53: Wrestling Deals to the Mat with Matt Pestronk

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 to show number 53 of real estate Investing Live from New York. This is your host, James Nelson. And we have done it. Yes, over 100,000 downloads. Thank you, thank you, thank you everybody. Means so much to me that you all tune in week after week that you've been sharing this program with your friends. Please keep the comments coming. Thank you for subscribing on itunes, Spotify, wherever you get your podcasts. And I also want to thank the good people at Voice America for everything they do to produce this and get the word out. So could not be more excited about this second season and we've got a great lineup of interviews along the way. And the purpose of the show is to teach you how to become a successful real estate investor in any market. And tonight's show is no exception. With us is Matt Pestronk who is part of president and co founder of Post Brothers Apartments. Matt's got an incredible story of starting off a couple apartment units and then parlaying that into thousands of units, ground up construction from Philadelphia and expanding his reach throughout the Mid Atlantic region. So really excited to have him on the show. And so we're going to have a brief word from our sponsor and we'll be right back with that interview.

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And now it's time for our real estate investor spotlight. And today with me is Matt Pestron who is co founder of Post Brothers, a real estate investment, development and management company with singular and unique expertise in urban real estate development. Matt has 20 years of real estate experience and he serves as the president of Post Brothers, Engaged in the sponsorship of Class A multifamily mixed use and retail development projects comprising over 5,000 apartment units and over 300,000 square feet of commercial with a total capitalized cost in excess of $2 billion. Matt shares strategic leadership of the company with his brother Michael and is engaged in asset management, financing and project and capital formation. He has worked in real estate acquisitions and finance for his entire career and previously was a real estate financing exec in New York City prior to forming Post Brothers. He's also very active in the community and serves as the chairman, Jewish Federation Real Estate of Greater Philadelphia and as a trustee of Children's Hospital of Philadelphia as well as the Philadelphia Holocaust remembrance foundation and Beat the Streets in Philly. So Matt, thank you so much for joining us.

Thanks.

So we were just speaking before, we're trying to remember, I think we met at a conference down in Miami. So I know probably been over a decade, but really great to see you. So Matt, tell us, where'd you grow up?

I grew up in Fairfax, Virginia.

Okay.

We referred to it as fun facts, so sarcastically. So it's about where I grew up was about 35 miles from Washington. There's now Metro, meaning what in New York is called the Metro North Metro. Much nearer to where I grew up than it was when I was there. It was an interesting upbringing. I didn't really know anyone in real estate. My parents father's an attorney, mother was a travel entrepreneur and a college professor and they were not really involved in real estate. And I didn't know anyone involved in real estate directly. When I was growing up I wanted to be, I thought I wanted to be a lawyer. So I went to college and majored in history. I also wrestled in college and neither of those things had much of a future for me once I was in college.

Although maybe the wrestling has served you well. You know how to get in and out of deals and you gotta definitely have that scrappiness and that hard work ethic. So I'm sure that stuck with you. So where did you go to school then from there?

Sure. I went to Drexel in Philadelphia. And to your point? Yes, wrestling. I think every real estate development project or every real estate negotiation or complexity is like a wrestling match. You're exhausted when you finish. And second, although I think in negotiating in real estate there are win wins. Second in real estate, there's no second place medal in a match. In most matches anyway, maybe in a tournament. But I was going to go to law school or I wanted to be a lawyer and unfortunately my grades were not matching the ambition of what kind of law school I wanted to go to. So I got an internship in commercial real estate leasing. And that was really exciting, interesting in that it was not the path to success, was not prescriptive at all. The idea of eating what you kill and trying to figure out how to make leasing opportunities out of tenants needing to relocate or selling a building or whatever was really fascinating to me. At the most basic level, if you were coming from a world of writing essays and multiple choice tests and things like that, from a very intensive academic program, which I was, real estate was the exact opposite.

Got it. And what were you doing early on? Were you cold calling? Were you a canvasser? I mean, I think a lot of the office leasing brokers, I mean, it is a tough job. I mean, not to say that investment sales is a walk in the park, but I mean, I see these office leasing brokers on the other side of our floor and they're just, you know, cold calling, getting hung up on. And I know back in the day the thing was trying to sneak into the office building because now we actually have a lot better data. But back then no one knew who the tenants were in the building. And so you had to actually sneak in and try to find out who was in the building. So were you doing some of that canvassing early on?

That is how I started my career exactly doing that. And it was actually in suburban office parks in southern New Jersey, so Cherry Hill, some in downtown Philadelphia as well, which are tall buildings, smaller than New York, but 30, 40, 50 stories. But that was how you did it, was you just walk into the building. It was pre 9 11, really. It was pre 9 11. So there was no really security anywhere. You could just walk in, get to the top floor, and you'd go in with business cards. You'd walk into every space and say, who makes the decisions about leasing office space here? And you definitely were more likely than not subject to be looked upon like the copier salesman that had just come through an hour before. But basically the rule was for 100 tenants that you canvassed in person, maybe you'd get three face to face meetings with the decision maker, and maybe 1 in 10 face to face meetings might lead to a lease. And so it sounds brutal, but that is the barrier to entry in most all of commercial real Estate being able to persevere through a time of not making money, developing entrepreneurial Runway, however you do it, and then people becoming successful by getting people who think that your involvement in a situation can create value versus the 10 other people that might have called them in the past few months offering a similar service. That was how I started. It was really hard.

Yeah. I got to imagine that you got some stories either getting thrown out of the office or, I mean, if you're Talking about a 3% success rate, I.

Mean, that's way less than that just to get a meeting. It was.

So it probably helped you develop some thick skin because I gotta imagine you probably got a lot of rejection and a lot of people hanging up. But I guess you were able to persevere. Were you able to finally get some business and then.

Yeah, yeah. So a couple things. The worst things that would happen to you were pretty much there was always one thing you'd be afraid of, which would be there was some element of security or head maintenance guy in the building. And the manager sure didn't want you taking their tenants, so they'd have somebody. You probably get caught in a taller building after maybe knocking on five doors. The worst thing was getting caught in the fire tower. Basically, if you were in the wrong fire tower, you needed sometimes magnetic access to get out or you'd have to go down 40 stories. And going down 40 stories and being able to walk out wasn't that bad. But I definitely had no less than three times. I was caught in a shorter building in the wrong fire tower for about two or three hours with no cell phone reception, because the cell phones then were one G. I don't even know what they were. And the fire towers had very thick walls, meaning the stair towers. So that was the worst thing that would happen perseverance wise. I didn't think it was that bad. I just come from a very intensive athletics background, and I'd say wrestling in College was about 20 times harder than canvassing and convincing people to allow me to lease their buildings on their behalf or represent them for new space. So I did that for about three years and, as they say, covered my draw the first year. No one else in my recruiting class did it. So I worked for. The first job I worked for was Colliers, an independent Colliers affiliate in Philadelphia. They recruited, I'd say, around 20 people right out of school. It was a big independent company. 20 people right out of school those first three years. I think two are still in brokerage. And so that's kind of and they're pretty successful. I'd like to think if I was doing it still, I would be successful. But it was hard, so I made money. One of my first listing assignments I think about, we build today. I'm a general partner in lots of major development projects with our own capital, outside capital. We're building three $400 million projects regularly now. 20 years ago, my first, maybe 21 years ago, one of my first assignments was leasing office space in the back of a shopping center. It was like a 1500 foot listing and it was a dentist's office, but was, I guess, a dentist who was either so value oriented or maybe so new to the dentistry field or whatever, he couldn't rent storefront space. It was like in the back of a shopping center. But there was adequate parking to service his clientele. Whenever I'm dealing with someone young in the business who works for me, and generally I would say probably not similar to you, James, that you probably wouldn't hire yourself right out of school and I wouldn't hire myself. But I always try to give people analogies about what I was doing when I was 23.

I couldn't agree more. And I love the story and the fact that again, that perseverance and overcoming rejection, I mean, we forget that success in this business is in the single percent range or even in the decimal point range. And so hearing those stories of what you were able to go through to be successful and be one of the few leasing associates who could more than cover your draw, you know, I love hearing those stories. And especially, you know, when I interview a new candidate, I always want to know, what did you do in high school? What did you do to, you know, odd jobs? And I remember we were looking to hire a new position and I said, I want someone who just rolls up their sleeves, their not afraid to do hard work. I want the guy who washed dishes over the summer at the restaurant. I swear to God, the next person I interviewed, he came in, I said, what did you do over the summer? He says, well, you know, I couldn't find a lot of work, so I was a dishwasher and I just started cracking up. But it's, you know, you gotta be willing to do that. There's.

That person will be great.

Okay, so you got a taste of commercial leasing and also, I assume you're still in Philadelphia at this point, which is where the bulk of your portfolio is today. So when did you decide that you wanted to make the shift from brokerage to investing?

The day I knew what investing was I would say so. Remember, I was a history major and I didn't take any classes in college. That would have given me a basic understanding of how the economics of being a landlord, which is not what I call myself, but I was dealing with leasing office buildings and that's what people who own the buildings called themselves. So I just got to know a few of the landlords and just ask them questions about like, how did they get to be in the position they were in, just from the most basic disarming way I could because I really just didn't understand. I didn't understand how someone could save enough money for a down payment on an office building. And again, shows naivete. They of course raised money from investors. And it wasn't like buying a house, which was what my parents told me. The path to wealth was you got to, you got to stop renting as soon as you can out of college and buy something and live in it and that's how you're going to make money. And of course there are lots of ways to build wealth. But anyway, I was trying to relate to these office building landlords and I'd say there's two attributes that I've always relied on to be successful. One is I never quit. Two is I learned really fast. I got a book about real estate investing probably within a month of starting. And after I'd asked the guy, this one landlord, how did you save enough money to buy a building? And he laughed and said, well, I raised money from investors. And I said, what do you mean? I basically went to Borders and found actually it was Peter Linneman's real estate investing textbook, which included a significant portion of how to syndicate money from high net worth individuals. And I was astounded at the fact that basically the premise was if you saw a piece of property and you had an idea of how to make it more valuable, you'd put your plan and your underwriting a piece of paper and you'd show it around to people you knew in your network and you'd get enough money to fund the equity portion of the property, whatever it is, and then you borrow the rest of the money from a bank and you're off to the race. That sure sounds easy, especially if you've never done it before or if you.

Don'T have the contacts. I mean, that can seem very daunting. And I know it's different in some of the markets outside New York, but in New York it's 10% hard. Day one. You gotta close no matter what. And if you don't have this network and for a lot of people, and we've got a lot of listeners to this show who are in college now, think about how they're going to get into the business. Or there's a lot of brokers who listen to the show too, and they might say, well, hey, I think I have the know how I think I can find the opportunity, but I'm not sitting around with a bunch of friends who are worth millions and millions of dollars. And so, you know, how do I take that plunge, not knowing if people will actually invest with me, especially if I haven't done it before? I mean, you know, I'm sure the first. And I'd love to hear about your first investment and I don't know how long it then took you to do that, but.

Oh, it didn't take a week. Didn't take a week, sure.

So a couple years into. So you've been a leasing broker for a couple of years and now are you trying to invest on the side or did you kind of jump full force into it?

Yeah, so one of the most. One of them. I mean, I'm 43 years old now, but I still think of myself as, as all successful people tend to be motivated by a fear of poverty or a fear of not being successful. I still remember starting out like it was yesterday. So I can talk about the abstraction of high real estate finance as well as anyone. But what I do remember, which I think a lot of other people seem to forget who are doing large transactions, is, is the utter daunting nature of how to achieve success. And then what you don't even know. And I'd say had I understood all the things I didn't know, then I would have been more, in one sense, more daunted. But probably if I knew what I didn't know, I could seek the knowledge instead of learning it the very hard way like most people do. So basically what I would say is the single thing that I did that I decided to do, and my brother, who's a couple years younger than me, was working in on the ownership, asset management and acquisition side of real estate. But acquisitions as a young person is not really, as a 24 year old person, you might think doing the deal is cool. It's impossible because you don't know what you're doing. There's so much you have to learn about how to evaluate an investment that's impossible to learn other than actually selling a property as an intermediary or whatever, that there are ways to not be successful. That are as important as ways to be successful. And most important thing that I came to pick up on was become a subject matter expert. So it was kind of ironic. I'd spent my life, I'd spent my limited career leasing office buildings, I'd say into 02, from 99 and office buildings. For a variety of reasons. Multi tenant office buildings don't lend themselves to small, under capitalized, just starting out entrepreneurs. The fundamental reason why is that office buildings have enormous capital requirements. Because if you have an office building in Short Hills, New Jersey with 15 tenants in a really nice high income town and it looks really pretty on a piece of paper, probably two or three of those tenants are going to be needing to move or expand every year. And if you have a limited amount of capital. Just explaining the issue at its most basic level. If you have a limited amount of capital, like you're a 25 year old office leasing broker barely covering a draw and a 30,000 foot, and you raise money from friends and family to buy this say $10 million building and you have a 20,000, 30,000 foot tenant that needs to renew and expand and you need a million dollars, you have a serious problem. Meaning you need to have a lot more capital than those people just starting out need to have. So my brother fortuitously was doing an internship, a co op they call it, at Drexel. He went to Drexel, also working. He was an engineer by background. He's an engineer by background. So he was really on the ownership, construction, development, repositioning, asset side for a development company in Philadelphia. And we both knew that office buildings were not the right starting investment because of what I mentioned, the risk profile of having cash flow disrupted by a tenant leave. And as an office leasing broker, I was a leasing broker. The dot com bubble crashed and 911 happened and the office leasing market was horrible. So I really saw how bad office investments could go when there were no tenants in the market. So we quickly decided that most simplistically, multifamily had the lowest risk profile. So two things. One, we were drawing on experience that we both had of thinking that commercial real estate versus multifamily and specifically office buildings didn't have the appropriate risk profile. Two, I just said something that I think is important, not too risky, not looking to hit it out of the park as a way to make money investing in real estate. That kind of happens on its own when you really understand what you're doing. If you have a 30 unit multifamily building and one or two or three residents move out, you don't really have a huge problem. But if you have a 100,000 foot building and there's 10 tenants but one of them is 30,000ft and they move out, you have a huge problem.

Is that first deal that you bought, how many units was it?

Sure. Well, so actually it's pretty funny. We this sounds to millennials and people much younger than me and you, James, what I'm about to describe might sound like a normal course of business, a normal business decision for somebody to make. But everyone, my family and my friends thought we were doing was absolutely insane. And it turned out to not be a good decision. It turned out to be a learning. It was actually about launching a business, not doing our first deal. So we decided we found some investors that had substantial resources from actually their own real estate business. And one of them was a lawyer and a real estate investor. And they convinced us that they wanted to capitalize an acquisitions platform that is seed a real estate development company. So I left my job as a broker after having achieved success and my brother started that as his first job right out of school. And we didn't have any capital. We were relying on these other people for capital. I think today this may be a much normal course of business where you have a real estate acquisitions platform that's venture capital funded. And it was absolutely ridiculous in terms of a bad arrangement for us. I left a job where I'd spent three years building a pipeline where I could have probably a guaranteed six figure income. And six figures at a minimum in Philadelphia 17 years ago is a huge amount of money. And I said I'm going to be an owner. And then the people that were backing us thought 2003 prices were too high because they hadn't bought anything since the SNL crisis. Needless to say, about six months into that, we called that company Fairmount Real Estate Ventures. We had some other co founders with us, just didn't go anywhere. And we realized we needed to have enough capital to control our own destiny. So at that time I'd gotten to know a number of mortgage brokers and other financial people and realized that a the market was really starting to take off in 04 and that would be a really good opportunity for me to build capital, learn more about investing in real estate and about how to finance our acquisitions. So the first property we bought was a 10 unit building from an estate near Rittenhouse Square in Philadelphia on 17th Street. And sort of three months in we said, this is a 10 unit building. Why are we doing this? We bought it really inexpensively. We thought we were going to buy a lot more in that area. But it turned out that there were no other estate sales of 10 unit buildings in that neighborhood. And there was no way to have scale in a management company at that time. So we had a third general partner in that investment who presented a challenging dynamic. My brother and I really wanted a business we could have control of. So we decided to sell that building. We made about a 30% profit in about a year. So about a 30 IRR, which is good. But we didn't, we weren't particularly grounded in what a great deal was and what a good deal was. We thought they were all going to be 30s. So we took what limited capital we had and decided to focus in a neighborhood where there was a more identifiable opportunity set. And that was northwest Philadelphia. I would say it was some of the more some of the transitional or working class towns in northern New Jersey or in Queens where respectable place to live. A lot of homeowners. But the multifamily stock was disinvested. There's no rent regulation in Philadelphia, although there's been probably a lot of what was naturally occurring affordable housing has been born it up and rent it. So that was what we did for the first couple years from 07 to 10.

And I remember doing some reo work for one of the banks in North Philly. Some of those neighborhoods can get a little rough. And I remember one of the buildings, when I asked my contact to the bank, I said send me a rent roll and this was like a 40 unit building. He says what do you mean a rent roll? He says well we haven't collected rent there for years, you know, good luck. So I know those areas have really changed. So I guess in that three year period were you able to kind of scale up? Because I like what you said, you know, you bought a ten family but it's the same amount of effort in many respects whether you buy a 10 family or 100 units. So by kind of focusing on a neighborhood, were you able to build up enough of a portfolio where there was some kind of economies of scale?

Yeah, well a 10 unit building is worse because you can't even afford a single full time employee or for us and we envision pretty much having the business model that we have today then. But getting back to what we did. Yes. So we were able to buy and gut renovate about four buildings with about 200 units right up to the financial crisis. And keep in mind I was working still full time as a Mortgage broker, really until after the financial crisis. It was really important to me when building a business to be realistic about the entrepreneurial Runway we had in order to get to the point where there was enough fee income from the business to support two people that wanted to live reasonable lifestyles. I think when a lot of people think about becoming real estate owners or developers and they're in a well paid transactional or brokerage role, it's really hard to replicate that income as a shoestring startup real estate owner. It takes a lot. So I mean, I have a 17,000 foot office of 60 employees. In here, everything is great compared to what it was like 10, 15 years ago. But my brother and I have a saying, no one remembers the middle. So the fact is that that period up through the financial crisis, really, I think we did two things to continue to manage the growth of the enterprise, which is where the risk really is the risk. So it was not have excessive payroll burden, meaning I didn't draw a salary for the first seven or eight years, six, seven years of the business at all. Basically I had another job. And as I transitioned out of that job, I started to draw a salary. So we're very careful in that regard. And we built out from the beginning. We took the money that I guess could have been paying me and began to build out a core executive team of the best people we could afford at the expense of paying ourselves, including my brother, who was doing it full time. And so basically, I think that was an important way to grow. And I'd say in 2010, we just decided it was time to go on offense. We closed the first construction loan that any of our relationship banks had done. In January of 10, we closed a $7 million construction loan syndicated with three banks and no one had done one for 16 months. So once we own that property, it's called the Delmar Morris. We've since sold it. We bought it from a bank, all cash. Right before Lehman went out in 08, the world got way worse. We got a construction loan and we were on top of the world because we didn't have any baggage. So it was then we spent 2010 waiting for opportunity and we were poised.

So. And you start doing some ground up as well. So again, and it's interesting how you were able to get investors to come along with you in some of your early deals when you didn't even have a track record. And now you're drawing construction loans from multiple banks. And I didn't hear a part of your story yet where you told me that you had expertise in building, but.

I mean, clearly my brother has all that. Okay, all right, so I guess I do now, too.

So now you're building large scale projects. So, I mean, I love that quote. No one remembers the middle. I mean, going from those 200 units to a portfolio of 5,000 apartments. I mean, at what point did you become institutional, right, where banks, you know, if a bank is going to give you 7 to 8 million dollars, or, you know, 20 or 30 million for that matter, I mean, that's a significant commitment. And not just one bank, but three bankers had to say, yes, we've done our diligence here. This group knows what they're doing and they're going to perform. How did they get the confidence? And how did you parlay that into such a substantial portfolio today?

Sure, I think about some version of what you just asked me all the time, and people ask me that all the time. And the answer is, I think the same way you build a 50 story building one brick at a time. Basically, what we did was we figured out there were not failures in the sense that you see epic failures of development assets, projects gone horribly wrong, written about on the Real Deal or other publications where people are suing each other and everybody's lost the building to the bank. And we didn't have those kinds of things luckily, but there were little setbacks. And so what we basically learned was, and I think this is definitely something that is, it's a fact in real estate ownership and development that's underrelated, that's under appreciated. And it was simple. We noticed that we were not successful consistently when we were trying to do a project that was exponentially larger than anything we'd successfully completed prior. So prior to the great financial crisis, the projects were like 3 to 6 million. Then we tried to do a 20 and we couldn't get, I mean, Lehman going out of business at the same time didn't exactly help our cause. But we tried to do a $20 million project that would have required. Well, at the time you were hoping you'd get a $17 million loan, but we're trying to do a $20 million project and we couldn't get debt financing and it wasn't even an issue of the equity. But we realized, all right, so we did a 3 to 7, 3 to 8. Let's try a 10 next. So then after the financial crisis, the one where I said we got a $7 million loan on the Del Mar, that was the upper limit of total capitalization by cost of apartment House, meaning you're not going to sell the property when it's finished to an institutional anything, a 12 or $13 million property, you're going to sell it to a high net worth type of buyer with private capital who they don't have the ability to do new construction or major redevelopment. So we did. So then we found what would have been our sixth project in the middle of 2010, and it was 12, 13 million, 14 all in. And I remember I went to see our biggest investor and he was a guy who was interesting because a total home run hitter in his own profession and probably 10 years older than me, but much, much, much more liquid. And he'd been counseling patients, Learn what you're doing. Put one foot in front of the other. And so I hope he listens to this and he goes, we bring him this thing. Actually a bank was taking it back because it was just mismanaged through the financial crisis by an owner who stole all the rent instead of paying the mortgage and was pretty short sighted. My partner looks at me and my brother take out all the colorful terms he used because there's some people who are listening to this that know this person. And he basically said, why are you doing this? What is the point? This is unexcited. I'm using the word unexciting to filter what he actually said. He was, you guys have done this already, why do you want to do this? And we're like, oh, because we just want to put one foot in front of the other. We just want to block and tackle. We don't want to be literally. It's what you need to tell investors if you're managing your money. We don't want to take on something that makes us feel like looks overly ambitious. And the execution of the business plan is so much more complicated and larger and more time intensive than anything we've done heretofore. We think there's execution risk. You never want to make your investors feel like you're bringing them into something that is execution risk. And he says, forget all that, you've already done this. Bring me something real. Let's find a project. The world is full of detritus and broken deals. Find a project we can sell, we can buy super cheap. We'll close all cash one day and we're going to buy it, develop it, and sell it to an institutional buyer or refinance it. Meanwhile, my brother is 29 at the time and I'm 33. And there are people who have caught on in the major leagues of real Estate around that age, I think, but not too many or have tipped their toe. So I'm sitting there dumbfounded at what he's telling me and I said, what's too big? And he said, just don't worry about it. So I was, I asked him, well, I ran a few opportunities by him that we were thinking of that we thought we're not up to the task of acquiring these properties. And there was one that we had in mind and I described it to him. It was going to be around. It was an empty loft building. It was in Philadelphia and I think they had a $12 million mortgage on it. And the bank was ready to sell it for five. But then you need to put in another, I don't know, just the cost of that project. Thinking about what happened with the cost, we thought it was going to cost less. We bought it, it wound up costing $3 million more. But long story short, it wound up being a very successful investment. So I was like, we can buy this building for 5 million. We put X into it, then it'll be worth X. He said, show me where it is. So we showed him on a map and I think we had Google Earth. And he's good building, he's like, it's 5 million. I was like, yeah. He goes, go, go to the bank, go see them tomorrow morning, offer them $5 million for it. And the borrower had a personal guarantee. And he said, go settle the borrower's guarantee on their behalf and just tell them you'll close in two days. You didn't have to tell me that twice. I took the car and drove off the lot. So we went and did that. And the building, I think we were all in for around 35 million, 37 million. It's probably worth 60 today, maybe more. We hoped it was worth more, but anyway, so that was a game changer. And then Philadelphia is a small provincial market then I think much has a lot more out of town and institutional capital. Where we started to differentiate ourselves was self performing our own construction as a general contractor, but only for ourselves. We don't do third party work and we did that on that project. The world took notice of that. In terms of what I would call big labor, we certainly didn't have no political view on that type of thing at all. Was not where we were coming from. It was, we can hire whatever subcontractor we want because we're not an existing general contractor with any kind of signatory relationship. We can build this and our hard costs are 40% less than if somebody who were using a third party established general contractor, we just kept going from there through this cooling off of the great financial crisis. We bought four major assets through August of 12 and we were able to buy them all cash or through the end of 12, all cash. Were mostly cash, or we're buying from a special service or a bank and they would hold some paper while we fixed what was wrong until they were ready for development. Those assets were the total square footage of those assets. They were all in need of being gut renovated, whether they were existing apartment buildings or adaptive reuse. About 2 million square feet for an initial purchase price of less than $200 million.

That's amazing.

160 million.

Was this all with this one ultra high net worth who just kept seeding you or at this point point you're bringing in institutional investor.

So it's interesting, we sort of. And you'll appreciate this, I think it was neither of those things. It was. We began to pick up other family offices along the way. And because of our ages at that point I was in my early 30s, my brother even in his earlier 30s or not yet 30, depending on what year, and he's 32 at the end of 12. My peers were not decision makers at the institutional allocation shops, especially if they were a year or two younger and they were 33, 34 when we got in front of the large funds of the world. And I'll use names of people who didn't say no to us because we didn't know them, like say Westwood. But if you think of five other people like that, they weren't interested in investing because we didn't have a track record with the decision makers at all. The decision makers were 10 or 15 years older and they didn't know us. And so that was pretty much the issue. And then as time went on, we sort of never raised capital from organized pools of money because we just built a big network with. We built a network with the family offices that we had backing us. And it came to the point where our view on real estate investing was, is and was very much driven by development. What other people would call build to pour. Except we think we build extra. I know we build extra return in meaning instead of building to the value of an asset because you intend to hold it for the long term, we build in value from the development process. We think we have the best product. We are highly vertically integrated. Beyond being a general contractor, which I can talk about in a minute. And fundamentally there's embedded equity. When we deliver a project, we can generally refinance it and return capital and put long term debt on a property. And sometimes that's not the best choice to make, and sometimes that's not the way you can make the most money. But we quickly became comfortable with generally building with a long term view. And that doesn't always align with every institutional investor. What it generally aligns with almost 100% of the time is the tax strategy of family offices, meaning they're taxable. If you sell a building, they're going to have to pay taxes and they would prefer to, if at all. If it's a good asset, generally they'd like to own it as we would, and continue to reap appreciation of the asset and tax depreciation. So that being said, we're pretty unique in that regard. Family offices can absolutely present their own complexities versus an institutional investment allocator where they've got a billion dollar fund, they've got 20 or 30 investments in it, they've got to invest it in two years, harvest it in five to seven years, and they've got a couple extensions. Those types of investors tend to be relatively similar in their approach, which is fine. The thing with family offices is if you've met a family office, if you've met one family office, you've met one family office, they're all very different. But we found that being generally really entrepreneurial, we don't buy, I don't think we've ever bought a marketed asset. It's not to say that every time we've ever bought a piece of real estate, we've done one thing, pay more than anybody else or pay as much and offer better terms. Generally the things we buy tend to have a lack of conformity to them relative to what a lot of institutional capital sources are looking for when they acquire an asset. We generally don't take zoning risk, we buy a property. But there can be other things not ready for a construction loan. Things like that. In New York, where you do have institutional capital allocators willing to take more risk in a much more liquid market like in New York or San Francisco, having started and done a lot of our projects heretofore in Philadelphia, I think it can be a heavier rope to push uphill, heavier boulder, so to speak. And in northern New Jersey, where we're heavily focused now, I think it's probably more institutionally liquid, but we've just developed a strategy of how do we maximize the real estate and then we figure out the right cap and it's generally worked. But other people have A very different approach, which is this is the capital I have. What can I do with this money? Neither is right or wrong.

Well, I've got to say, if your business plan usually results in refinancing out all the equity upon stabilization, I think there's pretty much any investor out there listening. That's the dream, to own a cash flowing asset. Having pulled out all your equity and having that infinite return. Look, you've got an incredible story. Unfortunately we only have a couple minutes left. So I've got two questions left. And we were talking before, but you mentioned that you're still bullish, you're still out there looking to invest. So I guess the first question would be why at this point given point. And the last question would be what advice would you give to an aspiring investor? So maybe you'll even merge the answer to both. I mean for those. If you're looking to buy for yourself, I would imagine your advice to others listening right now would also be to take advantage of this market now.

Sure. So I think listening, feeling confident in your instincts about what to do is the most important thing when formulating an investment thesis. I can't speak to of course what other people might be thinking and formulating their own investment thesis. I was talking to one of my partners the other day and I said if you want to know my opinion, and he said whose opinion would you be giving me then? So all I can tell you is how I obviously all I can tell you is what I think right now. I think that specific fact pattern is that if you're bearish the real estate market and without capital constraints, meaning if you're investing out of a two to five year vehicle, whatever the asset is, the next two years may be challenging and therefore you might need to go five. And it depends, absent time constraints, I'd be bullish on buying anything right now. I think that specifically where we focus, very high barrier to entry markets East Coast. So Pittsburgh is a market that is interesting to us. The whole New York area, I've never seen it this cheap, this inexpensive. That is from a basis perspective, not talking about cash flow because we've never really been a cash flow driven investor on acquisition. And if somebody is, that's okay, that's a good way to invest. It's just never been our approach. Metrically I've never seen New York at this price for these kinds of assets. So after 9, 11 and after the financial crisis, hotels were not as inexpensive as they are now. It doesn't mean we're going to buy hotels we do not have operational expertise in hotels, but land, multifamily, certain kinds of retailers in these markets. The idea, just having done this for 20 years and having been such a good mortgage broker, I might have caused the financial crisis. Not really. But seriously, having been up close to two of these things, an inch away from the center of the universe in terms of real estate capital and transactions, this one didn't have a two year deterioration of balance sheets coming like the great financial crisis did. Interest rates were zero. And the fact is that I think the drumbeat about New York being down and out now is much louder than during the great financial crisis. But it was pretty loud then. It was like, CNBS is never going to come back. Wall Street's never going to come back. It's all over. That's like a joke. The idea that a young person is not going to come back to New York, young ambitious people are not going to come back to New York or whatever their regional city is. Chicago, Philadelphia to a smaller degree. Although Philadelphia, I think has been more stable than New York right now. The idea that people aren't going to come back, that multifamily is going to stay 20 or 30% vacant, it's absurd. And when you read whatever the vacancies are and people are having to offer these concessions, it's not logical. These concessions people are offering are not particularly logical because there's just not enough people looking for apartments to fill them. So of course they're making the owners race to the bottom. So if you, my advice would be go where other people are scared of and you have intuitive confidence, not parenthetical, not also where you're scared. Like I think about owning a hotel, I would be scared because I have no idea how to operate that. I mean, I think I do, but I don't want to find out that I don't. So I think that my advice to a young person just starting now would be it's going to be hard to get capital, but you're never going. It's probably going to be very challenging to find an entry point similar to the basis available today.

That's fantastic. Well, if that doesn't get people charged up to get out there and start looking to invest, I don't know what else. So, Matt, thank you so much for joining us today. We really appreciate your taking the time. You've got an incredible story.

Well, thanks, Jim.

And this is your host, James Nelson, Real Estate Investing live from New York. We'll have a brief break from our sponsor and we'll be Right back. Thank you. All right. Awesome.

Thank you.

That was fun.

Not too general.

What's that?

I wasn't too general.

No, no, no. I loved. It was great talking about those early deals, and I think for a lot of the listeners, too, they can definitely understand, you know, that 10 family or doing that first deal as to opposed, you know, 5,000 units. And it's awesome. I mean, the fact that you started as a leasing broker and took a chance, I mean, that's really, you know, that's really gonna register with our audience. So I think it's fantastic. I appreciate you doing this, and I'm glad you're bullish on New York. I mean, so am I. So I think this is gonna be the opportunity where we'll be able to, you know, to find you some stuff to do. So I'm gonna keep an eye out, and we can definitely circle up later.

But, yeah, when I heard your podcast, something, the interview you gave, something piqued my interest. So I'll be in touch this afternoon. Good.

Yes. Yeah, let's catch up later. And, Kate, thank you for organizing this and Matt, for your help. And we'll. This will air probably next Tuesday.

Oh, wow.

So, yeah, a week from tomorrow. And we'll send you the links in advance if you want to share with your audience. And, you know, we'll get the word out. And so after it goes out on Voice America, then it gets syndicated on itunes, Spotify, and, like, all over the place. And it's great because once it's there, what I find is people go and listen to one of the episodes, and they kind of listen all the way through. So, you know, we're at, like, 100,000 downloads right now, so we've been getting some great response, and it's been. It's been a lot of fun doing it also. So I think it's really awesome that you kind of give back and give advice to those who are looking to get into this as well.

This has been fun. I really appreciate it.

Awesome. All right, thanks again, everybody. We'll talk soon.

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.

Sa.