7. Lessons Learned from a Conversation with Jeff Ravetz

Welcome.

This is Real Estate Investing Live from New York with James Nelson, the principal and head of Avis & Young's Tri State investment Sales Group. In this program you'll learn about the world of commercial real estate and find out why it is one of the largest investment opportunities in New York and around the world. Now here is your host, James Nelson.

Welcome back everyone to the seventh episode of Real Estate Investing Live from New York. This is your host, James Nelson. And first of all, I want to thank our listeners out there. We have now accumulated over 7,000 downloads.

For our show and so really appreciate the support.

Please keep the comments coming back. Please subscribe to us as well on itunes.

For those of you who are also.

Listening to us on the Voice America network, post your comments and rate us.

It really helps others find the show.

And spread the word. So we've got a great show for you today. We've got my good friend Jeff Ravitz who has an incredible story and then he joins a panel with the founder of my former company, Paul Massey, among others. So should be a great show. Before we get to that, let's get to the Weekend Review powered by the Daily Beat. So in sales to kick things off, Normandy Real Estate Partners and Columbia Property Trust have closed on its acquisition of 250 Church street for $205.5 million. And proud to say that was an Avis and Young sale that we closed. So congratulations to all parties involved. Atlas Capital has separately has entered into a contract to acquire 110 Leroy street from Arthur Leeds for $79.5 million. The commercial building spans 80,000 square feet and is zoned M1. The property benefits from its proximity to St. John's Terminal, which will be the centerpiece of Google's new 1.7 million square foot Hudson Square Campus. In financings, a joint venture led by Vornado Realty Trust has secured an $800 million loan package from Citi, Barclays, Goldman Sachs and BMO Harris Bank. Wow, what a quartet. There to refinance 650 Madison Avenue. The the 10 year interest only loan carries a fixed rate of just under 3.5%. The office tenants include Ralph Lauren, which has 300,000ft, and Memorial Sloan Kettering with another 100,000ft. In leasing news, Target plans to open a new store in Times Square. In 2020, the company signed a 33,000 square foot lease at Tishman Realty's, 233 West 42nd Street. Asking rents are $800 per square foot on the ground floor and $125 per square foot. On the lower level, Target started rolling out smaller format stores in 2016. These stores have an average size of 40,000 square feet and are twice as productive as the company's larger ones. According to the CNBC article, In 2018, Target announced plans to roll out 130 of the smaller shops around the country. This marks its 10th planned location in Manhattan. So for all of you investors out there, take note, you should be looking for spaces that will accommodate Target. Finally, in other news, Jamestown has begun marketing a $50 million fund geared to US individuals offering a minimum investment of only $2,500. Industry giants like Blackstone Group and Starwood have already been raising billions of dollars from individual investors through the sale of a product known as Non Traded Real Estate Investment Trust with minimum investments of 2000, 500 and 5000 respectively. According to the Wall Street Journal, these funds enable small investors to own a piece of hotels, office buildings, shopping centers and other properties typically owned by large institutions and their money managers. And so with that, we will have a brief break from our sponsor and we will be right.

A Different Approach to Putting Our Clients First Avis and Young's Tri State Investment Sales Group sells multifamily office, retail, development and specialty sales throughout the New York metro area. As experienced thought leaders in our industry, our 35 member group is available to help you make informed investment decisions by advising you on your current holdings or identifying new opportunities in the marketplace. Our one unified team is built on an industry unique platform with which promotes unparalleled collaboration and teamwork. We share core values of hard work, integrity and expertise. We put our clients first providing tailor made strategies to achieve superior results. Please Visit us at aytristateinvestmentsales.com and follow us on Twitter, LinkedIn and Instagram amesnelsonnyc to learn more.

Now for our Investor Spotlight segment we have my good friend Jeff Ravitz, founder of Girona Ventures. Jeff is also going to be staying on for later in the show on a panel that we're going to have talking about where you should be looking to invest. Jeff has an incredible story. He has invested virtually all across the US Almost every asset class out there. Jeff really thank you for coming to visit here today. Good. So Jeff, for the audience, maybe you could give us a little background. Where did you grow up? Kind of. What was your first job and your introduction to real estate?

Yeah, I grew up in Long island and my parents dabbled with real estate. They owned what was called Mother Daughters. I don't even know if that term is used anymore. But a mother daughter is a, it's a two story house where often the family would live downstairs and then one of the kids would move in upstairs.

And the in laws family. Right.

So I think we're starting to see that on a much larger scale in like the Bukharian community. But the homes weren't quite as elegant that I'm referring to. So my, my parents bought a few of those and my dad would meet with the plumber and the electrician and all these people in the evening. And so it was interesting to hear about it, but it did not look very attractive because he had an accounting practice during the day and then he'd be running out to meet with these contractors in the evening. And it seemed like very, very hard work and denied him more time for the family. So I was intrigued by the business aspect of it, but I was not intrigued by what it took in terms of his personal labor.

So did he ever have you help out? Did you ever go to any of the jobs? Were you painting or what? Any special skill sets?

Well, I don't know if I had special skill sets, but I would go out, I would stay with them, we'd meet with the contractors, I might mow the lawn or I'd sweep the driveway or they were low level skill sets, but I was there and we'd spend the time, we'd wait. It was good bonding time for me with my father. But I wouldn't say that it was the most gratifying of services and labor and probably other things I would have preferred to do as a kid. At that time I was intrigued by real estate. And so then when I graduated from college, I went into public accounting. I worked for what was Deloitte Haskins and Sells, now known as Deloitte Touche or now known as Deloitte. Right. And so I went on to get my cpa. My father was a practicing accountant, said you must have your cpa. That will give you the foundation to understand business. And so that was kind of the deal we struck. I would go through college, I wouldn't have any substantial bills when I left college, but I had to have a cpa. So I went to work for Deloitte. I got my CPA and then after my 730th day, which in New York you're required to practice accounting for two years in order to qualify for cpa, I left public accounting and I went back to business school. When I graduated from business school, I went to work for Time equities, which is a Substantial real estate investment company in New York.

So. So how did you get connected with them? And at that point, did you already. Did you have some exposure to real estate as an accountant? How did you. What attracted you to the field?

Yeah, it was the rooting that I had that just having been exposed to it. And it was important to me in my career that I have independence. I didn't want to work for a big company. I didn't want to work for a big bureaucrac. I didn't want to be in an environment where I had lots of internal meetings. I wanted to be in a place where I could move according to my own schedule. And I felt like when I was putting in work, it was productive for whatever my goals were. And so I think because I grew up in an environment where my father had clients who they owned restaurants and gas stations, they were immigrants and, you know, really hardworking people, but everything they did, they were proud of. And I think being in big institutional environments is. It's a different source of gratification. It wasn't really what I was looking for. So I wanted to be in the real estate business. I aspired to have my own real estate portfolio. And I had a neighbor who was head of real estate lending for Bank Leomi, and I shared with him what my goals were. And he said, well, I know a number of people in the real estate business who might have some interest in hiring someone at a business school. And he introduced me to some of the real estate titans at the time. Aaron Ziegelman and Arthur Cohen and Phil Polewski and Francis Greenberger. And so I met a number of. Steve Ross actually was part of that. So I met a bunch of these people and I was able to attract a few offers. And I went to work for equities because Francis was kind of a Renaissance person involved in a lot of different industries in addition to real estate, a lot of different outside interests. He had a literary agency, and he had a major art foundation and had a very sophisticated and intriguing look at the world and was not quite as established as some of the other people I mentioned, but clearly was on a track for success. So I thought he would be a great influence on me.

And even back then and today, his portfolio spans around the world, millions and millions of square feet. But back then, I believe he was the original co op king, where he took a lot of these buildings in Brooklyn, rental buildings, converted them to co ops. I mean, thousands of units that he converted. So I don't know if that was what type of projects you were working on for him when you were starting off. But where did he have you focus your attention?

A number of people that were, that would call themselves the co op king at the time. Marty Raines was very prominent. Aaron Ziegelman, Arthur Cohen and Phil Polewski jointly did a number. But Francis had converted 100 buildings. He had converted over 10,000 apartments before I went to work for him. So he wasn't exactly a beginner in the business. He was quite established. And the first, well, the first major project I worked on over there actually we were getting on a plane going to Toronto on a weekly basis.

So he was already investing in Canada when you started looking?

He had not invested yet, but we were looking at a major portfolio. He knew some people that were connected to the Cadillac Fairview portfolio which was available. It was 11,000 apartments. They were selling their entire residential portfolio. We spent a lot of time trying to assemble a bid for those apartments and unfortunately we did not win. Some other, a couple of other buyers, they wound up splitting up the portfolio. So that was the first major project.

But then you were, what was your role in the transaction? Were you underwriting? Were you advising what you should be bidding?

Certainly no position to be advising on something like that. I was fresh out of business school and so I had gone to work there as an associate in the acquisitions and finance department. I was a numbers guy, so I ran the numbers.

But while you were there, you did acquire, you know, several multi family portfolios. Also retail shopping center. I mean, pretty office. I mean you got exposure to a lot of different asset classes.

So when I was there, that's when we started to look into expanding into Texas. So Francis had not invested actively outside of New York State. I don't believe, I can't think of any transactions he did that was outside of New York State at that time. So Texas really became the beginning of his expansion nationwide. And we opened up an office in Dallas and we started to acquire properties in Houston and Dallas and San Antonio.

And so were you spending a lot of your time down in Texas getting, you know, boots on the ground is. Yes.

Yeah.

And what were you, were you looking to make connections there with brokers? Were you finding local partners? What were you doing?

We hired someone. Joe Williams, his name. He ran the Dallas office. He had gone to the Chemical bank training program with Susan Newman, who was running our acquisitions and finance department. Susan is now at M and T Bank. Joe came from a real estate family in Dallas. His father was very, very well connected and so he was a good hire to run The Time equities office as we started to look for other properties and ultimately we would manage them as well through Joe. And so the introductions came fast and furiously. So when I would go down there, we would meet with virtually every seller broker and Joe knew his way around, which I'm a strong believer that you can't be in a new market and just be a new kid on the block and expect to understand a property. You have to understand all the subtleties of a market. And so being with a local, good Southern drawl and that played a lot better than my New York twang.

Got it. So you were at Time equities for a couple of years and then you decided to go off on your own. Was Lighthouse Ventures. That was your next. Was your foray into.

So I was at Time equities for four years and then at that point New York had gone through a pretty significant recession. So that was around 1990. And so I wound up. I was in the acquisitions and finance department. We weren't doing acquisitions and we weren't doing new financings. We were doing a lot of. We were reworking old restructures. Yes, yes. Well, I don't want to use that term. But so. And then. But I was hanging around and started to look for deals around the country. So I was making new contacts with other people. And Joe Williams, the person that ran the Time equities office, he was in a similar situation to mine and we worked together to look for other transactions. And we found a deal in San Antonio that we really liked and we wound up. We put that under contract. And in Texas, unlike New York, which takes a 10% deposit hard on a very high price in Texas at the time, for $25,000 soft, you get a 30 day due diligence. And we could really explore what to do with it.

So what was the purchase price on that?

It was $5.6 million.

Okay. So how much did you borrow on that? And then you had to raise the rest of the money or how did that work?

So it was 190 apartments. We wound up.

That's amazing. 190 apartments for $5 million. That would probably get you maybe, I don't know, maybe you could get 10 apartments here in New York.

So we were able to obtain financing, was about 75% financing. And the rates at that time were right. I think they were in the around seven. The mid sevens. We bought this for a ten cap.

Wow.

And that was kind of the underwriting. That was kind of the rules. We were looking for 10 caps. And so we felt we had a nice spread. So our equity, we had some folks that invested that we knew well, but we also need an institutional investor because we couldn't raise what was 25% of 5.6 million. 1.4 was still a lot more than we had and that our friends and family had. We wound up bringing in Erdang Investments as a pension fund manager out of Philadelphia. Scott Erdang was a professor I had at Wharton.

Even though you all had not partnered before, this was your first investment, your first new venture. Erdang was able to get comfort knowing you as a student, but also seeing your track record. And because again, for many of our listeners out there, they might be at larger real estate shops now, and maybe they've executed on larger transactions, but they've never done one on their own. And so you were able to get enough. There was confidence that you could execute on this.

Well, Time equities had a role in that also, even though I wasn't working for Time equities anymore, Time equities was a partner in that transaction.

Okay, so that's good advice for those listening. It's good to have a. For your first couple investments, to have reputation, history.

Those are all. They were important parts of the underwriting. They are important parts of the underwriting. They will always be.

It probably helped with the getting a loan as well, I would imagine.

Right.

But you didn't have to sign personally back then or. No, I didn't recourse.

You have to sign carve outs. Always bad boy carve outs. So if you do any kind of really egregious act, then they're coming after you. But if you. If you run it honestly and the cash from the property is used to pay the debt service, you're going to be fine.

You buy 190 units for 5.2 million. So what did you do next? Did you do a rehab? And even at a 10 cap, did you think at the time that there was upside?

What was your business plan with San Antonio? We thought that that was a solid market. And we thought with the 10 cap, we were already getting a good yield. We didn't really have to create a lot of value. It was in a good area. There were some minor improvements, but it wasn't a significant value add transaction. We just thought we would run it better than the previous owner.

So how long did you hold it for? What did it end up? You still own it. Wow. Okay. So maybe the better question is, you've refinanced. Have you been able to, to pull your initial equity investment out.

Yes, many times. Been a very successful transaction over time.

That's the American dream, right? To buy an apartment building to add value, refinance, pull your money out. So your return on equity right now is infinite because you. Yeah, yeah.

And we had an institutional investor. So typically institutional investors, they're not looking to tell that story. Story where they're in for decades and they have an.

How did you get them to do that?

So ultimately. So they have. Most institutions have a, say, a five year window. It could be five to seven years. And so after five years, we were, we were in a position where we could refinance the property, give them, buy out their interest, give them a return that was attractive to them and continue to own the property.

Got it.

That's what we do.

So from there you started Lighthouse Real Estate Ventures and now you founded Girona Ventures. So since then you've been involved in a lot of different transactions. What's the one that you're most proud of and why?

So proud is an interesting word.

What was most successful.

But it's important to differentiate. So we've had, I've had some, some transactions with very strong returns. We did a transaction in soho where we bought a property on a ground lease with an option to buy. And we had an astronomical return on it because we were able to rezone the property. And that was an instant value add.

I remember that.

So inside 12 months, we, we did extremely well. We also bought 100 William street, which is a 450,000 square foot property we bought for $45 a foot and then we ultimately sold it for $400 a foot. That turned out to be fantastic.

So is that what we would call a 10x or how did that all.

Yeah, that would be much more than a 10X. Yeah, that had fantastic returns. So those great real estate plays and they had good financial rewards. The transactions that I'm most proud of are what we're doing in Hartford now, because my partner, Joseph Kleinberg and I are really part of the transformation of a city. And the city and the state had targeted downtown Hartford as an area where they want to see people moving back into the city, reviving it. It was always known as the insurance capital of America, but. And then in the late 80s, there was an exodus of some of the insurance companies, but it still had a strong insurance footing. But the residential population had started to move out and a lot of the commercial population. So the state decided that it was going to consolidate state agencies to downtown Hartford. UConn decided it would move several of its campuses to downtown Hartford. And they decided to build a minor league baseball stadium. And so we had heard about a lot of what was really on paper going to occur, hadn't really occurred yet. The state also set up an agency called the Capital Region Development Authority to fund multifamily development downtown. So with all these various platforms, we could see that growth was going to occur. And we wanted to participate in that because that's gratifying, at least gratifying for me as a value add investor. So we wound up acquiring a dilapidated hotel that at one time was the iconic hotel in downtown Hartford. It was called the Sonesta Hotel. There's no one who's middle aged in downtown Hartford that doesn't have some major event in their life that didn't happen. That didn't happen at the Sonesta Hotel. They all have a story. And so as we got more and more involved in the city, we loved hearing those stories. And we were, we actually transformed that property from what was a 300 room hotel to 190 apartments. And after 15 years of being totally vacant, now there are people constantly going into the building. We did an historic restoration which was helpful to us to get historic tax credits that allowed us to capitalize the deal. But people are so proud to see that building. The exterior looks identical to what it looked like in 1962. So we did that. And then as a result of having success there, the city and the state wanted to see us active with other properties. So since then we have been involved with three other properties where two. We did similar transformation. We took two office buildings. One is an historic restoration, one is not. But they were built in the early 60s again, had been vacant for close to 20 years. And we bought them, we're converting them into multi family the city. Everybody you talk to in the city is fully familiar with these properties. They're all excited to see them active again. And so that's been really gratifying to be part of this transformation.

I like how you really, when I first asked the question to clarify, you said most proud or most financially successful. And I really like how you answered the former piece of the question. Because although I tell my brother is a doctor and I tell him, you know George, you save lives for a living. I'm not exactly saving lives as a real estate broker, but it is very gratifying when you walk down the street and you see a project that you were involved with where you transformed a neighborhood. And I think sometimes we forget that and you Know, for you to bring this icon back to life and really energize a community sounds like it was a really exciting thing to be a part of.

Right. But prior to being involved in downtown Hartford, I never had anyone thank us for what we've done. I cannot go to Hartford. We're there once a week. I can't go there without at least one person saying thank you so much for what you've done for downtown Hartford.

Did you get a key to the city?

They seem to allow us in each time, so apparently the door is open. Good.

Wow, that's an incredible story. Maybe you can walk us through the metrics on that transaction now after I've said you did such a great thing for the community. And now Sarah, did you make money on it? I think you said at the time you bought it for how much per foot? And what does it cost to renovate something like that? That transaction for you, you figured that a multi family conversion was the highest and best. How did you think about the economics of the transaction when you were looking at the project?

It wasn't simple. We, we bought it. We bought this beautiful property for half a million dollars. It's 200,000 square feet.

I don't even know if I can do the math on that. What's that per foot?

It's $2.50 a foot.

Wow. So that is 1 20th of what you paid initially for your New York City office building. What you ultimately sold it for probably one, you know, I don't know, 800th or something. Wow. Okay.

So, so. And we still couldn't make the economics work.

They could have given you the building for free and it didn't even make sense because of the cost to renovate and what you could end up with for the rents.

That's right.

So the only way it worked was, and I remember when you gave this case study when you were teaching at NYU about all the incentives and the brownfield credits. Was this something that was new to you? Because again, a lot of our listeners are aspiring first time investors. What you did there was incredibly complicated. Is it the kind of thing that you figured out along the way? Again, I know you've got some great partners.

Yeah, well, the construction aspect we were able to underwrite because my partner owns a significant construction company, WonderWorks, based in New York. The financing that we learned as we went, we spoke to everybody we could to try to figure out how we were going to launch this. And so we found a consultant who helps with putting together government financing. So this fellow's Name was Lou Trichevsky was very helpful to us. The historic tax credits. Lew had introduced us to an architect who said we could get an historic designation on the property. Now, coming from New York, that wasn't necessarily a good thing. That could be a serious burden. And so when we were first told about it, it wasn't just our property that would need the historic designation. We were in a. Basically a plaza. So there are a number of office buildings that are contiguous and attached to the hotel that we converted and they all sit on top of a garage. So initially we were told we had to get the entire complex designated as an historic landmark. And so then I approached our neighbor who owned the other properties, who happened to own an historic property in New York, and I posed this idea and he said, absolutely not. If it has the word historic in it, I have no interest. So we tried to convince them. We showed them the attraction. And there are many attractions about having a historic designation. The historic tax credits can be very lucrative.

And that was beneficial to your investors as well, because you had to then go raise money around this and say, we can deliver this whole package. I'm sure you were.

But that wasn't sufficient. We also, again, I mentioned before the Capital Region Development Authority. So they're an agency that the state had created to invest in multifamily properties and at subsidized rates, they had to be involved. They put in substantial money into the property. And then also we had significant environmental remediation to perform there. So we also received money from the dcd, the Department of Housing. And so we had to cobble all of that together. It was a jigsaw puzzle. Absolutely, a jigsaw puzzle. And then we had to find tax credit buyers for the state tax credits and the federal tax credits. And there are layers on top of that because there are tax issues that arise. So we learned as we went. We wound up assembling a great team of professionals that could advise us and we were able to figure it out.

So when you did that, when all was said and done, and maybe you look at the return on an after tax, if you get all these benefits, but what kind of cap rate were you stabilizing? And once you had it fully rented out, and we call that a return on investment, but when you thought about what you paid for it, everything you had into it, all the benefits, you told your investors, after we do all this, you're going to get this kind of return. Did you have a good sense of where you were going to end up?

Yeah, well, so Trying to filter through all that because there are a couple of layers to it. You get tax credits that takes your equity down from x to say 0.4x. And so the equity is a bit of a moving target. And then you have a yield on what your net equity is. So it's a little hard to answer that. While I don't like an irr, an IRR actually might be more appropriate in analysis.

How do you find opportunities? Actually, it's a good question you're out there looking for. We've talked about off market, on market, when you're buying, where do you find these properties?

A consistent theme through any discussion that I have about what motivates us to pursue a transaction is expertise, knowledge of a particular area or property and a sub market. So we don't really respond to cold calls or just cold mailings. We respond to professionals that have done business with us before and they know what we're looking for. And then they'll call us because they'll assume that we have the expertise to execute a certain kind of transaction. At this point, it's exclusively by referral. So we'll be introduced to a transaction through a previous seller or attorney or a lender. But it's always word of mouth. I don't really respond to cold anything at this point. Right.

So what advice would you give an investor today looking to start off for their first real estate deal? What would you tell them?

Yeah, I would say one, understand what your expertise is and know what you enjoy. So there are people that are interested in the latest trends, retail trends. And so, you know someone that is attracted to that kind of a setting, they'll want to go to the ic, CSC and speak to all the various retailers and be in that environment. Some people are intrigued by design. And so if you like design, development might be for you. For me, my background is in finance and business, so I like a complicated transaction. It makes it, it's more challenging, more interesting, and gives us a, a competitive advantage over those that probably are not as skilled at cobbling together some of these nuanced and complicated financing pieces. So someone that's new to the business, think about what your expertise is. Some people have an experience in construction. Some people are really good with numbers. Some people are really good with design and know what you're attracted to. There are people, people that like to build garden apartments in suburbs and exurbs because they just like to build. And if the numbers work, that's attractive. We've had people bring transactions to us that are in the suburbs and we say that's not for us. We like to be in downtown areas. We want to be in an urban environment because we understand the vibe of that and we feel if we build the right product, we'll have a steady flow of demand.

Jeff, thank you again for being with us. And I know you're going to come right back and we're going to have a great panel. So we're going to take a quick break though before we go. This is James Nelson. I am your host of Real Estate Investing live from New York on the Voice America Network. Please stay with us.

Hi, I'm Mark Rose, global CEO of Avis and Young, the world's fastest growing real estate services firm. And we are proud supporters of Voice America. With over 5,000 professionals in 120 offices in 20 countries, Avis and Young delivers local expertise in partnership with global reach. Because we are principally owned, Avis and Young prioritizes client success over shareholder profits through our open architecture. Our firm's experts provide value added client centric investment, sales, leasing, advisory management and financing services to clients across the office, retail, industrial, multifamily and hospitality sectors. Our culture is the bedrock for collaboration that enables each assignment to benefit from the collective intelligence garnered from a company wide database partnership performance. Learn how we deliver different@avisonyoung.com to learn more.

Welcome back to Real Estate Investing live from New York. This is your host, James Nelson on the Voice America Network. Now for this segment of the show, really thrilled to have a fantastic panel with us. We have Jeff Ravitz, who is founder of Girona Ventures. We have Asher Wenig, one of my colleagues who is head of Netlist Sales for Avis and Young. And last but not least, Paul Massey, who is founder of B6 and who I started my career with over 20 years ago. So welcome gentlemen.

Thank you.

Thanks for having us.

Great.

So as this show is meant to really inform listeners how to go about buying properties, what to consider, we're going to be taking them through step by step every week, what to do and ultimately once they've acquired, then how to operate and improve it. So for this show, and we're still early on in the program, we're going to be talking today about considerations on where to invest. Jeff, let me start with you. You've been in the business for some time and you started with a real estate firm that invested all over the world. You've seen a lot of different markets. You went off on your own, you now invest in different markets. What prompt prompted you to start I guess your business in New York and now you're investing up in Connecticut.

Right. So in deciding where to invest, there's nothing more important than having an expertise, a real thorough knowledge of the nuances of a geographical area. So when you mentioned that I worked for another firm, allowed to mention, of course, yeah, I worked for Time equities back in the late 80s, early 90s, and time equities was New York centric at the time, and then started to consider expanding to other parts of the country. And we started to invest in Texas. But we were very sensitive to the fact that we were New Yorkers and we didn't really understand the subtleties of being in Dallas, being in North Dallas and the like. So it was important to us to engage local expertise. So we wound up having a local office and we replicated that model in other parts of the country. So we did the same thing in California. We would find a local managing agent or a local partner. So we did that in other geographical areas. Later on in my career with two friends, I started Lighthouse Real Estate Ventures and we were investing in office buildings on Long Island. All three of us had grown up on Long Island. Again, it was very important to me and to us to thoroughly understand our geographical area because the deal is made going in. And if you're in the. If you don't understand the nuances of the neighborhoods that you're investing in or the relative strength of the commercial market in the area, you can get hurt just by thinking the structure makes sense. But you'll never be able to rent the space for the appropriate income or the depth of the market isn't great. And when you start to see cycles, and you always see cycles, you won't be as responsive and resilient because you really don't see it coming and you don't understand what your resources are to be able to respond to it. So now in the last nine years, I've been investing in Hartford, Connecticut with a partner of mine, Joseph Kleenberg, who runs Wonderworks. And we didn't seek out Hartford. A deal found us. In effect, it was an inexpensive deal during a time when New York was very expensive. And so that was 2009. And so yields were low in 2009, not as low as 2007 and 2008. But we wound up in Hartford because we went up there and we saw the changes occurring and it was within a two hour drive of New York. And we felt that we spoke to a lot of the locals. We ended up understood what was happening with the Political forces in town and the commercial movement. And we liked what we saw and we started to go up there once a week and really understood it. And once we did one deal, multiple deals started to happen.

Perfect. That's a great intro to the topic. So Asher, you spent your practice advising a lot of investors, many of them having 1031 exchanges, looking for what we call triple net. These are the cvss, the Walgreens of the world. You've seen, I don't know if you've done business in all 50 states, but probably if not very close to that. When you're advising an investor, what are you telling them to look for in a location and how do you best advise them where to go?

You know the net lease market is more is broad. Right. We're investing. It makes up not only your retail locations that you see when you're driving to work or while your kids are driving to school, but it also includes industrial and office. And I think the number one thing to look for is the location within the corridor that specifically tailors to that. The retail corridor, the office park, the industrial park and location to the major thoroughfares, whether it's interstates or just the heavily trafficked roads. You want to look for growing markets, markets where you've seen continuous growth in the community. Not only number of people, but you also want to see an upward trend in the businesses in those areas as well as the average income.

Not to stop you there, but where do you find that information?

There's a number of the certus doing that. You have esri, which is another online platform where you're able to find that information. Demographics, demographics, traffic counts. And it's very important when we're talking about these things. It's the interchangeable access, the ability to go into it and get out of it. So if it's an office, it's how close is it to the interstate to get those people who are more than just five miles away, but 10 miles, 15, 30 miles because people do drive that far to go to their work. For industrial, it's the ability to be able to again be close to those interstates so you can get to more people. Last mile distribution facilities go as far as 50 miles if not longer to get those Amazon packages to people Retail. It's really about those major thoroughfares where there's good traffic counts on the way to either your work or on the way home from work, as well as on your way to the kid's school. I mean that's usually when people go to pharmacies on their way home from work to pick up their kid from school. That's really an important thing when looking at location. And that could be in a secondary, tertiary, or even a primary market.

Perfect. Thank you, Paul. While Asher is advising buyers, whether or not maybe to look at Dallas versus Houston versus Miami, you built your business focus just here in New York City and did something that really hadn't been done before, at least not throughout New York City, which was to build out this territory system. When new buyers are coming to your office, and this is how you're organized today at B6, where are you telling them to invest their money?

Well, James, you. You were part of it all in the early days. So, you know, we represented people selling their buildings. So we were a commercial broker. And way back when we started at CB Richard Ellis, they were very focused geographically. They wanted local market expertise, and they wanted that for all the right reasons. Because as a broker, you want to prospect. And if you're prospecting in a. A focused area, people are going to get to know you. You're going to become a household name. You're going to be someone there that the people who invest in the area are going to rely on. It's also a competitive business. So we compete for a lot of the business we got. So when we knew a territory better than anybody else, we tend to win more business. And then it comes to execution. So ultimately, people want to break records. They want to sell buildings at prices that are on the high side or historically high. So if you've got the expertise to look a buyer in the face and say you're going to break a record by buying this property, but it's okay because the trend lines are good and the market's going to support what you do, you're in a great spot.

What's the kind of research? Because I remember back in the day, we had a territory checkout where we actually had to study the. The neighborhood. We were going door to door taking photos. This was before Google Maps and you could pull everything up at your desk, but we were literally putting a physical paper catalog together and learning the neighborhood. But what other kinds of things are your agents looking for to get to know a neighborhood? Because I would imagine for an astute investor, someone who wants to buy into a neighborhood should probably be researching the same kind of things.

Yeah, if you think about it, There are about 100 variables for each commercial property, including bulk, size of the property, tenancies, zoning, uses allowed, all kinds of community restrictions and regulations. And you've got to be on top of all those. But one of the things for the audience that I thought would be interesting to say is when we would recruit new agents to our company, we would never try and suggest to them where they wanted to work. We would allow them to have interest in an area and if they were sold on it, they were more passionate about it, the result was better. So for you out there who are either considering being an investor in a market or being an agent in a market, pick one you're really personally interested in. There doesn't have to be a reason why, but if you're interested in a sub market, you're going to be more passionate about it. The result of your work is going to be, is going to reflect that.

Great, great advice. So, Jeff, for you, you were saying before that in many of these cases, the deal found you. So were you studying these markets when you decided to make your entrance into Hartford? I'm sure before you made your first investment, you were trying to get the lay of the land. So when you're investigating a new area to invest in and what are you looking into?

Yeah, it depends. So we were pursuing market sub markets that we knew very well. And just as I said before, we actually did not have any specific interest in Hartford. So a broker called us and said, we have a property here that meets your criteria, but it's in a market where you have not been active. But we think there are many reasons why you should consider becoming active here. And so Paul was mentioning there are 100 criteria that constitute the characteristics of an attractive investment or property. So what's very important to me is the political climate. I want to know they're encouraging growth. So if, if there's bond availability, if there's any kinds of subsidies, if there are tax credits, there are tax abatements, that becomes attractive. If I know that the political forces are encouraging growth again by subsidizing growth with attractive capital, then that's not only that doesn't just help me, but it helps growth in general. So I want my competition to succeed too, because we all grow together in Hartford. It's a capital city. So I know that I have one source of employment that's never going what? The capital's not going out of business. They may go bankrupt, but they're not going out of business. And highway access, very attractive. 84, 91. They go right into downtown Hartford. So it had characteristics that were extremely attractive to me that created an economic and demographic environment that I knew would propel us to, over time, to grow. If we built the right product, so that actually was inadvertent, but it had the right characteristics rather than our finding that market and then finding the property. What Paul described is extremely attractive from the way we approach deals. If I have a broker that I'm working with and he knows the market, he or she knows the market cold and knows all the nuances. That's extremely helpful to me as a buyer who wants to be knowledgeable.

Great point, Asher. I want to dig a little deeper into what we were talking about before. You make a good point for industrial logistics. Where you want to be near a highway, you're looking at traffic counts. But what are really the cities? If you have an investor who comes to you, they are completely agnostic. They said, Asher, take me to your favorite spots in the U.S. anecdotally, I hear investors who tell me that they now have seen opportunities in Nashville, Austin. What do these cities have in common?

What they have in common is growth. It's growing markets. I think Jeff said it great. He's gone into Hartford because he saw an opportunity where it could really grow. You're right. There's 100 different things to look into when you're investing in a property. But if you want to break it down, I break it down into what I call five pillars, especially in the net lease world, where it's the ownership, what are you owning? Is it the land, is it the improvements, or is it both? Is it fee simple, the lease? What is going to be the responsibility of the person who's owning it? What type of leases am I going to be? Is the property going to be backfilled with. For me, it's a single tenanted asset. It's location, tenant, and then value. I guess if you hit on the first floor, then there should be value there and you should want to invest in it. What you're seeing is Nashville, Austin, the Tampa Bay area. There's real growth. There's a lot of people that are moving into those markets because of new job opportunities, tech that's going into those markets. That's really what's driving people to want to invest in those markets. It's that upward trend in growth.

It's interesting because those five pillars that you talked about, the first two could occur anywhere in the U.S. this is really your expertise, not mine. But when I talk to clients about where to think about doing a 1031 exchange, I always say, don't just look at the yield, don't just look at the return. Because sure, there's places and I don't Want to pick on any states or areas in particular where, look, maybe you can get a 7, 8, 9% return. But the question is, we saw what happened to Radio Shack. The list goes on and on. It almost feels like today that is any industry safe. The question is, if that tenant leaves, can you even replace that rent?

Yeah, and that's always something to take into consideration is what are you collecting on a net lease investment? Are they paying over market rent? If they are, it's going to be very hard to backfill that space with someone who's going to match what that tenant was paying. There's value everywhere, whether it's a primary market like New York, a secondary market market or tertiary market. You just have to make sure that you're not going into that major market and paying way above market rents. You're never going to be able to replace and buy something which really doesn't have any upside. The net lease world is looked at as the safe bet. It's the hands off ownership. But your real estate fundamentals shouldn't go anywhere. When you're investing in these assets, you should still do a deep dive and make sure that it really hits on all five of those things that we talked about before. You can buy a great piece of real estate at a 3 cap, but when it's all said and done, is there real value there? If you're looking to sell it down the road, there's value on everything. You could end up buying the worst plot of land in a tertiary market. It could be the right value.

Right. And I was just going to one final question there because we only have a couple minutes left, but you do organize your cities by primary, secondary and tertiary markets. I don't know if that's based on just population or what goes into that, but do you want to just give a quick explanation?

It's population and growth. It's primary markets. I think we know what the primary markets are just based off of what GDP is. That's really how we do it. It's the major MSAs and we call it the top 25 MSAs. Then secondary markets are really the next 25. And then tertiary is anything smaller than that.

If I ever have any questions on that, I know where to find you actually stand. We have standing desks and we're about three feet apart. So we have a lot of fun. Paul, one of my favorite parts of doing business in New York and seeing all the incredible opportunities here are the disconnects in value and some of the opportunities, even in the boroughs and Even in the last couple years, you see some of these neighborhoods. For example, the Bronx is getting a lot of attention right now. If you look at the average price in the Bronx, it's 20 cents on the dollar from Manhattan, and yet as the crow flies, it's only two or three miles. When you're looking at what is the next great neighborhood, where's the next opportunity? Do you think there is a story for the boroughs? Is it the whole metro area? How do you think about that?

I think you nailed it, James. It's the Bronx. If you're an active investor in New York, and the secret's a little bit out there, I think a lot of the major developers in New York are active in the Bronx. On the residential side, on the retail side and the commercial office side, the 20 cents by the pound discount, it's actually the same. It's about half the price of good property in Queens, half the price of good property in Brooklyn. So it's compelling from every angle. And the Bronx definitely had that stepchild brand for a long, long time. But I think transportation is there, infrastructure is there, there are communities there, and it's right on the central commuting hub for Westchester and right into midtown Manhattan. So I think there's going to be a lot of positive movement and development in the Bronx.

Well, that's a great way to end this segment. Gentlemen. Thank you again so much for joining us and we'll look forward to having you come back on a future show. Now we're going to go to a break from our sponsors. This is James Nelson. I'm your host of Real Estate Investing Live from New York.

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.