when I have to make judgments. When you're in business, you often have to make judgments.

Well, that's great perspective and advice. You have an incredibly inspirational story. You've done so much, not only in the real estate business but along the way. You've done so much good for the community. So we're so grateful of everything you've done and really appreciate your taking the time to join us today.

Oh, it was my pleasure, James. Thank you very, very much for having me.

Thanks again. This is your host, James Nelson of Real Estate Investing live from New York. We're going to have a quick break from our sponsors and we'll be right back. Thank you. A Different Approach to putting our clients First Avis and Young's Tri State Investment Sales Group sells multifamily office, retail, development and specialty sales throughout the New York metro area. As experienced thought leaders in our industry, our 35 member group is available to help you make informed investment decisions by advising you on your current holdings or identifying new opportunities in the marketplace. Our one unified team is built on an industry unique platform which promotes unparalleled collaboration and teamwork. We share core values of hard work, integrity and expertise. We put our clients first providing tailor made strategies to achieve superior results. Please Visit us at aytristateinvestmentsales.com and follow us on Twitter, LinkedIn and Instagram amesnelsonnyc to learn more. Welcome back. This is James Nelson, your host of Real Estate Investing live from New York. And it's time for our brokers panel and thrilled to have back with us on the show David Chechman who's senior managing director at Meridian Capital Group, Marion Jones who is managing director at Ackman Ziff and last but not least, Brandon Polakoff who is senior director of sales for the Tri State Investment Sales Group at Avis and Young. Welcome back everyone. Thank you for joining us again. So I think for today's show what I would love to talk about is many of our listeners are aspirational investors or maybe they're even more veteran investors and they're looking to increase deal flow. So let's talk about it. I know from the investors perspective off market sounds really great. If you can find something, maybe that means with a broker without a broker versus going and buying something on market. So Mariam, we'll let you kick things off again. But maybe first of all just define for our audience what off market means because I think it means different things to different people and what we you say the advantages would be there from a buyer's perspective.

Sure. Well, James, thanks again for having me. I'm happy to be here with you again. And I will just answer that question by saying I think that there are sort of different ways of using the term off market. And if something is truly off market, that really means that the seller is, you know, contemplating a sale. He or she might not be committed to a sale, but they're not shopping the property with other brokers. They're not putting out a ton of materials. So if you're exposed to something that is quote off market through a broker, I would argue that it's not really off market. And for every broker that has has a quote off market listing, There are probably 10 other brokers with the same quote off market listing running around with something and it often turns into a little bit of a circus. So when an asset is truly off market it might be and you can sort of get and the way I would advise your listeners to kind of gauge how truly off market it is is to speak if it's being shown to you by a broker, just to ask them what is your relationship with this person? Have you closed with this person before? Is this a client of your firm? If this is just someone that they canvassed that they cold called and they got a listing or a price or some basic information, most likely that would be seller gave the same information to any other broker that called or any other party or potential purchaser that called So I think it's really important to gauge the source and their relationship with the seller in terms of how to buy an asset. If you're coming into the New York market for the first time, look, I think you need to manage your sort of time wisely and your energy you're going to be spending, of course, you know, there are going to be attractive things that come, that might come your way that appear to be off market. You're going to have to spend a lot more time and energy kind of diligencing and vetting those opportunities and really vetting whether the seller is real, whether, whether he or she really intends to transact if they're realistic in their pricing, if they're, you know, if they're able to transact, if they're able to move an asset quickly and to do it in a sort of price it realistically. So I think you're going to spend a lot of time when you're looking at things off market, especially if you're new to the New York City market. I would just caution that the sort of time and energy that you're going to spend pursuing those opportunities, it could easily, easily take up all of your time. I think the advantage into, you know, buying an asset through a broader process that a broker is running actually is that there's, you know, assuming that it's, you know, a good firm and a broker that, that, that, that you feel good about and that the reputation seems to be there for conducting themselves in the right way, you're going to get a lot of different diligence. It's going to be prepackaged for you. You're going to be able to really vet and underwrite the opportunity in a cleaner and more efficient fashion from the get go. So I think that there's an efficiency and a transparency that typically comes with properties that are being marketed exclusively by brokers. I think that on the off market you might get lucky and find a really compelling opportunity with a seller who's motivated and realistic. But I would suggest that those true set, true and real sellers who are motivated and realistic are typically are not, you know, doing are not, are not pursuing a sale through, you know, a variety of, you know, brokers who are calling it an off market listing. And really it's, you know, typically just a testing the market type of exercise. So that's really the caution is going off market can sometimes turn into a waste of time and energy and get exercised. And buying through, you know, really strong real estate advisors and brokers, you get the transparency and you get the efficiency on the diligence.

That's a great way to kick things off. And I definitely want to get Dave and Brandon's perspective. But, David, let me ask the question in a different way because, you know, I've heard especially the investors who are syndicators and they need to go out and raise money, you know, or the funds. And they've said before, and I brought them product that I have on the market, and they say, james, you know, if I buy something on market, everyone's going to assume I paid too much money. If I'm going to raise money, I've got to have a story. I've got to be to able to convince people that I bought it below market because I didn't have a lot of competition. So kind of looking at it through that lens, for our buyers who are listening, what do you think the best advice is there?

Yeah.

Thank you. I actually have a little bit of a different take on this, and I agree in large part with Marion, but I think that what you're going to return to today is a market that mirrors a lot more the savings and loan and RTC days and 2009 through 2011. And what I mean by that is not everything is going to be marketed exclusively because you're going to have sellers who don't want to damage the integrity of their properties and who may be looking for alternate routes. We have some sellers who are going to be discretionary today and who recognize that they're going to be selling into a market that's been affected by three major factors. One of them is the change in technology, which we've been dealing with for years in the retail sector, and the erosion of brick and mortar. The second one is the hyperregulation for good or for bad. And I'll leave my politics aside and stay on point. But that's nationally and it's really acute in New York. We've had a massive regulation in the multifamily space. And now the third whammy is, and we hope that everybody's safe and healthy and work really should be an afterthought. But the third one is the coronavirus. With those three things, you're going to have discretionary sellers who are taking a loss. And very often what they're going to say is, look, I don't necessarily need to sell and I don't want a full process because I own other properties or I have other investors. Bring me your two finest buyers for deals that are goods of the kind and provided, like Marion says, the Broker with whom you're speaking, you can ask him two major questions. Marion said, what is your relationship with the seller? I want to make sure you're direct. And then the second one is a question that I've heard my wife actually propose to a doctor who was doing a minor ear surgery on one of my children. She looked the doctor in the face and my wife's a very accomplished securities lawyer. And she said it's a question she's been asked. She said, doc, your credentials are incredible. I couldn't get into the schools that you've gone to. But let me ask you, how many of these ear surgeries have you done? So if I were to ask James Nelson today, how many pieces of land have you sold? It would be scores and scores. It would probably be over 100. I'd have a real measure of comfort that the broker with whom I'm dealing is an expert in goods of the kind. And once I asked that question, and I know that they're direct with the seller and there's no other intermediaries, I then would be very comfortable that it's an off market opportunity because I think my business has historically been over the kind of several billion dollars that I've sold in 15 years. I'd say it's about 50% off market. And I think I'm going to see. We were, James and Marion and Brandon, our realization rates as brokers. We were spoiled from 2012 to 2016. I think we were every exclusive we take. We were probably in the high 80s to high 90 percentile. You would take an exclusive and you would sell it because we had ascending and fervent markets. I think the idea of taking exclusives today, all of us, us have said no in the past few months because we think that the strike price may be unachievable. So we as brokers oftentimes advise our clients, let's not do the whole kit and caboodle. Let me set up a war room with the diligence, let me get a confidentiality agreement and let me give some thought to who are the hottest buyers in the market. So the answer, James, is I think you're going to see a tremendous move to the off market market deal. And I think that's going to be the rule, not the exception. I think when you have a market that is becoming stronger, and I think we're going to see a more fervent market in the next three years, but I think we're going to continue in a hobbled and wounded market for a couple of years. I think that even syndicators can recognize, you know what if I'm buying something exclusively, if it's a credible broker, they've probably already advised and admonished their sellers that their expectations should be tempered. I think you have what's going to be one of the greatest buy opportunities in recorded history in the tri state.

Well, so that's a great perspective and good to see the merits of buying both on market and off market. And as Marion mentioned before, also there's all different varieties that of what that off market could look like. But Brandon, what would be the reason that someone would want to buy from a fully marketed deal? Can you talk about from a buyer's perspective why they might and I know Marianne already touched on it, as did David, but talk a little bit more about that process. And again, if the buyer is looking, you know, the seller wants to get the highest price, the buyer, buyer wants to get the lowest price. How do you reconcile that?

Yeah, no, it's a very fair question. And again, thanks for having me as well. I think something people forget is that as brokers, you know, you've been in the business in particular for so many years and a handful of our team members as well, we actually have a lot of relationships with attorneys. And when it comes to distribution or a family situation or a partnership dispute or an estate, your quote unquote story, a lot of times these attorneys turn their clients over to someone like yourself or another reputable broker who can assist them properly through the process in an effort to make sure that it's done in a, you know, in certain cases a court approved manner where it can't be sold off market. So if we're talking about, you know, fast forward to or I guess our current day 2020, where there are turbulent times, I do think that you will see a lot of marketed properties where there is a really good story and something, you know, even before all this, everything's happened in the last last couple weeks when people call me and ask me, give me a couple pieces of advice on buying, I say the first thing that you should ask and Marianne touched on this earlier, the first thing you should be asking anyone selling property is what is the motivation? If you're really trying to figure out if it's discretionary seller or market clearing price seller and you know, the motivation, whether, you know, we used to call them, for lack of better words, the four Ds. I mean there's typically there's, you know, death, there's divorce, there's a few others. But I think That's a big thing. And I think something that's interesting to think about is if the argument earlier made is that people are looking for off market deals yet there's marketed deals with a real story there, there might not be as much competition as you think. And the other nice thing is, you know, if you are looking off market versus on market, I would say an on market deal, you know, you know what you can offer or you can deliver what you're offering. It's again a controlled process. There's the right data there. I think less time is wasted. And going back to your question earlier, making sure that we're conveying the full story and I think again, that goes to making sure, you know, in this business, I think that reputation is everything. And having that good reputation, people can rely upon what you're saying. And again, you know, off market is, you know, at least historically has not technically been off market. A lot of these sales that take place, the person ends up, you know, quote unquote, overpaying. And I think if you look back to properties that we marketed, or I should say you marketed in 2010, 2011, kind of speaking of what David was referring to with the upswing in 2012 through 2016, everyone that bought during that time made a huge bet. It was definitely perceived as a risky, risky move, but they all looked like geniuses a couple years later. And I agree with David, I think there's going to be tremendous buying opportunities on or off market and it's really just going to be digging deep and finding the right opportunities for you as an investor and seeing what you can do with them.

Perfect. Well, unfortunately that's all the time we have for this show. But this has been an incredible discussion and the only thing that I would add just as kind of a note to our listeners is you can find opportunities off market or on market. Off market you may not have the competition, which can certainly help. But I would say do be aware that when you're looking at an off market situation, you're not going to be aware or your broker might not be the full landscape where I when you're working on an on market deal, that seller's broker, and yes, they represent the seller, they need to get them the highest price, but they also should be fair to the buyers because there's two sides to every transaction and they should be advising you as the buyer where you are, are you competitive so you don't spin your wheels. So there's definitely a lot of considerations here and left. I know we're going to have this panel back with us again. So thank you again, everyone, for joining us today. This is James Nelson, your host of Real Estate Investing Live from New York. If you haven't already, make sure and connect with us through our social media channels at James Nelson nyc. And please tune in next week. Thank you very much. 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.