39: Olympic Effort With Paul Teti

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This is Real Estate Investing Live from New York with James Nelson, the principal and head of Avis and 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 everyone to show number 39 of.

Real estate Investing Live from New York. This is your host, James Nelson.

I hope you all are doing well.

And if you did not catch last show on Phase three and beyond and about getting back to business, definitely check it out on iTunes, Spotify, iHeartRadio or wherever you get your podcast. We had a great panel discussion with my friend Ofer Yur Denny and Jessica Walker and Mike Keough. So definitely check that out for today's show. Have a incredible guest with us, Paul Taty, three time Olympic rower. I've heard him speak to our company. It was the first time I was introduced to him and have developed a real friendship. And he's got such an incredible story of what it takes to succeed in life and in business. And and he's going to talk about not only his rowing career, but then his time working his way from the ground up at Normandy Real Estate Partners, which has been acquired by Columbia Property Trust. They're working on some of the most exciting office development projects in New York. And then afterwards we're going to have a panel discussion with Josh Simon from EBI as well as Jeff Carlton from Carlton Energy Consulting. They're going to be talking about all the due diligence and things that you need to know before you buy property. So we're going to take a brief word from our sponsors but just want to thank you all again before we do for spreading the word, telling your friends about the show and please keep those comments and reviews coming. I really, really appreciate it. Cannot thank you enough for them. So let's continue to spread the word and want to help you all be as successful as possible building your own portfolio. There's certainly to look back at this time as a moment when great fortunes were made. So appreciate again all the support. We're going to have a brief word from our sponsor and we'll be right back with that interview with Paul. Thank you.

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And now it's time for our investor spotlight. And so happy today to have with me my friend Paul Tate, who is senior Vice president of Asset management and leasing for Columbia Property Trust, formerly partner at Normandy Real Estate Partners. They sold their company earlier this year, the asset management platform for $100 million to Columbia. Paul has an incredible story that he's been kind enough not only to share with my company, but also at the Real Estate Board's annual holiday lunch. Really powerful. I know you all will get a tremendous amount out of this. So Paul, thank you so much for joining us today.

Absolutely. Happy to be with you, even virtually.

Yes. So Paul, I've heard your story and growing up from Philly and were you the youngest of 10 or were you somewhere in the middle? I'm trying to remember.

I'm the youngest of 10 and my father's also the youngest of 10. So I think of myself as the youngest of 20 in a lot of ways.

Well, just based on that, we can know right off the bat that you're a survivor, you know how to rise to the top. So maybe talk about those early years growing up in the family and if you wouldn't mind sharing some of the stories, I know your family had share of hardship, but also some really incredibly positive things that came out of it. So maybe talk about a little bit about your childhood and kind of lessons learned from it that have propelled you in life.

Sure, sure. Happy to. Thanks, James, and thanks for having me. We've talked a lot about this, both informally and formally, so some of it will sound familiar, but I think I always sort of start the answer to that question with being the youngest of 10 and being sort of thrust into such a big family. You really never do anything alone. I think the first lesson you learn in an informal way is teamwork. Right. And for me, what did that mean? Probably even before I have legitimate memories. That meant when you're the youngest of 10. My parents had a lot of help from my older Siblings, some of whom were already away at college by the time I was born. And so literally, even from the moment that I was being cared for, that was all within my family. And I think as I started going to school and getting older, that may have meant my siblings that were had strong math skills were helping me with my homework or my projects, or it certainly meant for my older brothers in particular and a couple of my sisters as well, their athletic prowess was something that was really helpful to have, not just as a sibling that might be a year apart from you, but in my case, they were almost like aunts and uncles from an age perspective. So literally every part of my life from birth involved interacting with others and learning from others. I think that benefits you not only in recognizing that there are very few things in life that you can achieve alone, or, frankly, they're enjoyable to achieve alone, but I think also it has a humbling characteristic too. Right. And then lastly, I would say that certainly helps develop your social skills. Right. In a family of 10, while teamwork is one thing you learn, you also learn competition. Not necessarily in a formal way, but competition just for some airtime. Right. So let your voice be heard and do it in such a way that when you do get the mic, you have something meaningful to say. So those are all things that have helped me in every aspect of my life. But, yeah, I think that teamwork example is something that I've used academically, athletically, for sure. And then ultimately in the workplace.

I think when you spoke to our company, I think the title of the event was Rowing in the Same Direction. We passed out copies of Boyz Na the Boat. And of course, the importance of being in sync with everyone to accomplish more than you can on your own. So, you know, I'd love to talk a little bit about your rowing career. You have an incredible story there. Talk a little bit about how you got into the sport. You ended up rowing at Princeton, on the national team, and then three Olympics. So how did that all come to pass?

Sure, absolutely. And, you know, it's a natural segue from kind of that teamwork aspect of growing up in a family of 10. A couple of different, I guess, ways that I found the sport of rowing. One is, although we were separated by seven sisters, I have an older brother, my brother Michael, who was also an accomplished athlete. He actually played basketball and rowed in college and then ultimately rode in the Olympics a few times and won lots of medals along the way. So I had that as an example. But, you know, Mike is almost 21 years my senior, believe it or not. So. But I grew up in Philadelphia, as you know, James, and rowing is a relatively popular sport. And this school that, the high school I went to, had a long tradition, rowing tradition. And so I played football and basketball, and then spring of my freshman year in high school, started rowing. And, you know, in a lot of ways, I think being one of 10 kids and kind of learning those lessons of teamwork right out of the gate, in a lot of ways, I think I was sort of predisposed to a sport like rowing that's often referred to as the ultimate team sport. Right. You have to get. Certainly in the U.S. mostly, we row eights. And so you're talking about getting eight athletes to, you know, to row down the course, not just in sync from a technical perspective, but also physiologically, it's a really difficult thing to do. But rowing, for me was the first sport where there was a direct relationship between how hard I worked and how well I did. And so really, you know, we joke. I often joke that I'm not an athlete. I just have really good pain tolerance. And rowing is that sort of fine combination. You have the teamwork aspect, the technical aspect, and then you're basically, you know, how much pain can you take and for how long and. And can you do that with a group of people in a way that's synchronized? Right.

Incredible. Yeah. And I know that hard work and discipline has stuck with you throughout your career. And we were both talking before. We're still early risers and doing whatever it takes to get something done. And for those of you who have not tried rowing, I spent one season in boarding school, and I can attest, and I was a college swimmer, but, I mean, we didn't have anything on those rowers. And if you want to try it, go to one of those rowing machines in the gym and try to go all out for five minutes and then think about doing that for many multiples of that. So incredible. Paul, talk a little bit about perseverance, because right now, these are extraordinarily difficult times. You've been, I'm sure, through a couple downturns, whether it was the 9, 11, the financial crisis. Now, Covid. But, you know, you're being able to compete over a long period of time. I mean, three Olympics, and you're talking about, you know, the time leading up to that as well. How are you able to stay on top, not just physically, but mentally, to kind of get through? I'm sure there was. You know, Even to make an Olympic team once is an incredible once in a lifetime feat. But to have that longevity, talk a little bit about that and maybe some lessons learned there that can help some of our listeners get through these challenging times.

Sure, sure, James, I'm going to kind of answer that question in the context of the two topics that we've already discussed, right? Both family and athletics, because I think they're both applicable. One story I know you've heard me tell, but on the family front, I think perseverance and getting through difficult periods and having long term goals, right? There's a lot of relationship there. You have to, first you got to take. You don't just jump up all the steps at once, right? You got to sort of take one step at a time. And I think if you don't have that long term goal, it's difficult to set the near term goal. So in the context of rowing, if my long term goal was to make the Olympic team, I might have a thousand practices left to go. And so there was an element of making sure I'm tracking and monitoring my own improvement. And that's something that I think we do the same thing professionally. And then there's also an element of competition, making sure that as you're making your own personal improvements, you can then apply those improvements to how you're competing against others, in our case in the marketplace and in the case of athletics with selection or wins and losses or races. But I wanted to go back a little bit to the family aspect. One story I often tell, back when I was, I guess probably in, I don't know, seventh, eighth, ninth grade, over that maybe couple year, two or three year period, my mother was diagnosed with colon cancer. As you can imagine, I'm the youngest in the family, so I probably require the heaviest lift at that point. Several of my siblings were already, like I said, by that point, through college and onto their adult lives. There are a few of us that were still home in the house. And my oldest sister, Mary Grace, who at that time was married with two young children and, you know, starting a family of her own, actually made the decision to move back to our house, at least during the week and primarily, and I didn't realize this at the time, but primarily to take care of me as my mom was in the hospital going through a really, really difficult bout and journey. And certainly that required its own level of perseverance. And my father was either working or with my mom. And so at the time when it happened, I looked at my sister Mary Grace as kind of another person telling me what to do. And I don't know exactly how long that period lasted, but I do have this memory of it hitting me kind of all at once that she wasn't there to tell me what to do. She was there to help my mother get through this difficult period and really to take care of me. Right. To be a resource for me and to help me get through my adolescence. Right. And in such a way that it wasn't, you know, hampered by what my parents were dealing with. And I'm certain that my mom didn't ask my sister to do that. I think that was something that was inherent in our family, to kind of plug in and help where you could. And I'm identifying Mary Grace, but really everybody was pitching in. And I think from the moment that I had that realization until today, I reflect on that all the time. Because you mentioned perseverance. Right. Okay. As for my mother at that time, that meant getting through this bout with cancer, which she did. And she lived. She actually passed away about nine months ago, but she lived the next 30 some odd years of her life and experienced so many things and contributed in so many ways. But it was really, how do I get through this near term goal, I have to beat this thing. But then there was also the near term goal of while I'm beating this, my family needs to continue taking these small steps forward. My son Paul, who whatever I was in seventh or eighth grade at the time, you know, needs to still make sure he's doing his homework every night. He needs to be going to his football, basketball, baseball practices. He needs, you know, get his laundry done and eat breakfast, eat his meals. Right. And my sister saw that and said, okay, if that's one of our short term goals, how do I plug in to be helpful? Right. And wasn't it was, I'm sure, a very difficult thing at that time. And I often ask my brother in law, now my brother in law, Rick, you know, what the heck? What kind of conversation was that? You know, I try to apply it to my own life now. Think about us sort of putting ourselves to the side and focusing on family. But anyway, it was. And then I think once I made that realization, you know, I probably had some of my own near term goals, right. So that when my mom came out of this, which we all believe she would, and she did, and when my parents were around and my other siblings were around that, that I was viewed as contributing, right? Contributing to moving the family forward. And I think all of my siblings felt the same way. So there's no more serious way to consider perseverance and getting through difficult times than when it's truly life or death. And so I think back to that a lot. Not just because when you're dealing with small things, you think back and say, oh, this is really insignificant. But I actually kind of took. I take the other lens and say it's sort of the purest form of seeing perseverance in someone else. Right. When it's truly life or death, what do they do and how do they do it, and how do they behave during difficult circumstances? And my mom was someone who, when she was going through the most difficult of times, you never knew it. It wasn't what she talked about. She didn't harp on it. And my siblings exhibit a lot of those same characteristics to this day. And so I really. I applied that absolutely every day, every practice, multiple times a day in my athletic life. But I think now. Right. You mentioned, you know, in our world, in the investment world and the real estate investment world, and frankly, in our society, particularly in the US we're experiencing some very difficult times. Right. And so it takes you back to that pure moment to say, okay, how do you get through difficult times, regardless of what they are? For me, that starts with getting a team together. Who are the people that I'm going to put next to me that I'm going to sort of get in the bunker with to get through this difficult time, whatever it may be, Right. And what is my behavior going to be? Right. Step two, what is my behavior going to be during that difficult time? So that as we persevere, as we get through it, I can kind of look back and say, you know, I feel good about the way I behave during that period. Because if and when we come out of it right, and things settle, folks are going to remember what that behavior was from an investment perspective. I remember maybe 10 or 12 years ago, during the last downturn at one of our. This was back in Normandy, pre Columbia, one of our fund investors, I remember them saying something along the lines of, there's performance and behavior. And sometimes performance from a market perspective can be out of your control. Right. Events happen that you need to deal with, but behavior is in your control. So that second step of perseverance, I think the behavioral part is really, really important. And I try to reflect on it. I mean, right now, during this period, during the COVID period, during the civil unrest that we're experiencing as a country right now, I reflect on it daily. You know, what am I doing? What am I saying? What have I done? And have I said, and how would I like to make, you know, what adjustments do I need to make going forward not just years from now, but tomorrow or this afternoon. So I think that's a really important step. And then the last thing I would say with respect to perseverance, and this applies certainly to my athletic life and professionally now, is some flexibility. Right. James, you were a swimmer and I was a rower and sometimes you have this race plan, right? And I've got, I'm lining up against the whoever, the Germans, the Aussies, whatever it is, right. It's a Team 2000 meter race and maybe my race plan was to have a really solid start and race from the lead, but for whatever reason I find myself admitted into a six minute race and I'm behind. Well, I need to make an adjustment. I can't just say, okay, well this was my race plan and I'm just going to stick to it. Well, you're behind so you need to be able to make an adjustment. And so I think that constant reflection and in some cases it's in an instant, it's in a minute. Like this interview. I didn't know exactly what we were going to talk about today at all. I'm just sort of thinking on the fly, but it really is true. I think the third component of perseverance is being flexible so that you can respond to things that maybe you weren't anticipating. That certainly is true in the business world. It's true every day right now, whether it's thinking about what retailers are going through or what office users are going through, or frankly from a societal perspective, what folks are going through that I maybe went to work with every day for the last 15 years. And I never considered, I thought I was, but I really wasn't. So anyway, I think flexibility, I think teamwork for sure, but I think flexibility is really important with respect to perseverance as well.

Thank you so much for sharing all that, especially that personal story and just so powerful and a lot of lessons learned there. And I think goal setting is so essential for success and having the right mindset. I love what you had to say about being able to control your behavior, your actions. You might not be able to clearly can't control the circumstances. So that really hits home there. So thank you for sharing that. Let's talk a little bit transitioning into real estate. And I know before Normandy you were at 52 transom, so I don't. Maybe you could talk a little bit about how you broke into the business while you were training as an Olympic Athlete. Were you training while you were working a full time job? How did that all happen?

Yeah, absolutely. So my entrance, I don't think any of it'll, any of the answers will surprise you, but my entrance to real estate, something I always had an interest in, but really it started with Normandy. So Normandy was founded by Finn Wentworth and David Welsh back in the early 2000s. And I had a personal relationship with Finn. I'd met him through when he was at Fin, ran an organization called Yankee Nets, which was kind of a holding company of the Yankees, Nets and Devils and created the yes Network and was really just an incredible, is an incredible guy. Anyway, I talked to Finn several times over the course of my training for 2004 Olympics. I always worked. I worked, I graduated from college, I worked at a company called McMaster Carr in their management training program while I was training. And then when I completed that program, I went to work for a smaller consulting firm, still in logistics, 52 transom. That was started by a couple of rowers, actually. And so they understood my time constraints. And then in 044, fall of 04, I got back from. I'd stayed in touch with Finn, who I met a couple years prior, but I got back from the Olympics probably on I guess a Monday, and I went and had dinner with Finn and Dave and a couple of their early investors in Normandy and my now wife, then girlfriend. And we're chatting and I told them that I was interested in getting into the real estate business and my girlfriend and I were considering moving out west. I trained in San Diego for 04 and made some contacts out there and thought there were a couple of opportunities that I was considering. And so long story short is basically Finn said, well, you know, we just started this Normandy thing. It's just a couple of us and we could give you a little baptism by fire. Why don't you come on for a few weeks, we'll pay you as a consultant, you can learn the business, we can rely on your natural skill set a little bit and just work on what you can work on. And so back In September of 2004, I signed a three week consulting contract. I forget what it was, I forget what the pay was. Exactly. And that for the next 16 years, that remained my only employment contract, by the way.

Just be clear. So you were a sociology major, you had no real estate experience. So they just, you know, they saw your work ethic, they saw your dedication. They said, you know, we're making a bet on Paul, you know, we can teach him that the business so maybe, you know, that's.

That is a romantic way to describe it. I think it was even more elementary than that, that I think it was. We have more work than we have people to do the work. We can't really afford to hire anyone just yet. This kid seems pretty smart and hard working. Why don't we sort of put him at the front desk and see where he can go from there. And some of my partners and I joke that literally myself and there's our current head of property management at Columbia, who was the head of property management at Normandy as well, Steven Smith. Steve and I started. I was an intern, three week intern, whatever you want to call it. And Steve had just come on as a property manager at Continental Plaza in Hackensack. And we were in the basement windowless office. And I, literally, not exaggerating, was sitting at the front desk greeting people as they came in and doing, you know, there's a guy, Yorgi Vlamis, who was an analyst at the time and he needed some help. And so I was just doing whatever came up. And Normandy grew very, very quickly. And as Normandy grew, my aptitude and understanding of our business grew as well. And it was sort of a natural fit. I really never looked back. We obviously never moved to San Diego, and I'm now married with two kids.

A lot of our listeners who are aspiring investors, they want to get in the business. And I've got great things to say about some of the master's programs and the city. But you come in, you don't have that real estate background you learn on the job. Now you're maybe talk a little bit about asset management, leasing. Were you able to learn everything on the job? Or did you ever wish that you went back and you did? I mean, maybe it was learning how to do the analysis or could you truly learn everything on the job?

Yeah, that's a great question, James. And I reflect on it quite often because there's no chance that I would have gotten the same job, you know, even five or six years later, once we were really established, right. And. And so I think it's a bit of a needle in a haystack and perhaps my story is somewhat unique. Although, look, the basic aptitude you have to have, right? So if it's an analytical role, which is kind of how my role started, I was an analyst doing basic underwriting and then learned everything else really on the fly. So I think clearly, if you can get academic training there, you have to have the aptitude first. If you can get the academic Training, that's great and that's sort of, I think, the clearest path. However, there are a lot of things that you're not really going to learn or get an appreciation for until you get on the job. Right. And so I think we talk about this often. In fact, we're talking about it right now as it relates to our diversity programs and our hiring practices. People that can get these internships have such a leg up when it comes to gaining full time employment, particularly after college. And oftentimes internships are based on personal relationships. Not unlike my personal relationship with Ben, which was really lucky. It wasn't a family relationship. He was someone that I met really through rowing. But I think it's something that companies have to work a little harder on and really be focused on. Are we, what are our hiring practices and where does it start? And I think oftentimes it starts with some form of on the job. So you know, my advice and you know, I talk to young people all the time. As you can imagine being one of 10. It starts with my 30 nieces and nephews, but several of whom are in the, in the real estate business now. But also, you know, we talk to people all the time. People were recruiting or people reaching out for advice. And I think getting, getting the academic training is really important, whether it's through some of the fantastic part time programs that you referenced in the city that several of the New York based universities have, or folks that we hire a lot of people coming out of grad school, those are all fantastic. But I do think on the job learning is critically important and you don't really know what you have until you see someone perform in the workplace. And again, all those things, right. It's not just what is their work, what is their analytical output, but I think it's what's their behavior. We work long hours in very challenging circumstances with a lot of pressure and I don't think you really get a handle on that until you see someone under pressure. In my case, there's no question that my rowing, my athletic background provided folks a little bit of insight into at the very least, can I work in a team and do I have a high pain tolerance, both of which are necessary to be successful in real estate, but you know, and do that under pressure. So I think my story is somewhat unique. But there are other ways I think to display those characteristics that folks can employ. And in the end I do think that that on the job training, on the job experience, seeing how the business works and how folks interact is really Important.

Really great points. They are very helpful to our listeners. And unfortunately, we only have a couple minutes left, so not to condense and go to the end of the movies. So Normandy, incredibly successful, builds out this incredible portfolio, then sells to Columbia. So now you're part of one of the most active REITs that's out there and have a hand now in New York in some of the most exciting office projects. So whether it's terminal stores or 799 Broadway or the 250 church that we sold you last year that you're now calling 101Franklin, but maybe talk a little bit about what you all are doing in the office space. I know you guys have made a big bet on New York. There's now a lot of uncertainty out there. Do people work from home? Is this the end of the cities? Sorry to limit your answer to a couple minutes, but just because you are involved in some of these high profile projects, would love to get your thoughts there.

No problem. Yeah, I can jump right into it. First of all, with respect to the. The acquisition and merger between Normandy and Columbia, I think it was all about the people and their skill sets. So, you know, Columbia has one of the best portfolios, I think, of any gateway office REIT for sure. And what they bolted on with the acquisition of Normandy is really the skill set to take that next step into everything from property management, which they were already doing some of, but development, redevelopment and asset managing, those types of projects. And that's really the team that joined. And it applies directly to those investments that you named, several of which, by the way, were already partnerships between Normandy and Columbia. The acquisition was really the next step of the partnerships that we had on 799 Broadway, on 101 Franklin, as you mentioned, and on Terminal Warehouse, which Columbia is also an investor in. In all those cases, it was about bringing these two teams and skill sets together so that we can help these assets develop the right asset first, develop the right environment first, and then ultimately manage it to a successful outcome. And right now, the challenges that you're referencing as they relate to COVID 19 crisis and even people taking a fresh look at how do we reenter the workforce in a way that is safe and healthy. And look, at the end of the day, these are businesses, they want to promote productivity. And so I think there was no better time. We closed our acquisition on January 24, I think it was. And the world changed less than a month later. Right end of February, early March, and thank goodness, and we say it every day in our Meetings that we brought these skill sets to bear because our operations, property management, development, asset management professionals have never been busier. And what are we busy on? We're busy on making sure that our projects meet the needs of the workforce. Everything that I talked about today, everything from teamwork to perseverance to behavioral focus and interaction, all of it requires people to be together. And I think productivity in general requires people to be together. Technology is fantastic. It's a fantastic tool. Being able to get together virtually is great. But in the end, our culture at Columbia, and I think the tenants that we have some of the most dynamic names in technology and financial services, you name it, a lot of their success is based on their culture. And that culture is formed in the workplace and interacting with one another. So we want to do that and promote that in a safe and healthy way in our buildings. And we are working around the clock to come up with creative ways to meet those needs. But in the end, people want to be in the workplace together. Is it every day? Is it at the same times it used to be? Is it at the same distance from one another? Perhaps not. Perhaps some of those things will change. But I think being under one roof and interacting together and really witnessing firsthand people's behavior when you're working on a project together is really important. And we believe in that long term. And we believe in it long term in New York City as well as the other gateway cities where we operate.

Well said. So just to take us out. And you've had so much incredible advice for our listeners. But for someone who's new looking to get into the business, maybe they're an athlete, maybe they were training, they didn't get to have, you know, maybe the internships along the way. What advice would you give them to get into this business and to succeed?

Sure. Well, listen, I think to get into this business, I would say, number one, you have to be aggressive. Whether that means calling James Nelson 50 times before he finally gives you that interview, or if it means, by the way, I have a nephew, I have a nephew who's been badgering you, but I don't think you realize we're related. But whether it's that or really working hard to develop the skills that you think are necessary to be successful, I think in our business, it's a combination and it's a nuance. Right. But it's a combination of analytical skills and social skills that require you to communicate that analysis. So I think working on those two skill sets is really important. And. And then in the end, I think that there's nothing that's going to replace your ability to work hard, experience some pain. You talked about recruiting athletes and one of our colleagues in the business talks about recruiting athletes not just because they know how to work hard and be successful, but because they know how to lose any athlete. I just was addicted to the last dance. I think I watched each episode twice. But what was the takeaway? The takeaway wasn't just hitting the last shot. It was all those challenges that he experienced. Michael Jordan getting crushed by the Pistons multiple years in a row and going back and saying why? Why did I lose? What were my deficiencies and how can I work on them? I think that's really important. So whether it's that you went for your interview and you kind of got shot down, be self reflective. Go back and look at why. Is it because I was deficient in a particular skill or did I not communicate my strengths the appropriate way or did I not connect from a social perspective with the person that was interviewing me? Go back and really reflect on it and make the adjustment. Have a long term goal. Perhaps it's to get the job, perhaps it's to get the promotion. But then make sure that between where you are today and that long term goal, that every day, every practice, every day you're going to the office or sitting in front of your computer, you're taking a step towards that long term goal, regardless of how incremental that step may be.

Awesome. Paul, this has been amazing. Thank you so much for joining us today. Incredible words of wisdom. So we really appreciate it.

Awesome, thank you. Okay, good luck. Thank you.

So 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. Welcome back to Real Estate Investing live from New York. This is your host, James Nelson. And now it is time for our panel discussion. And with us today we're going to be talking about physical due diligence and we're going to be also talking about energy efficiency. And with us today we have Jeff Carlton who is co founder and president of Heat Watch LLC and they monitor technology that controls heating systems. He also co founded Carleton energy consulting in 2012 to help building owners comply with new energy benchmarking. He also has experience on the ownership side having been director of operations for Beech Lane Management. Also with us we have Josh Simon who is vice president of EBI Consulting. He also has experience on the accounting side and he's involved in all aspects of physical due Diligence. So, gentlemen, thanks for joining us today.

Good to be here, James.

Thanks for having us.

Perfect. So let's dive right into it. I gave you all a very quick bio, but, Josh, why don't you start off by telling us kind of the aspects of what you do, kind of the menu, if you will, of services when you go in to work with buyers during their due diligence period.

Sure.

Thanks. Appreciate it. Good to be here, James. So EBI Consulting is a national firm that specializes in really physical due diligence across all major asset types in all domestic geographies. We specialize in property condition and environmental assessments for acquisitions and for financing purposes. And the acquisition side is a little bit unique in the sense that a little different than the financing side. So it just depends on the purpose of what the buyer the lender might be using the reports for. And, you know, that's kind of our forte. We've been around 30 years. We founded in 1989. And I would say the property condition assessments and the environmental assessments are what we do best. I don't know if this.

No, that's perfect. Thank you.

Short version.

Absolutely. Jeff, maybe if I could ask you the same question, maybe just because I know you have two different businesses, maybe you could talk a little bit more about what each of those businesses do.

Sure. Thanks.

And James, thank you again for having me. Yeah. So I started in real estate, working for a large landlord. And long story short, I realized that I would walk into buildings in the middle of the winter and it would be 80, 85 degrees inside apartments. I realized that there was a need to drop utility costs and prevent excessive heating in real estate properties. And I co founded heatwatch, which builds technology to essentially drop heating costs for building owners by preventing overheating, basically putting in wireless systems to tell the boiler whether to turn on or off. As the city became more focused on dropping greenhouse gas emissions and came up with benchmarking and auditing requirements, we started Carleton Energy Consulting to help landlords comply with those regulations while actually helping them reduce their energy costs. So both businesses focus on running more efficient properties for building owners who may not have that expertise and follow up to do that.

Perfect. Okay, so most of our listeners are either experienced investors or aspiring investors. And so this show really teaches them not only how to invest properties, but to operate in them. And I want to talk about how you all get involved up front. Josh, when do you typically get that call from the buyer and. And what services are you performing before someone either signs a contract, goes hard on a Contract. I know you also mentioned you work closely with the banks, but what would the typical services be that you would provide and maybe you can tell us a little bit more about them.

Sure.

So yeah, generally we're a due diligence firm, so I'd like to call us a physical due diligence firm. So prior to hopefully going full deposit down and hard on the deal, we're coming in on the front end generally to assess the property in the sense of any deficiencies, any capital needs from a structural standpoint, hence the property condition assessment, which tends to be more architectural engineering look at the building by a generalist. So we would cover, you know, the roof, the systems and all through the building to kind of come up with, you know, replacement reserve schedule of what needs to go into the building, whether it be, you know, immediate needs, short term needs, or you know, out, you know, 10 to 12 years. We also look at environmental concerns and assessments. Generally it's a phase one, which rolls up to some federal law, protection, the circle law and all appropriate inquiry where you're analyzing, you know, you know, friable material tanks, storage tanks, conversions that, you know, there may be some unknown risk. So at the end of the day, our assessments are done for acquisition or for financing before purchase or taking title of the property to assess the risks.

Perfect. And is it. Usually the two deliverables are the phase one, so that's the environmental piece and maybe you can tell our audience a little bit about what that is and when a phase two might be required. And then the other piece would be the property conditions report, which is all the systems overview which you just discussed.

Right.

Are those really the two deliverables?

Yeah, I mean everybody, there's a wide range between that, but there's a baseline that's through the ASTM standards, which is society of test and measurement. So there's a standard out there and those are baseline methods to analyze. So it's again, the baseline is kind of the lowest level you should be doing. However, there are many buyers, some insurance companies that are very ultra conservative and more risk adverse. They can go and do deep dives prior to their deposit or going hard or their due diligence expires. So they may bring out SWAT teams related to each component of the building. And every component of the building has its own special specialists. So you know, there are mep, there's roof specialists, elevator specialists, boiler specialists, facade specialists. And so, you know, you could start layering, you know, pre purchase, you know, how deep a dive you want to go based on your Risk profile, less risky, more conservative. So it's, you know, it's a wide degree there.

Perfect. Well, I would also imagine that buyers would want to have a good sense of what type of capital improvements would be needed. So I don't know if you cost that out as well, but as someone who's trying to underwrite a deal and try to understand how much work is going to need to go in, I would imagine that'd be very helpful. And, you know, we know that in New York you put down hard deposits. It's as is where is. But in a lot of other states, and I know, again, you're national, that there's a period, you know, a due diligence period where your deposit's soft. And, you know, I'm sure your report can be, you know, used as a discussion piece with the seller to say, well, look, you know, we were, you know, expecting that we had to replace the roof and this and that, but we found out, you know, these other things and also as a baseline for pricing discussion.

Exactly. And you're right on, on that. And, you know, different markets are obviously, there's nuances within each market. You know, obviously you do a great job on the sales front working with sellers. And, you know, generally we're coming in on behalf of buyers to analyze the risk and the reserve schedule. That one, they'll know over the lifetime that they're going to hold this asset, you know, where they're going to have to spend money, when, you know, for whatever the case may be, whether it be facade or ADA or elevators, and when things are coming due. So the property condition assessment does provide that capital assessment, and many times it's used, like you mentioned, to maybe negotiate with the seller. If there's an ability to do that, sometimes it's not there and sometimes they need it for their hold period. And then, you know, other times they may use it for the financing part of it.

Perfect. So, Jeff, how about you? When do you get involved before the purchase? And what I really like, what you had to say, and I saw it in your bio, is, you know, that you were actually able to, when you worked on the ownership side, you were able to bring down those expenses, those energy expenses, by 20, 25%. So I know this show, we spend a lot of time on how do you add value, how do you raise the rents, how do you reposition a building? But your expense piece also, I would imagine you can identify a lot of savings. So do you get involved before purchase and do you work with buyers to advise what they could do to make the building more efficient?

Yes. Sometimes we're involved before purchase just to give what we saw, like an energy walkthrough and, and sort of outline for them how the building is currently performing and recommendations or sometimes it's right after purchase either or with all this increased regulation, there are some benefits as far as the energy requirements. One of them is called EPA Portfolio Manager, which is a government run program that essentially compares all buildings of similar use and size and gives them a score from 1 to 100. So that's been, that's usually a good starting point to let an owner or potential buyer know where they stand. If the building has an energy score, if it has a score of a 10 or a 20, it's running really poorly. If it's got an energy score of above 75, it's operating efficiently.

So usually we want not to stop you. But does that also have to do with the vintage of the building? Because, because I would imagine New York, for example, I think 75% of our building stock is over 50 years old. So I would imagine it's probably more challenging for those older buildings to be efficient where if you have a new construction, those buildings will probably run more efficiently. Is that a fair statement?

You'd be surprised sometimes in older buildings with fewer moving parts and fewer pumps and motors and elevators, sometimes the older buildings actually have better energy scores than the newer ones. So it depends and a lot of it has to do with operation of the building. You can have a wonderfully designed building, but if it's run poorly, you'll still see a very poor energy score. So a lot of it has to do with design. But then after it's designed, how is it being operated is really important. And without getting into all the details of how it's operated, there's a few common sense measures that you can look for. If you walk into a building in the summertime and people are wearing sweaters and the air conditioning is blasting, you know you have a pretty good, you don't need to be a rocket scientist to understand you probably have a pretty good controls opportunity to reduce your cost. If you walk in in the winter and people are, you know, in short sleeves and the boiler is running constantly, you may have a good opportunity to reduce, reduce your heating expense.

Perfect. So what other things, what kind of recommendations could you make before someone purchases a property to understand what savings that they could receive if they did implement some of your programs?

Yeah, so I would definitely want to know the energy score of a building in comparison to as buildings as similar as possible. I would definitely want to know if they have some sort of central control system installed in the building or if the super has been there for 20 or 30 years, has everything in his head and runs a building like that where you could take over an asset, this person leaves and there's no protocol for how to operate the building efficiently. If there's no sort of central control of the building, that sort of upgrade can be very, very expensive. So that is something that you would want to budget for if no central BMS building management system exists in a building. Other real common sense measures. You know, you should note the age of the heating system. If it's a boiler, you know you can. If it's 30 years old, you probably don't have a ton of useful life left on it. You definitely want to check for air infiltration, the age of the windows. Windows can be be a very expensive project in the future and air infiltration in a building makes your heating costs, your ongoing costs pretty high. You also definitely want to look at water bills because water has become a very, very large expense for building owners. So you want to get a sense of how much water consumption the building takes on on a quarterly basis.

Awesome. Well guys, we're out of time, but I really appreciate your jumping on the show today and telling our listeners about what they should be thinking about up front when purchasing properties as far as that physical due diligence and the energy consideration. So I know you guys have been great to agree to come back on the show. So we'll look forward to getting further into discussion next time. But thank you again for joining us.

Great.

Thanks James.

Perfect. Once again, this is James Nelson, your host of Real Estate Investing Live from New York. And if you haven't already, please connect with us through our social media channels, James Nelson NYC and tune in next week. Thank you so 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.