42: Eric Brody - No Sleep From Brooklyn!

Welcome. 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 42 of real estate Investing Live from New York. This is your host, James Nelson and we had some fun with this show for you today. I'm entitling it no Sleep from Brooklyn, an homage I guess to the Beastie Boys, although didn't want to use their song title and risk being litigated over. But in all seriousness, have with us my friend Eric Brody from Wonderworks Construction. And he's got a great story about how he learned the construction trade and then how he applied it to the business and developing both for his own account and for others. So you'll learn a ton from this one. Eric is also an avid reader and likes to make a lot of references to a lot of the same books that I appreciate. So I think you all will get a lot out of this. And then after that, I am going to give a recap of the white paper that I just wrote that you can find@aytristateinvestmentsales.com about the comm before the storm. That is the title of the white paper. And one last caveat before we take a quick break from our sponsors and get to that interview. But if you hear wind blowing in the background here, Eric and I recorded this during this huge storm that came up the east coast. But we both maintain power and connectivity. So glad that we could pull this one off. So again we're gonna have a quick word from our sponsors and we'll be right back with that word, that interview with Eric. Thank you.

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And now it's time for our investor spotlight. And with us today, my friend Eric Brody, who is started his construction career in 2003 as an owner's rep and project manager and developer. And after successfully completing 15 projects, Eric met with Joseph Kleinberg, who gave him the opportunity to vertically integrate his business model model by controlling the construction process. Since 2012, WonderWorks has grown tenfold. And as a result, Eric was made a principal of the firm and the coo, where he is responsible for some of the largest projects in the portfolio. Business development, contract negotiations and procurement. I could just say from personal experience, Eric has been a tremendous resource to me over the years, my team, he's got incredible knowledge in the construction world that he applies to his investing. And, and so really thrilled to have you here today with us, Eric.

Thanks a million for having me. And I think it's important that the audience knows that you and I are doing this through tropical storm, tornado, hurricane. And that is just a little tidbit of our commitment to this business.

Amen to that.

Yeah.

So hopefully we keep connection and we don't. Yes. We don't get blown away while we're doing this. But, you know, you've got a great story. I know. Native New Yorker, grew up in Park Slope. And your father was in the business. Right. Very notable New York City architect. So, you know, what was that like growing up? Did you help him out at times? Did you ever go to the office? I assume maybe that that piqued your curiosity in the business.

So, you know, a couple things. First, I always loved this question. Cause everyone's like, oh, when you were a kid, you must have been on the job sites and, and been involved. You're like, first off, you're eight years old, and if you were a dude, a guy, you had add to the hilt, you were more like throwing nails at the wall. And they were like, you know, can you not do that? You know, because we're trying to build here. So the fact of the matter is 100% I was on job sites, but it was more about how can I get away from whatever the hell he's doing to go get into trouble. So we were on job. What do I remember about it? There were these guard dogs that used to be at job site that you used to bring food for, and that's how you got onto the job site. And then the second thing was we had Ford Bronco. So I got into a Ford Bronco, which is coming out in 2021. But my point is, I'm not sure at that age you knew what the future would hold or if subconsciously you were actually learning some items. So I was fully exposed to it. But you're just such a kid, you know, like, I was there. I always had to be there. Construction and development and architecture was a. Not a 9 to 5. So what did I learn? I learned how much my. My father was an entrepreneur, to be. To be honest with you. And that at the time, he. His attitude is the funniest thing about being an entrepreneur. His philosophy of being an entrepreneur was very similar to mine. It was more like, I just don't want to follow your rules. I want to sort of come to the conclusions myself. So I think it's more about willingness to take risks that I learned from him. Less about, hey, this is a architect, you know, running an architectural firm in New York City. And then this is how you build. Because when you learn a little bit about the development process, the architectural side is very different from the construction side, which is different from the development side. You know, there are threads that do pass through, but it's not so specific. So I would never be one of those people. Like, I always knew since I was 4 years old. You know, actually I thought I was going to be a brain surgeon at about seven and maybe 11. That went out the door when I got my first grades back. But the point being, no, I was on site. I was exposed. But I don't think, except it goes subconscious. It really was something that applied to my future.

I love that answer because when I think of most architects, I think of great designers, and I'm sure your father was one of them. But you don't necessarily link architecture with business and business savvy and entrepreneurship. So that's really interesting to hear that your takeaway was not as much about, you know, how to build buildings, but more, you know, how to run a business and how to grow. So I see.

You're a bad. It's funny you say that just so you're aware. So the term architecture is Latin, and it actually stands for master builder. We've somehow changed that, bastardized it to their designer. But the reality was architect, where it came from was that they were supposed to be master builders, sort of the jack of all trades. And I always thought that to be most interesting. And you know, something else that. That. That reminded me. So my father was an artist. When it comes to Architecture. Now he learned the business and I really think that came from my mom, the business side of being an entrepreneur. Because, you know, he did pottery. Just he had to. My. My seventh or eighth eight year old birthday gift, my father drew a shield, a dragon on a shield. Cut it, put some lanyard between it and I had a shield and that was my birthday gift. So he was like the true definition of like an artist. And then his interpretation of the three dimensional world was the art. And I will tell you this. They say that the apple doesn't fall far from the tree. I will tell you, the apple fell so far from the tree, there isn't an artistic bone in my body, but somewhere in there there has to be maybe the art of entrepreneurship. But the reality was anything he touched, he could create art with it. It was actually really interesting. That was definitely anecdotal. It was just so interesting about who he was.

Well, knowing you all too well, I'm sure you'd figure out a way to get that shield. You might not design it, but you'd figure out. So, you know, I don't know if we ever made this connection, but I grew up in Madison and. So I see you're a badger. So you went to uw. And the other thing I probably never told you was my grandfather was one of the contractors who built Randall Stadium. So you might appreciate that, you know, probably spent a couple hours over there, or maybe you were tailgating out in the parking lot for all I know. But what were you studying or not studying while you were at uw?

You know, it's a great story because the reality was growing up in Brooklyn during that time. Now I'm 42, not that you know your audience that's so relevant. We're Talking about the 80s and 90s in New York City. If you were to ask me, did you like New York or did you like Brooklyn? I didn't like it at all. It was rough. You were worried kids were robbing you. You were always. I had four bikes stolen. Two of them. I was actually riding the bike when they were taken from me. I watched my car get broken into, then pull a U turn and pull the wrong way up a Park Slope street and get out. And like, it was a different world, right? So my parents always told me, which, you know, look, you're going to go to college, you're gonna get the hell out of here to go to school, because you've got to see that there's the rest of the country. So now I applied at schools, I'm like, where do I want to go? And I said to myself, what is the biggest rah rah b1 school in this country? Because I want nothing more than the Rodney Dangerfield back to school college experience, coming from a completely ignorant understanding of what that meant. Because in public school, you could be the captain of the football team and absolutely nobody cared, right? Like, you could play sports. You know, you see these images of high school in Brooklyn. No one cared. My guards in my school were cops. You didn't get, you know, a demerit. You got locked up. You know, it just was a different world. So I'm like, where can I go? So I go out and I'm visiting school. My parents thought I wasn't getting in anywhere. You know, I did okay. But, you know, when you look back on it, my parents must have wanted perfection. So I get into Madison, Wisconsin. I go visit. It must have been game day. Everyone's painted, everyone's out, everyone's loving it. I'm like, that's where I want to go, right? And all the rest of my people are like, oh, how did you know about Madison? I literally went experienced. It was like, this is the place for me. Then I found out later it's freezing cold and all this stuff.

I'll ask you if this was in the spring or the fall because you plan in January and you know, the only thing to do out there is ice fishing. So it's very funny.

As it turns out, you're going at like the one day where it's gorgeous out. You think there's people everywhere, women everywhere. Life is good. It turns out that literally was the day. And so when I went to school and I always tell people this, I didn't know yet where I needed to be in the future, which is an impact. If you're really thinking about some of these higher education, going to law school or going to medical school, you sort of had to need to have a path. And I didn't have one actually. My freshman year away from. My parents were super strict. My mother, my grandfather was a World War II veteran and just tough as nails and just a tough mother. My mother was a punctual principal in Brooklyn. In some of the lower income districts we're talking about, just tough people were my parents. So I finally get away from that. I'm in Madison, I've got beer, other things, kids. And I didn't pay attention for the first year. And I didn't do well. And they did. My parents were like, you know, used to be that get grounded they were like, your life. You're just gonna come back and you're gonna finish school. I don't care if you go anywhere. Brooklyn College, Kingsborough, it doesn't matter. So the school said to me, if you don't get a 2.0, you gotta leave. And the reason for this story is, I just want you to know, until you're focused in your mind, it's okay. Like the, the, you know, as the blind Zen master says, we'll see, it's not over yet, for what you can then achieve in the future. So sophomore year, you know, I work my ass off and I wind up with the 2.0. Boom. I did it. You know, I could stay in school. And it's a funny story, but the reality is, it's that summer that I said to myself, you've done so poorly, like, and, you know, you always wanted to be somebody in life. What are you going to do about it? It's not about anyone else. It's about yourself. So from forward, did I do well in school? I did okay. What did I study? Communications. But I got a Bachelor of Science. So if you can imagine the duality of how my brain worked, I had to be in math and science classes. It. But I'm getting a degree in communications. Right. The communications people thought was the movies and the rest of it. No, I went with the stuff that I thought would help me immediately in the future. Every class, argumentation and debate, theory and practice of persuasion, sort of thinking about, what are the classes in which no matter where I go, will assist me in the future. So now my grades aren't good, so the question is like, what are you going to do? You're not going to grad school? So I started starting businesses. It was funny in my. In my seventh grade, my mother said to me, you're going to start a business as what you're doing this summer. So I literally started a messenger business. I had to create a marketing plan and I had to do all these things. So there was already an inkling of it. So I'm like, okay, I'm in college, and these kids start talking about investments, and you talk about financial literacy. And I must have been illiterate. My parents who cared about me, and I learned, but I was like, these young kids are trading stocks. That's incredible. I'm not even there yet. So that summer, I read 18 books on the stock market. I come back with all these ideas to these kids, and they go, what are you talking about? We just ask our stockbroker and we regurgitate the same information. I was like, wait, so none of this was original thought. And I realized if you just applied yourself, you can have original thought and do whatever you want it. So from that point on, I started writing business plans for my future. The first one was I was going to create a tech platform that when you went up to a machine at a gym, you plug in the code and you know what reps and sets that you did in the past. And I was going to make this hardware program. And I was like, oh, this is such a great idea. And someone said to me, but how do you know if it works? And I don't know. He's like, well, every state. And you would know. In Madison, Wisconsin, there's a Small Business Administration that teaches a class on writing a business plan. If you know how to write a business plan, you might know it. The underwriting makes sense for this. And I said, oh, shit. Well, I want to do that. So on Sundays now, this is in college, you talk about Randall Stadium. That was Saturdays, you start at 7am, you're drinking beer. I never made it past the third quarter. I was already passed out in the bleachers. I was going to go home to go to bed. Then the next day, Sunday morning, from 9am to like 4pm, hungover, I would sit in this class. But I was learning something that I wanted to learn. And there's such a big difference when you feel like you're impacting your future. So I started writing a business plan about this tech platform and I realized, dog shit. And that was something that was so important. Everyone has this idea, but until you actually put it down on paper and underwrite it, it really means nothing. So never give so much to an idea and then put everything behind it. You should immediately try to write it out and throw it away because the kernel of what is really there is probably what's relevant. So don't get so hung up. Keep trying. Keep trying. So I kept writing business plans, and my senior year, I finally hit on something. I said, I'm going to open a chain of gyms, right? Didn't look at it as a real estate play, strictly a chain of gyms. So I underwrite the business plan. The capital requirements were huge. But at that time, you don't care. You're a kid, you're like, fuck it, I can raise $10 million. You don't even know what that means. But yeah, sure. So I come back to New York, I become a personal trainer. I work at Equinox. And that sort of is my college experience. There was a lot of partying, a lot of fun, but it also switched my focus to you're going to have to do it on your own. And what are the skills required to leave college in order to execute on any business that you may have in the future. And it was real down and dirty stuff. It was real bottom up business plan. Write out your marketing, write out how you were underwriting it, think about and force yourself to write a 30 page document or a 20 page document on how this is going to work. And can you convince yourself that it's going to work? Because that's what's first and it taught you every facet of business. I didn't go to business school at college. I was, you know, I ran some illegal and legal businesses and colleges but I wasn't writing out what those ideas were. So at the end of the day, Madison, Wisconsin was a fantastic place because it allowed me to explore not only who I was, it also gave me the tools so that in the future when I came back to nyc, I was ready to execute on whatever plan I already had. And that was sort of my college experience. By the way, I've never been back. You probably go home to see the fam. I've never gone back.

Gotta go back. Especially in the summer. It's great. Hopefully we'll be at that point again where we can start traveling again. But you know, I love your story and you know, always looking for new ideas and how to improve and I want to get to this later because I know you're an avid reader and you're always looking to, you know, improve on yourself and I can completely see you reading those 18 books on the stock market and trying to implement them. So no, I'm sure a lot of those skills of not giving up, trying different things and being creative have stuck with you throughout your career. So talk about how you ended up then at the design, the Institute of Design and Construction. So you're a trainer at the Equinox. At some point do you say, hey, I'm going to go back to my family's roots. I want to learn about design construction. Because that really set you on your path, your real estate career. Right?

Yeah. So you always see these corny memes of like a straight line between point A and point B to success. Right. And it's just not true. Right. You know, then you see next to it the looping design into how you got into it. So I leave college and I said I want to open a chain of gym. How Do I do that? I want to go to the best gym in the city. And Equinox was in the process of selling to two health funds, so still owned by the Erico family. And I get in the gym and I'm like, what's the. The lowest barrier to entry? Well, a trainer takes a week and you could be in a gym. So now I'm in the gym. They're like, well, you got to make sales. So I gained all these clients. Now I'm 21 and I'm just. I read Zig Ziglar. I don't know if you know Zig Ziglar. It's like old school sales, right? And write down, I'm going to sell a client on personal training sessions. So then they're like, you know, no one's ever done that. You should manage the trainer. So about three months in, they're like, you're the personal training manager. So Now I'm managing 50 people and I'm by far the youngest. And I'm just like doing what I just learned. Like, here's Zig Ziglar, you know, and this is how I do it, and this is how I walk around and how I talk to people. And then I'm three months after that, I'm like, well, time to do sales. So they let me do sales, start hitting my numbers on sales. I had a whole process, and we still use it today on our marketing campaign. What's the experience of the buyer? I learned that from Zig Ziglar selling memberships in 2001. Then I say to the owners of Equinox, I want to run your gym. And they're like, listen, 21 year old punk, like, you got time? I'm like, I don't have time. I want to run a gym now. And they refused. So I started looking around. I'm like, yeah, you refuse? Well, you know, you're like a cone. I'm gonna go around. They're over floated left, right? Like, you just couldn't stop me. So I wrote a business plan for this guy around the corner to turn his little gym around called the 19th Street Gym. And he goes, okay, put it in writing and make an employment agreement. So I go to the library for employment for dummies. Like, you know, like an employment greeter for dummies. I write it up, he signs it, boom, I'm running a gym. And I'm 22. Running a gym. Cool. At the end of the day, you owed me money. It didn't work out. He eventually had to pay. But the reality was I was working 100 hours a week and I realized it's not the gym that's making the money, it's the owner of the building who put a gym in the retail. You know what, you might as well start getting into real estate. And then if you ever really serious about the gym, business partner with the guy because you have money, let him. Let him or her or it or whatever you died to buy suffer. And you own the building, right? For the appreciated value. So I come to this epiphany and I go to my father. My father says, listen, you know, I'm an architect. You don't design, you don't artistic bone in your body. I'm not going to pay you a penny. So I'm like, cool, I'll start my own business. I'm not worried about it. He goes, but you can sit here and suck all the information out of me. You can meet my clients, you can look at my agreements. You'll be like my slave running around and you'll do everything but design. And I said that's fantastic that. So I'm like, I also need an education. So instead of going back to college, I go to a. It's an associate's degree program in downtown Brooklyn from this guy Mr. Batista called the Institute of Design and Construction, which is now in development. And the classes are incredible, taught by engineers and architects. We're not talking about theory. I heard a lot of Harvard and Princeton, those programs are all about theory. This down and dirty, being a bunch of GED kids learning about construction in New York City, class on zoning, class on the building code. My job was to read the building code. And where else were you just going to sit there and read it if you weren't required to do it? So four nights a week from 6 to 9, I'm in class from 8am So I had to go to class at 5:30. I'm an indentured servant for my father. I'm running for the department of Buildings, lpc, cpc, getting rid of violations, going to job sites, printing plans, whatever slave labor he needed. And on the weekends I'm like, I got to get paid. So I got my broker's license. But here I am already thinking of pieces together. Look how it immersed in the process of construction, development and design. I am. So I realized there's a big gap between the people on land, many of them generational wealth, very wealthy people, they don't want to get down and dirty. And then the ability to actually build and execute a project. There Was a big gap. And I was learning it. I was getting the design side from the architect and what their process is in construction and what their responsibility is, which is not to design your building perfectly and poof, a building there. Then I was learning construction and all the different variables that come along with that. And construction and contracting. The root word is contract. It's all legal. And everyone's talking about, oh, men in the field or women in the field, which is very relevant. But half of it is you've got to structure it appropriately to be able to achieve the goal. So here I am getting the education on construction architecture. I mean, imagine that night I learned about steel. The next morning I go, dad, you know, I got to go down to the dob for you, what jobs you're on that they're erecting steel. So I read a chapter on steel. I go to class for steel. I go to my father, who shows me designs in steel. Then I go to a site and could just stare at steel. You can't get a better education. And that allowed me to fill in the gaps. The next thing you can't learn, which is when the business started, and that is taking risk. At the point I was so young and I was willing to be a leader, I didn't mind the risk. I didn't understand it completely. So now I was at a point as a broker. I was looking for sites. I knew about zoning. I knew about what the cost should be. And I started formulating and trying to find projects. And that that's where the owner rep consulting to development business happened, if you can imagine. I could go to my father's office, meet his clients and say, hey, how did you raise money? Hey, what does your underwriting look like? And they would give it to me. I had access. I had access to a man who was in construction and architecture for 42 years. I had access to a construction school. And you'll find that in our business here in New York. It's so small. Everyone's looking for younger person who they could mentor as long as they really are a hustler, really true to their word. I will do this, and I will then figure it out. I had all of the old school guys willing to help me in any sense of the word, in any way. And many of them did, from, you know, Lou Greco to Spreckelson to Kramer to all these guys who developed today. They were more than willing to give me a seat at the table if I was like, yo, I'll meet you wherever you want. I'd Love to talk about it. Can I see your site? Than whatever it was. And that was sort of how I converted from college to the fitness industry to real estate development. And the last thing is, my father said, don't you ever design? The liability makes no sense. If anything, build and develop. And that was really, you know, what I needed. So my father was intricate player in getting me here, and his greatest gift was saying, I'm not going to give you a penny. You don't know how to draw. And that means they'll figure it out, right? That was how really. That's how we started the Brody Group. And that's when we were. And I was great at getting press at the time Barbara Corcoran was talking about any press is good press. And I would. The New York Post, I'd be like, hey, you know about this? And they were like, what? And then they would quote me. And then, you know, hey, I'm working on this project. What? And they would quote me. I would structure operating agreements that the silent. The partners were all silent with me. And they were like, yeah, we don't want to be in the paper anyway. I was like, good. Boom. So I got a lot of credit for it. And then it started to snowball. And then in 2008, when the market slowed down, I met my now current partner who was a builder. And when oh started the developers work on a fee. You get a fee and you get a promote. But there were no fees, but there were no new projects. I was like, shit, I need a day job. And that's when I met my partner who was like, hey, you know, we're builders and we need developers like yourself. We need venture partners who can execute. Because many builders can't take the leap. Many developers. Developers can't take the leap. And for me, from day one, I straddled development. Construction and architecture was never not connected for me. And at the end, and basically we're going to talk about books, I was reading Machiavelli at the time. And there's something called the effect of truth, which is don't judge a man by his words, judge him by his actions. But Machiavelli said the result of an action so very much, did I get it done or didn't I get it done? And in our world of construction and development, it's not how hard you work. It actually happened. And my mother used to say, did they sign the document? Is the lease sign? Did the check clear? And if you always graded yourself on that, it would help in this type of business. Like for you, you know, until the deal closes, you can be like, I got 100 deals in contract. There's no checks until it closes. You know, so that was sort of the story.

I love the way that you learned by doing. And you know that. That knowledge, I know, has given you a competitive advantage as a developer. So I want to get to your partnership with Joseph and wonderworks and what you. Because I know you guys do third party development or construction, rather you develop for your own account. But had you done a deal on your own before meeting Joseph, you know, and if so, you know, how did you do that first deal? I know you said you had a lot of great mentors, but how did you actually raise the money? Did they put money into your deals? Were they successful? Was your first deal, Was it like a ground up, a conversion maybe? Tell us about one of those earlier deals.

Yeah, yeah. So one of the reasons that Ghost and I had partnered, it was like one plus one equals three. I had done everything on my own and I had developed way before on my own 11 projects. So it's a great question because the question is like, how did you just do it? Right? So I always remember how I did it. So there were. There were a couple things happening at the same time. So I started consulting for people, you know, and not to say that, you know, people always stuck in their lane. There was a management company who owned a bunch of buildings that was not taking advantage of the market that was converting to condos in Carroll Gardens. So there was this guy on Slope Realty, sweetheart. And I'm really tough guy, but me and him got along and I was like, we should develop this asset. I'll convert it for you into condos. Here's the underwriting. Let's do it together. He goes, great, we can do it together. How much you're putting in? So I saved money my whole life. And this is the biggest thing. You have to put your money where your mouth is. There's a risk factor. And I didn't give a shit. And I wasn't married, you know, I didn't have much overhead. I was like done money on the table. Let's go. Right? I want to get in this deal. So that was on 90 90. First place in Carol Gord is where we converted a brownstone into five units. At the time I knew the architect. I wanted to. Right. My father had been working with engineers that I love, who today still call me when they won't pick up your phone. They remember me as a 21 year old kid. Asking a zillion questions. So I knew the MEP engineer, I knew the structural engineer, and I knew enough about how I wanted to bid the project. So the guy already owned the property. The reality is I didn't have to raise money. I had to give him money for him to trust me to execute the project. So that was the first one. The first project that I developed where I found it was, I was a broker and someone sends in a listing for a two family project in Prospect Heights. Buy this two family, renovate it, maybe you can sell or live there. And I go to the to look at the tax lots and I see this isn't a two family. This is a 25 by 158 square foot lot in R6B. I was like, this is the development. This is an 8 family. I'm like sitting there and I divide the floor area by the purchase price. And I'm like, these people completely got it wrong. This was a, you know what a Sam Zell had said? It's like an inefficiency in the market. Sound, the inefficiency was running around like, oh shit, we got something here. So I go, I go to one of my father's clients who owned food markets and I'm like, yo, I want you to partner with me on it. So he's like, okay, well how much can you put in? And I want you to know, historically developers want a disproportionate amount. I put in $10, but I want 50% of the project. Well, my first project, I put in $10 and I got $10. No one was giving me anything because they were like, who are you and who gives a shit? So I said, fine, give me the press. I'm gonna do all the work, right? And you're right, I'm gonna get played on this, right, Because I'm not gonna make the money. But to me, the experience was more important. So then I went to a. So I find we had enough to go into contract with the guy. We're not talking about much. It was 455,000. So it's 45,000 going to contract. I probably had 20 grand. So now I'm in the deal at risk. I had the architect. My father was the architect. The bank I met through a debt equity broker. I couldn't believe it. There's these guys who are responsible for going out there to get you financing. And I was like, wait, they're going to do it for me. And they introduced me to this little bank that turned out to be one of the most credible banks in New York. And if you work with them, you never have to work with you worry about working with anyone else. They will always find you credible because they're so tough. It's M and T bank. And M and T bank said, hey, you're going to sign this recourse. I don't give a shit what I'm going to sign if you're going to give me the money, you know, it doesn't matter. I didn't even know what that liability meant. It didn't matter. We demoed the project, you know, we did a eight unit project, it was successful, I paid them back and that's it. You take that risk. Once you learn the process itself and you can, then you blast off from there. So how do you know, how did I raise money? I found a guy that was already in the game on one and owned assets and on the other one, a guy who was dabbling in real estate, who wanted to develop. And to this date, I want you to know that the first hundred thousand dollar raise will be harder than the twelve million dollar raise. It's the biggest lift you're going to do to get that inertia. So just be prepared for everyone and their mother to tell you no. And then how do you counteract that? Right? How do you counteract when everyone says no? You don't know, Right? So I would say it's credibility. Credibility is expertise and trustworthiness. Okay? So you got to think about it. New York has the money, they own the buildings, they own the land of these institutions. But they don't like getting dirty. So how can you provide value to them? Everyone hated construction. It was a dirty game. No one wanted to be in it. And if you recall, in 85 and 87 is when the RICO laws and Giuliani was there where they busted every concrete company for being a mop front. So no one ever thought it was dirty. And here I am like, well, I grew up in Brooklyn, I can talk to anybody, whether it's the guy who owns the land or, you know, the, the guy taking out the truck, it didn't matter to me, I didn't care. So I was able to bridge that gap and bring that value to people who were like, well, I don't want to get dirty with it. Well, I didn't care. I was running in suits, pumping out foundations, you know, in the middle of winter I was in a suit because I'm at a bank. And then two minutes later I needed to be on the site. So I was the doer of it all. And that was sort of the gap that I bridged. And then we kept, you know, growing from there, but really was finding that niche, you know, that construction everyone hated. And I gotta tell you, it's a rough business, but when you don't know enough and then you get deep enough, like all these perceived problems, you don't care because it's just in your DNA at this point.

You said so many good things there. And I love how you did that first deal without even making a promote. It's all about the experience, getting the credibility and your reputation is everything. And, you know, I have no doubt that's what's helped propel Wonderworks. So talk about. I mean, I know you guys have again, as third party GCs, have built some of the, you know, the largest residential projects out there. You built the ustine, if I'm not mistaken, out in Brooklyn. I mean, that was what over.

Oh, it's the ustin. The usin with the two dots.

But that was, I mean, that was a big job. What was that about $100 million worth of. I mean, I know it was a large $165 million. Yeah. So how do you, I mean, do you spend your time on the actual GC work? Do you, you know, spend time on your own account for development? Maybe talk a little bit about how, you.

Know, first and foremost, I just want to tell you how Joseph and I. It's like Voltron came together and made something else, right? Joseph had come to this country from Eastern Europe, you know, was over educated as an engineer, but knows he has to make money. So becomes a carpenter, literally with his hand. Then he's super smart. So he starts getting involved. So there's a big difference in being a carpenter and in the business carpentry, right? That's. Those are two separate things. And there's a book called the E Myth Revisited that talks about it. Being a good doctor does not mean you're in the good business of being a doctor. You're a great broker, but you also run a business of brokers. Those were two different roles. That's not, you know, how you grind for yourself and then how you teach others to run a successful company. So it's separate. So Joseph became also a very good businessman in construction. Then he started running a lot of carpenters. Then he goes, well, if the carpenter is the quarterback of a building, after the core and shell, I want to learn the core and shell. So he becomes a general contractor. Then he took the leap into development. So he came from carpentry up. I always like to say I was like, I'm a developer. And then realized you need to have control to be able to mitigate risk and that's why you need to build it also. So I learned sort of the same coming top down, so to speak. Even though there's no up or down or right or left. It's just how we got there. So it was a really good team together. And so that was how we came together. And also in 08, when there was no more development, you needed to figure out how you were going to make money. So I got into the construction business, the business of construction. So your next question was the Oosten, right. Which is we are third party builders. So when someone says to me, what's your day job? I build for others. Sometimes those others are me, which about 70% of the portfolio we're building is also on my account. But the reality is we are builders, which is a totally separate business. Construction is a month to month business. Development is a project business. So they're totally separate. Okay. And you have to know them both well in order for it to come together, to see the dichotomy of it all and how it works well together because it's not so simple and there's a lot of risks when you do that. So just to go over to Ooston, so the Houston, I just so you know, the biggest project we had built was 250,000 square foot duct renovation in lower Manhattan Financial district where we had principals called the district. Very successful project with Carl Fisher and Andre Escobar and we partnered with Africa Israel. Now I wasn't a part of the business just yet, but that was what was happening when I was there. The USTEN came in and basically I always call it a game of tennis where everyone else just hit the ball in the net and you were just the last player standing. It wasn't as if you were being aggressive and slamming the ball and winning points. You just stood there long enough for them to need you and were required to use you, you know, which is fine. I don't care how I got it. We've never built 500,000 square feet. It's an eight story building. It's just two city blocks. So I was like, look, I'll break it up to fours. We've done four buildings of this size. I'll create teams that work in those types of structure and that's how we'll build it. So I took it down into bite sizes just like anything and Then I brought it together. The debt on it was someone that in my circles of developing and being connected, knew me, was Fortress, Spencer Garfield. We were cool, we knew each other. She's like, all right, I believe that they're capable of building it. And in addition, the developer put a ton of cash on the side to make everyone comfortable too. So, you know, a bunch of different things. But I will tell you, I'll never build that big unless I'm a principal. It's just not worth the headache and the risk and all the rest of it.

Turned out amazing. So. And I. It was really great how you differentiate. You know, you work as a GC and for the own account and the difference of being a developer. So we only have a couple more minutes left. So I want to maybe talk about some of the favorite projects that you've done for your, you know, for your own account. I mean, I, I've seen some of the stuff you've done. You built a ground up rental building on the East Village in the East Village. And you know, for the cost that you bought the land, and I know you could probably build more efficiently than anyone else there. I mean, you built to an incredible return. I know you just sold a spec townhouse in the Chelsea meatpacking district that went off at close to 20 million bucks. So you've done some really exciting projects. But maybe, you know, maybe talk about kind of the different types of projects that you build today and what would make a good investment for you right now.

Sure. So first and foremost, our trajectory and growth is actually not fat. You've never seen us. And it's, it's a slow growth. We're doing a little more each time because I really believe that you can fizzle out, although on the flip side, maybe you can hit it big. So I always think about development as massive risk, so I try to mitigate that risk as much as possible. But the goal, so you know, is to develop a skyscraper and be able to keep it, whether it's a rental, asset, multifamily, office. And some would say I have done that because I built 21 stories. But to me, I mean like 30, 40, 50 stories one day. And that, that be sort of the pinnacle of where my goals are. So my. One of my favorite deals you had touched on it, which by the way, at the time, I had no idea called a grand slam, which is on East 3rd Street. It's a 33 unit rental building. We were able to build it, lease it up, refinance out 100% of the total development cost, which is unheard of. So that imagine you put the money in, you refi it, you have all your money back, but you still own it and get checks every month. The return is myself. Infinite return. And I said to myself, you know, the wealthiest people that I know are holding the real estate. They hold it. They create these portfolios, which is, you know, not that I'm religious or not, but if you look in the Bible, the Torah, the Quran, it's the sacrifice you're sacrificing today for this future tomorrow. And New York has appreciated. So I was like, cool, I want to do that now. We can question myself now, coronavirus, and hope that it comes back. And it's not a rap. But the reality was, you know, that deal, the construction was complicated. I had a fantastic team. This gentleman, Jeff Gorkman, who used to build nuclear facilities, he was running it. I realized that you should pay for intelligence. And I always say the following. I don't say that we build less expensive on our account. I say we build the same. But my product will come out better than anyone else's at the same price point, because we can get better supply side issues. We care more about the design. I'm not caught up in the detail. So at the same price as anyone else, my product will be better. Not that it's cheaper because insurance is ridiculous. And you pay for intelligence, and that's a fact. So not that I'm paying more, I pay the same, but I'm paying for intelligence. I worked with the people who just, just, just in it for corruption, racketeering, and just making money and robbing you. And it. There's no value in it, even though their numbers are the cheapest. And it's a different paradigm. So I love these third street with the gift that keeps on giving. I love developing these rentals and making them work. I love that we are able to create a community of investors that we pool money. And that's how we raise capital. We don't raise capital, really from these massive funds from individuals. And that means something to me because everyone always said, you know, don't get your family and friends involved. You know it. All we care is beef. Well, to me, this is the real world, and my life is real. And if I'm not behind me, knowing all of these people that I care about, it helps to motivate me for success. I refuse to fail. So one of my favorite projects, we actually walked with your team, and it's on Mulberry street. It's a 23 unit rental with retail on grade, where again, we're able to build the building, stabilize it, refinance it, and keep it. So I'm really excited about that project. Currently we have a building in Greenpoint on the water. On the effing water in Greenpoint. Because I was able to create a joint venture with a family. Because you. What you see is what you get. I am going to get this done. I'm going to put everything that I am in it. This building will exist. And as I was saying, the Machiavellian truth is that is what I do. I'm only working each day to be a better builder and developer. I never say stagnant. So that's going to be 80 units on the waterfront, views of the city. I'm like, I couldn't believe that, that, that I can be a part of it. And I believe it's going to be a massive success. But I want to be real with you. Not every project works. And in my wildest dream that I ever think I wouldn't make money on something, the townhouse, which is absolutely gorgeous and drop dead gorgeous, hit the market at a time that none of us would know about, you know, at a time when you didn't hope the market would be there and it wasn't. And we suffered there and it is fabulous and it's great. But the end of the day, if I were to grade or look at it as what it was, a success, and it's probably my own issue, like, we didn't make a lot. And when I look to my investors or whatever it is, you know, people really trusted in us. And it will bother me forever that that wasn't a huge success. And then the question is, did you learn from it? Right? I'm not sure I would ever do a single tenant or a single unit asset, you know, some big box. I don't know. I don't. I just think that there's so much risk. If you're wrong, you're just stuck. So that's with. With that one. So we have some fabulous projects. And I gotta tell you, my theory is, is not that each project is supposed to be a masterpiece. Like when you think about classic music, the people that you know is because they were prolific. I want to keep pumping out and keep producing project after project. And then we can look back and say which one was incredible or not. Because you get better by doing. Not by saying like, this is it, this is the masterpiece. Because I have a feeling everyone that you consider a master was about being prolific, not about creating the masterpiece here. Because when you do that, you're too much vested, you're not making the correct decisions and you can fail in this city doing it that way. Now you asked me.

No, I really. You're sharing, you know, your success, but also your challenges. And a lot of people, I mean, you definitely did get real with us. So I really appreciate that. And you know, sometimes it's timing too, and you got, you know, that's part of the business. But this has been an incredible conversation. Unfortunately, we only have about a minute or two left. But I want to ask my last question kind of in a different lens. I asked, what advice would you give to an aspiring investor? But maybe let me ask it through the lens because you're such a great student of great authors out there. I mean, if you can draw from some of your favorite books and you've already done that, you know, what advice would you give someone who's looking to get into the game right now?

That, that no matter. The advice I give is simple. No matter if the market is up, the market's down. You've got to just love what you do. Because how are you going to compete with someone who already is capitalized, who's already in the game, who's already been doing it? You've just. There has to be a level of obsession, love. And you know, look, being a human means you have to work. So there's avoidance of having to wake up earlier, the avoidance of having to do things that you don't like, the ego involved. Just slay all that and get to it, right? I'm up at 4:30 in the morning. I'm 42. I'm up at 4:30 in the morning to work out, to abuse my body so that I could be in at 7 o'. Clock. The point is be extraordinary, which is extraordinary. So if normal people do X, you should do Y, and the opportunities will be there. We're always looking, and I'm talking about myself, yourself, for someone who's better than what we were, because we know that that's the first success. And I would say anyone reads a book or any, any monument or any mountain that's in your way, just attack it, go at it like, oh, that book's 800 pages. I was reading textbooks on construction. I was reading textbooks on windows. Why? I didn't know. Like, just, you gotta dive in. And the second you dive in, it's not nearly as deep as your expectation. Because the advice about, like, you know, raise a butler. You know what real advice get into tech and come up with the next Facebook or app. Because if you're gonna come into this business, you are gonna grind it out. That is going to be your life. This will not be the easy road. So as long as you're willing to do that, you know, as Marcus Aurelius, you're asking me some of the books. It's like, you got to be stoic. Do it. Like, what the f. What are we doing here otherwise? Like, how sweet is it when you succeed? If it really did take a decade or two decades, I mean, like, you know, otherwise, I don't know, I. It's just one of these things. It's never going to be easy, it's never fast. And this business is incredible, but it's incredibly complicated and complex and you need to be prepared for that.

That's awesome, Eric. Thank you so much. And I finally met someone who actually gets up earlier in the morning and I love all the energy and everything you're bringing to the table. So it's very fitting, by the way, that we're doing this interview during the midst of this crazy storm out there, because here we are, like you said, just grinding it out. So really appreciate you joining us today.

Yeah. And you know what, listen, I mean, I know you're doing the podcast and I've been around a long time. You've always been, you know, an absolutely fabulous representative of your community. You guys are educated, you're talented, and we consistently work together. And it's a testament because I think what's super important is, you know, you think to yourself today, you can't just be a broker. You've got to add value to the situation. And you know, more than anyone, it wasn't like, let me send you a listing. You're talking about it, you're understanding it. You're understanding it from where my perspective is. And for that is why, you know, all of us, from everyone that you told us has been on this show, wants to be on the show because you've done more than enough for all of us. So for us to be a part of it is like really special and people should, should understand that, that it was always a two way street, you know, and look, I really appreciate it. We're out there, we're looking for deals, keep sending them, and we hope to be here for another. You know, I don't know how long you and I have, but not too long, maybe another 20, 25 years. You know, after that, I would like to be doing something else. Well, it's been, I really Appreciate it.

Yeah, no, great getting to know you over the years. Thank you again for joining us and your kind words and for our audience, I know I speak on behalf of them. Really incredible advice. So this is your host, James Nelson, Real Estate Investing live from New York. We're going to have a quick word from our sponsor and we'll be right back.

Hi everyone. I wanted to make sure that you, you saw the latest white paper that I put out on the market. There's a lot going on out there. You're probably reading a lot of different reports about the impact of COVID and everything going on in the market. But what I really tried to do here is pull together real data from what's going on out in the market right now. And also taking a look back and comparing this to what happened in the correction back in 2009. And so although I know things have been really challenging out there, you look at our second quarter report, Manhattan sales were down 80% from the first quarter. So that's been obviously a real challenge. There's a lot of uncertainty out there in the market as far as when businesses are going to come back. Google's already said they're not coming back for a year. And when there's uncertainty, a lot of investors end up staying on the sidelines. Sellers don't want to sell into a market that is declining. Buyers don't want to catch the following night. And yes, there have been pricing discounts, the transactions that we closed. And again, they've been been fortunate to have a half a dozen of them closed since March. Those deals that were in contract before, we did have to discount prices in some cases 10 to 15%. But that all being said, there might actually be a small window of opportunity if you're a seller. Let me explain. So I surveyed 100 high net worth investors last month and 90% of them told me that they were still looking to invest, but they're looking for bargains, they're looking for opportunities. But they're not seeing much out there because there's very few market clearing sellers, the type of clients we have right now who are saying, look, we understand things are tough, but we're committed to selling. We're talking estates, we're talking about partnership disputes, we're talking about some of the retirees out there who are saying, look, we've had enough, we're packing our bags, we're leaving. Right. So meanwhile, investors are waiting, you know, for these few select opportunities. They're waiting for the distress floodgates to open. Okay, but a Lot of this distress has been been pushed off because you have lenders who have given forbearance. They've given their borrowers an extra three months, six months to catch up. But what happens once that forbearance dries up and the tenants don't come back? So we expect there's going to be a real wave of distress that's going to hit. Last Crisis 2009, 2010, the Special Servicers ramped up. Some of them had as much as $30 billion of workouts. So I had a conversation with Michael Fay, who heads our Asset Resolution Group out of Miami. We work with a lot of special servicers. He said, I mean, this is an incredible stat. He said, within the last 90 days, there's been a 400% increase in the loans on the watch list. And many of these loans will end up in foreclosure over the next couple years. To put everything into perspective, it took three and a half years from 2009 to 2012 to get to these levels, which we are now seeing within 90 days. The special servicer loan balance right now has gone from 5.7 to $18 billion in less than 90 days and went from a total of 297 loans in servicing to over 1800. Okay. New York, which accounts for 7% of all these loans in servicing across the country, is second only to Texas. So there's no doubt that we're going to see a wave of this distress hitting. So for those looking to exit the market, this might seem like a crazy time to sell.

Okay.

But if you consider the landscape you might actually find, there's actually very little competition. We looked at Property idx, which is one of the leading listing platforms here in New York City. And my friend Ash, who founded this, did the stats, and he told me that since March, when Covid broke out, They've only had 148 new listings which have been brought to market for about 300 million. That's half the amount the same period last year where there was 300 listings, 650 million represented. Right now, they only have 195 active listings on the market. So again, very little competition because a lot of these owners take the property off the market. So what's happening is the properties that we do bring to market, and if you saw my video down in the East Village in front of 19 First Avenue, told you, look, we had over a dozen offers within a week. We also have commercial listings out there, 14th Street, 47th Street. We have those were very well received because very little product out there, buyers who are sitting on a lot of capital looking to deploy. So is this a moment in time? You know, I think we're going to be here for a little while. The government is certainly giving some time to borrowers, to the lenders to work things out. Certainly the triple P money that's been put out there, that's going to kind of extend things. So it might end up being a U shaped recovery instead of a V. But again if 2009 is any indication, and the circumstances are very different this go around. And when I interviewed my friend over Yodeni, he was very quick to point out that this is not something that anyone did like the financial crisis in 2009. Right. But the sales figures are actually looking very similar in that, you know, from 07 to 09 sales volume dropped 90% here, first quarter, second quarter down 80%.

Okay.

But what was interesting is after 2009 sales volume doubled in 2010, it doubled again in 2011 and then it doubled again the following year. And by then this is when all the distress started coming out. Reos the banks were selling off but. And the market did recover ultimately to the high in 2015, but it took six years. Okay. So what's interesting though the takeaway on the pricing is if you look at multifamily, which we're getting good interest for cash flowing assets, the values actually decrease from 2017. So although there were quadruple the amount of multi family sales In Manhattan from 2009 to 2010, the price per square foot dropped 12% to 693 a foot. So why is this important? Because if you're thinking about selling your property now and you bring it to market, there's not a lot of competition. You're probably in a better position than if you were to bring it say to market next year or the following year when you're going to be competing with lenders, special servicers who are now looking to unload a lot of this distressed property. So that being said, look, these are very uncertain times and for someone to say look, I think it's better to just cautiously wait again, I certainly couldn't blame you for that. But the last thing I would say is it's very specific to the various asset classes and your own situation, whether, whether it's vacant, whether it's cash flowing. So feel free to reach out to us. We want to be here as a resource. You can find a lot of these resources on aytristateinvestmentsales.com that's where you can find my white paper. Calm before the storm. So that's it for today. Thank you again for everyone's support and please share this with your friends. Thank you.

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