8. From Broker to Owner with Special Guest Ofer Yardeni

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 show number eight of Real Estate Investing Live from New York. This is your host, James Nelson. Thank you so much for your support and listening. The comments keep coming in. Please continue to subscribe and rate the show so we can spread the word and teach others how to invest and operate commercial real estate. So we've got a great show lined up for you all tonight which is we have Ophir Denny, founder of Stonehenge coming in speaking to us talking about how he came came to New York with very little in his pocket from Israel. And fast forward to today, he is the head of a multi billion dollar portfolio. We also have the panel coming back afterwards with Jeff Ravitz, a professor at NYU and last week's Spotlight Investor along with one of my great mentors in the business, Paul Massey from B6 and Asher Wenig from Avis and Young who heads our Net Lease Group for the Nation. So they're going to have a great conversation and what you should be looking for with asset classes when investing. But before we get to that, let's talk about the Week in Review. Powered by the Daily Beat in sales, the File Organization and Peter Armstrong have acquired 530 W. 25th St. For $72 million. The seven story office building spans 90,000ft and is occupied by several art galleries. The purchase price comes to almost $800 a foot in financing. Make Rich has secured a 540 million dollar loan from JP Morgan to refinance its Kings Plaza shopping center. The REIT acquired the Mill Basin Shopping center from Vornado for $751 million in 2012. In 2018, the retail giant invested $110 million to redevelop the former 4 Level Sears store with Zara, J.C. penney and Burlington among others. The property right now is generating $735 a foot in Real estate meets politics. The Federal Reserve has said that they might have been wrong in their outlook for the US Economy, which has led to a dramatic reversal in policy from hiking interest rates last year to cutting them in 2019. Unemployment is at a 50 year low, inflation remains tame and the economy continues to grow at a healthy pace of around 2% with little chance of recession. The central bank held interest rates steady following its two day meeting this week and indicated that no action is likely next year amid persistently low inflation. The benchmark interest rate currently sits in the range of 1.5 to 1.75%, and this is according to a report from the Washington Post and CMB C in Real estate meets tech WeWork is reviewing about 100 leases around the globe and could pull out of some of them as its work to stem its losses. While no plans are final, the move could lead to additional layoffs at the company, although some landlords are not taking this news sitting down. Chestnut holdings is trying to evict the co working company from its building at 49 W. 27th St, alleging that WeWork violated the terms of its lease with its restructuring. Meanwhile, former CEO Adam Newman is out there shopping for new apartments with his wife. They are currently where they were found, looking at a penthouse at 15 Central Park west for 57 and a half million dollars. And then lastly on a bit of good news, Amazon is back in New York having signed a 335,000 square foot office lease at SL Greens 410th Avenue in Hudson Yards. The tech giant will move 1500 employees into the soon to be redeveloped property in the third quarter of 2021 without any special tax incentives, asking rents in the building around $90 a foot. Facebook is also in talks to lease around 700,000 square feet at the Farley Former Post Office Building. The new space would be in addition to Facebook's recent deal to lease 1.5 million square feet in Hudson Yards, according to Wall Street Journal reports. So that is for this week and please stick right around. We're going to have a quick mention from our sponsors and we'll be right back for that interview with ofer.

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Thrilled to have Ofer Yardeni here on the show today with our investor Spotlight. He is chairman and CEO of Stonehenge nyc, a fully integrated real estate company based here in New York, which he founded in the 90s. Ofer, thank you so much for joining us.

Thank you very much for having me. I know you for many years and I look forward to work with you on the show.

Good, good, good. So let's start. Take us back to the beginning, your upbringing, tell us about family life, talk about how you came to the US and then we can talk about how you got into real estate.

So I was born and raised in Israel. I'm sixth generation. My family arrived in Israel in 1801 and like most Israelis, I went to the military. And after the military I went to study in the universities. I was around 24, 25 and I had to make a decision, do I want to go to work or do I want to continue to study? So I was not ready to go to work. And I remember traveling in the United States and I watched the movie Animal House and I said, wow, that's a campus that I'd like to be. So I came to United States, I enrolled as a student and I thought that I would live the way John Belushi lived and came to New York and enrolled in NYU, study history and philosophy. That was in 1985.

Wow. So no idea at the time that you wanted to go into real estate, you just wanted to get here to New York, become a part of the American way of life, so to speak. But were you even thinking about real estate at the time?

Not at all. I grew up in Israel where everybody owned their home different. In the United States, we don't have any rental apartment building. Everything in Israel or Turkey or Greece or a lot of parts of Europe, people are the owners of their apartment. And it's in a way even a stigma if you rent an apartment. So I had no idea about business, clearly no idea about real estate. The tallest building in my town, Batyam, south of Tel Aviv, was maybe a six story building. So I never saw a high rise. And most of the buildings were walk up. And it's like a middle class neighborhood the way Queens is to Manhattan. So my thoughts were to come here to get my education, to go back to Israel, to be a professor, to teach in the university, to do what my mother used to do and to continue to have a fascinating life in the academic world. But that changed when I came to New York.

So what was it that changed your mind?

So landing here and seeing the skyscrapers, I fell in love with the New York City. Walking the street, seeing the capacity of the people, seeing the size of the building, the architecture, the different neighborhood, I was quite fascinating. I think I'm like, the movie reminds me of the movie of coming to America with Eddie Murphy, where he arrived in classic. Yeah, it's another classic.

Although you ended up here in Manhattan at Queens.

I ended up in New York City, yeah. Because I had a girlfriend that I came to visit her in New York City. And in fact, I landed and straight from the airport, I came to 737 Park Avenue. So you can't say that I had a rough beginning. She lived there as a renter. So I fell in love with New York City, with the dynamic, with the people, with the culture.

And that must have been such a leap of fai. When you first came here, it doesn't seem like you had extended family here. Didn't seem like you were bankrolled on the way here. I mean, was it really kind of the New York story of having to make it on your own?

So not only I didn't have any family here, all my family's relatives all lived in Israel. I didn't know anybody here. But I also came with $600 that came and that's the amount of capital that I had coming here to this country. And my parents were supposed to send me money to study. So I met few guys that were real estate brokers in the real estate field. And everybody told me that because I was very much engaged with people in good conversation. Everybody said to me that I'll be great in real estate. So I took a course, real estate. And I liked it very, very much. It was not complicated, nothing difficult. And I applied for a job at LBK Associate. That was a broker's broker shop that they have hundreds of people working at that company.

And where did you start off? Were you an apprentice? Were you working for one of the brokers out there? What were kind of your first assignments?

So they had a very small program of teaching us a little bit about the investment side of the building business. And I became a real estate salesman. I concentrated on selling investments versus selling apartments versus selling or retail. I went to the side of the investments of selling apartment building, office building, development site, all across the product. And I must tell you that looking back back, I think being a real estate broker was the best thing that I did. Think about it, spending time with Norman Stirner, Steve Grinch, Eldon Solow, Steve Ross, Steve Roth, Larry Silverstein, Bert Resnick. Think about working with those guys. That are the peers in our of our industry, I would say legends.

For those of you listening who are outside New York, Ofer's just named really the top 10 who's who legends in the business. So to be able to see what they have accomplished, how they run their business, you get insight into their world.

So working with them. I remember one day I worked with Kamaran Hakim that is one of the largest owner of multifamily here in the city. So that was for me the best school that you can imagine. I learned New York City walking and I think this is the best way to learn. So maybe it's great that my father didn't give me a lot of money he didn't have. But you know, you take lemon and you make lemonade. So I really walked the street, met the people I did it the hard way of which really paid its way.

So how did you do as a salesperson? Were you there for a couple years? Did you make a couple closings?

I did quite well. I must admit that the first year was extremely hard. I remember working in the company and I see guys that started the same week that I started. After a month they closed the deal and then another deal. And I was just always so close to a deal but didn't make it. And again so close to a deal and didn't make it. And it took me a year until I first closed my first deal As a broker I needed to borrow money from my friends from Israel, from my friends in the United States. I accumulated debt, but my heart and my desire were to stay in the real estate business. I just knew it's for me. I knew I feel at home and I knew I have to succeed. So I ate a lot of pizza during the eat. It was between the mushroom to pepperoni to cheese, different kinds and every night was a wonderful experience. But when I made was a deal after a deal and what I realized that the guys that came with me that made few deals when it became tougher in 88,89 they had to leave the business because they were used to make many deals at the beginning of their career and they could not sustain the struggle of working on a deal versus for me, struggle was my middle name. And it prepared me for the hard time. And I think later on I realized that the harder it gets, the honey it gets that better result. So I always embrace challenges and hard times with the idea that at the end good things will happen. So being a broker, working hard, not making money at the beginning of my career really prepared me for the task and made me work harder and maybe even more successful.

Talk to us about the first investment you made. So were you a broker and you started looking to invest on the side or did you say, okay, I figured out this brokerage thing. I see my clients making all this money. I want to jump in on the action.

I never looked at it that my clients were making all the money. I want to jump at the action. I don't think I was ever jealous or envy in my life. I always, as a believer, I believe that God gave me what I have. So I never had a kind of a feeling that somebody has more. I just realized that for me, life is more than just a broker. Because as a broker, you find a transaction, you find a seller or a buyer and you are able to make a deal. And sometimes we are collaborating with other brokers and you share your fee and you move on. And I realized that when I walked with some of the buyers, I realized that my adrenaline got higher when I saw how they are creating the value. And I realized that that's what I want to do. I want to be also the guy responsible to take the building, renovate it, fix it, change the use and bring it back to the glory days. So I knew that one day I will own some buildings. Did I ever believe that I will be where I am today? No, I had no idea. So I did not have any idea how it will grow the business. But I knew that I love it and I want to do it. So it was a transformation that needed to occur. It occurred a lot earlier than I thought because I met my partners from Canada, case destination and they helped me to grow the business by providing the capital for me to grow the business.

I'm sure that was once you had established a track record and set up a company before that, the first real estate transaction, your first investment. Maybe you could tell us what that was. How did you find it? How did you raise the money for it and do you still own it today?

So you'll be very surprised. I think the first or the second deal already case the depot got involved. I met them. It's one of those crazy things that in 1992 I was. I made quite a lot of money as a real estate broker. And I always wanted to go to the Boca Raton Beach Club. In December. Everybody in New York spoke about the Boca Raton. And for me it was a dream. And I convinced my wife that we have enough money that we can take a vacation and go there. So while I was at the hotel During Christmas time, I met Val Wagner, he is a Canadian, unfortunately passed away. And it's one of those crazy story that he grew up in the same town that I grew up, the same street, a building next to mine, and he was 17 years older than I am. And his partner, Case de Depot, were looking to invest outside of Quebec. And they felt that I will be a great candidate because they saw the work ethic that I had. So during 1993, early 94, we were looking at deals. So from day one, I had institution partner that backed me. Not American necessary, but it was a Canadian.

But just to be clear, Case of Depot, this is the Blackstone of Canada. This is nothing short of remarkable that they were willing to make a bet on you when you hadn't invested before, you didn't have an operating platform. So this is amazing to hear. So the first transaction. And also they're not looking for five or $10 million deals. I mean, when they look to invest, for them to move the needle, we're talking about tens of millions of dollars. So I'm sure they were certainly looking for something programmatic, something larger.

Again, you are talking about early 94, 95. So the world was a lot smaller, a lot cheaper than in terms of pricing. So I can tell you that the first building that I bought that I closed was on January 13, 1995, and I closed it with Case the Depot, it's 150 units. I still own it. With the Case, it's 150 units. It's close to 150,000 square feet. 210 West 89. It's between Broadway and Amsterdam.

But how did you convince them that you could actually run this building and execute the business plan?

So it was very, very simple. When we bought this building, you'll be stunned. We paid for this building. 8.8 million.

Wow.

Okay, so it's $70 a square foot. Today the building is maybe worth $100 million. But when we bought it, we got our first mortgage there for 6 million and the remaining was equity. Now, when I started with the first building, my job was to be the asset manager. I hired two guys, Steve Goldschmidt and Jay Ablonsky, that they were in the management business and they were supposed to pay the rent and run the day to the operation. Because I knew that my time is more valued than just to manage this building. Because if I'll do that, I'll not buy other building. So my job was as an asset manager and that was my role to make sure that the renovations are in place and we will move on. The business plan, the business plan was for three years, but as I said to you before, we still own this building today, almost 25 years after. And we are very, very happy with the investment. So you start small. And the second deal that we did was the Boulevard on 86, Bruce Eichner was foreclosed by Citibank. And we bought the note from Citibank and we paid $115 a square foot for 150 assets apartment. And then we sold them so quickly at around $190 a square foot. So we started to do a deal after the deal, very, very quickly. In the early 90s, there was no capital. People thought that I'm insane, that I'm buying real estate. And I believe that the business plan was very simple. We buy below replacement costs. We buy 50, 60% below condo value. We are buying rents that were 50% below market. So it was a very, very, very safe investment. And we thought that we are buying 5% cap rate. But then I realized that we made a mistake in the payroll and other mistakes. So theoretically, we were buying a 4% return during that time. And the leverage was then around 6%. So we had a negative leverage. And two things I learned very quickly. One, I want to stick to the residential side because I saw in the early 90s and I've been. My personality was a very conservative guy. I sold the guys that invested in the office building, lost all their capital. Buildings that were going for $300, $400 a square foot, you could have gone, purchased them for $10 a square foot, $5 a square foot. Tenants became bankrupt. On the residential side, you Never dropped below 95% occupancy. You might have to give some concession here and there, but you stayed fully leased. And I always wanted to sleep well and not to worry about my tenants. So residential was a very good place for me to be. And this is how it started. But I think the lesson that I learned from it was that have faith, do things, have no fear.

Maybe talk about. And maybe after those first few examples, I mean, maybe those were the best deals that you ever done over the course of your career. Because the basis was so amazing. Talking about values today, but maybe talk about a transaction throughout your career that you're most proud of. Maybe you were creative, a way that you envision the property that maybe someone else didn't see. What would be one of the investments that you're most proud of?

I think I'm proud of most of the investments that I did in my career being very conservative, we always made money. We always were able to create value. I think this year I was able to make one of the best deals that it was a recap. So it's a building that we bought in 1996, the Ritz Plaza, 479 units in Times Square on 48 between 8 and Broadway. Now when we bought it at December 19, 1996, people were stunned because to invest. We paid $77 million for this property. And I bought it with Case the Depot. And people called to the Case and said, what are you doing? This is Times Square. What are you. Why are you spending this money? Did you walk the street? And I remember when Jean Claude called me to Canada and asked me what are we doing? I explained to him the whole thesis about the business plan. And we decided to acquire it. So we own it for until today. And this year Case the Depot decided to sell their share as they were selling some of their holding in New York. They were just overallocated. And I was able to bring my new partner Carlite. And with Carlyle we structured the deal where Carlisle bought Case the Depot interest in the property. And I decided not to sell my share because I believe in the property and I believe the future is even brighter than it is today. I could have sold. And the return for Case the Depot on this deal over a 23 year period is 40% IRR with 19 multiples. Yeah, you're here in Detroit. 19 multiple over the last 24 years. And we financed the deal with a new first mortgage with Deutsche Bank. So I'm very, very happy with this deal. One clearly 1996, buying it for a guy that came from Israel, from a blue color town, family, middle income. My mother was a teacher, my father was a steel worker. And being able to look at the rates and to see 77 million, this is really a dream. I couldn't even relate to that. So this is one of the deals that really put me on the map.

So talk about why you've focused your entire career on New York. And maybe after those examples and the type of appreciation that you've been able to obtain here, I mean, why go anywhere further? But our listeners are calling in or listening from all over the US and the world. A lot of your counterparts, they're looking at other cities, secondary tertiary markets, different style apartments where there's higher returns. Why have you decided to stay here in New York throughout your career?

So for many years I had doubts about that myself. You know, you always hear stories when you go to Sit with your friends. They are telling you, I'm going to Arizona, I'm going to Washington, I'm going here, I'm going there. I'm making huge returns. But those returns were on paper. And if you look what will happen to all those families that sold the real estate that they had in New York and they wanted to diversify, and then you suddenly were caught in the Russian crisis or the Lehman Crisis, or the 911 crisis. You realize that the safest place to invest is really New York City. Give me one place in the world that the demand exceed the supply. Give me another place like New York, where there is consistently pressure on from people to come to live here. The job grove that we have in this place, in this island is amazing. We have 2 million apartments here and the occupancy is very close to 98, 99%. The average income that we have for our unit per unit is around 240,000. The capacity to pay rent for our tenants is unbelievable. The average rent for our tenant is around 3700. So the ratio between the income and between the rent is quite low, which we believe we will be able to increase the rents here in New York City. It's an island, as I said, you have 2 million apartments. You have close to 400 million square feet. As an owner operator, a guy that manage the portfolio, I can see the entire portfolio in two days. Show me another owner operator that can say that I have a portfolio close to 3 billion around the country, that I can see it in two days. It is impossible. So me as a CEO, I visit our buildings, I see them, I know what's going there from terms of garage, retail, occupancy. And all those things make it very easy for me as an owner operate. I even once said that I should sell all my buildings and just buy them on one street. Think about it. New York is one of the only markets that if you want to buy in one street, you need 10, 20, $30 billion. So we are very, very lucky, which.

Is the size of probably another market entirely.

Exactly. So from that point of view, investment, I felt very comfortable here. Second, it's lifestyle. I love my wife, I love my kids. I didn't see the need to go and to take a suitcase and start traveling and waste my time and come to another location where I don't know really anything. And everybody is trying to push me and convince me why it's a strong market and why I should buy there. And they are telling me, yes, occupancy is not so high. But jobs will come here. So I never saw the same fundamentals that I saw here now. Saying all that, I believe that right now I feel very comfortable with our brand, with the team that we have at the company. And if the right opportunity will come to acquire high rises, we will do because we can take our brand, build it on and with the technology that we developed, we can be very efficient in any other markets. Wow.

If you could give one piece of advice to an aspiring real estate investor, what would you tell them?

I think depends on his age. But if he's a kid that just graduated from college, I think take your time. Learn, become professional. You can't go and ask to run a company before you really learn all the disciplines that is involved. Real estate is a teamwork. It's not just one man show. I'm very lucky that I always had, I had a great supporting staff. I'm the weakest link in the organization, but I have great guys that are working with me. So learn, become professional. Know every building, every corner, every street in your market. Read a lot, respect people that are older than you, try to learn from them and and don't be afraid to jump to do a deal. There is no perfect deal. You work it, you'll make it perfect. So if you wait for the perfect deal, it will never come. Every deal has some issues and that's the challenge that God gave you to deal with that issue. And if you will overcome this issue, you will just do better and better and better. But you have to act. In Judaism we say mazal. Mazal is the right time, the right place. But you have to do don't be afraid.

Well, that's fantastic advice and a great way to go out. So over. Thank you again for joining us today on the show and listeners, please stick around for after the commercial break. We'll be right back.

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Welcome back to Real Estate Investing. Live from New York, this is James Nelson, your host on the Voice America Network. Back with us today are Jeff Ravitz, who is founder of Girona Ventures, Asher Wenig from Avis and Young's Net Lease Group, Paul Massey from B6 Real Estate Advisors. Gentlemen, thank you so much for coming back on the show today.

Thanks for having us.

Thank you.

We had a great conversation last show about where investors should consider when buying. Now they might have a sense of where to be looking. The question is, what type of asset should they be investing in? And Jeff, in addition to being a real estate investor and developer, you're also a professor at nyu. And I know one of your classes talks a lot about this, but you're someone who has invested in everything from garden style apartments to industrial to speccing a single family townhouse to rental conversion. I think you've probably done pretty much every major asset class there is. Is it just where the opportunity lies or is investors thinking where to start? How do you pick the asset class?

It's a difficult question. I have not invested in a hotel. I just want to be clear.

Maybe you will. There's still time.

Well, we've courted many, but we've never crossed the finish line. I think that's a mixed metaphor. So in terms of how we make those judgments, again, it comes down to expertise and also understanding the market. So now is a very interesting time to to be picking categories of real estate. So if we had this conversation 10 years ago, we'd be talking about retail in New York City being absolute gold because it's typically on the first floor and they're not making any more land. So whatever retail existed, that was going to be retail forever. And it was a great opportunity. And rents were skyrocketing and then now we're living in the Amazon era. And so retail now takes on different characteristics and it's much more challenging. So when I look at transactions and investments that I want to be part of, for me it's about depth of the market. I want to know that if I have a challenge, that there are other options. So Asher mentioned when he's looking at triple net lease deals, he wants to know that if a tenant goes out, he can replace that tenant with another good retailer. It's the same thing. If you're looking at multifamily, you want to know you're in a growth environment where there are plenty of people circulating, there are people coming into the city and you're going to have other options. You don't want to be in a. In a market. So I invested in one market. I'm not going to name the metropolitan area where what was attractive was that it had very low unemployment. And I thought that was such a great characteristic. It showed how tight the market was. But as I peeled away the layers, I realized the reason why it had low unemployment was because people don't move to the city. They only leave the city.

That's one way to solve the issue. Maybe you should have been investing in the next town over there.

That's right where they're going. So you want to make sure there's depth. So as you've said, as you said, I transitioned a number of times. I was actively investing in garden apartment rentals in the Southwest, in Dallas and Houston, and those were great growth markets, and we did very well with that. And then I was investing in office buildings in northwest Omaha, and that was attractive because that was a growth corridor. And then we were investing in office buildings on Long Island. Long island, kind of like what you're describing the Bronx as is ancillary to New York City. So people that don't want to commute to the city will. They want to office in their backyard. And we thought that that was underserved market, the commercial market. And we saw rents and pricing on Long island appreciate dramatically when we entered it, after we entered it, because we entered it, our timing was very good. And so now, again, multifamily in Hartford growth area, people are entering the city. There's the political climate that's attractive. And so we often are asked, aren't you concerned every time you do a new project that maybe you're saturating the market with too much supply? And my response to that always is, people want to move where there are other people. People are not moving to downtown areas to be alone. So the more people that are in the street, the more people that are in apartments in an area, the more people that it will attract to actually growth encourages more growth. And so that's what we look at for. It's all about depth of a market. So you have other solutions when you go through a hiccup.

That's a great way to set the stage here, Paul, over your career, you sold hundreds of properties. You've advised new buyers who come into markets. Maybe they're coming in from a different industry. I know you're on the sell side, but if a buyer was to ask you, paul, I'm looking to make my first real estate Investment, I've picked New York City. What asset class should I buy? What advice would you give them?

Very interesting. These days, things are moving around on the residential side. We have new legislation around rent regulation, which is. We're in the middle of beginning to understand. So I think the residential market, especially the regulated rent market, is in flux. So that's something I think I'd put a pause on for right now. I think retail is interesting in the sense that a lot of the change that technology has wrought in that arena has stabilized, I think, to some degree. And I think people are starting to understand which tenants are going to thrive locally, what their ability to pay is. So I think rents are being more, are more understood now in an asset class that had some radical change. So the thoughts there. The office market's very strong in New York. But I think fundamentally, again, it gets back to the conversation we had earlier about the fact that I think investors should pick the asset class that they're most interested in because they've got to develop an expertise in that. They've got to learn. Really. I think the big thing is how am I serving my tenants? How can I bring a bigger value to my tenants so that I'm competitive in the market?

Perfect. So, Asher, the type of properties that you sell, and I think a lot of the attraction for triple net is because they are hands off, hands off in the risk spectrum. Again, it depends on what you buy. But most would consider these are credit investments. Maybe. Talk about for our new investors listening, what should they be thinking about as far as risk profile and as far as do they have the capacity to do something hands on? If not, is triple net a good option to get in the game?

The net lease product is good for a person who's looking for hands off ownership. You don't have volatility in the ownership structure. You know what your income is. You know that there's no management. You just sort of sit back, relax, and you can collect checks.

It sounds pretty good.

It does. Just to go back to the initial question of what's the right investment? I think for a real estate investor, it's about diversifying, diversifying your portfolio, similar to how a person diversifies their stocks and bonds. It's about having a full spectrum of investments or a number of investments so you get the upside of it all. I'm not saying you might not know multifamily. I'm not saying go invest in multifamily if you have no interest in it. Paul was saying, have a real passion for the product. In the net lease world, I'm not going to tell someone, oh, you should buy 100 McDonald's and only have McDonald's in your portfolio because they're an investment grade tenant.

Unless they're passionate about it, I don't know.

Unless they're very passionate about their Big Macs.

I'm passionate about Big Macs.

But I think in the net lease world, I think it's about meeting the demographics. The investment should meet the demand of the demographics, the people that live there. If it's a lower income community, it's nice to have a quick service restaurant there because they tend to go to quick service restaurants a lot more than your higher income communities. That could be a very good real estate investment which is easy to backfill should they ever vacate the space.

Perfect. Jeff, what amazes me about what you've done over your career is not only you've been able to figure out all these different markets across the country, but also a lot of different asset classes. Part of it is, yes, do the research, see where the opportunities are. Maybe to Paul's point, someone believes that retail is now the contrarian play, the time to jump in, but you still have to figure out how to do retail. Investing in retail and how leases are structured is wildly different from running an apartment building. How do you learn the game, so to speak, before you, you just dive in with both feet?

Well, like anything in life, you want to make sure you're well prepared. So you want to choose partners that have a knowledge and expertise that complement your own and that are, that are targeted. Whatever it is you're, whatever the operation is, what you're investing in. You want to make sure you have the right resources, the right counsel, right legal counsel, the right brokers. And you want to make sure you're prepared at the beginning. You don't want to just jump in and then try to figure out who the right resources are or what the right resources are. So it's just a matter of assembling the expertise that you don't have and then being able to respond to your environment.

So, Paul, thinking about what is involved, actually operating, because that is part of the question. I mean, you can go with Asher and you can clip coupons and you can be on the beach. But a lot of these asset classes do require someone to roll up their sleeves. What should someone consider before they take on certain assets? To Jeff's point, I would imagine having the right team in place is important.

It probably depends on your temperament as an investor in terms of how Hands on. You want to be. I think there's a spectrum from Asher all the way to you're going to run every aspect of it yourself. And I'd just be honest with yourself about how you feel, about how much capacity you have to work. The whole third party management concept is one that is again, a personal decision. But I think you can find some very, very competent, helpful and additive managers to assist with that too.

Jeff, going back to this risk reward spectrum, if you would, because on one hand you can get stable cash flow. You're getting your 5, 6% return, you're looking for much larger returns. So you're not buying in at a 6% or 7% return. Sometimes you're buying in and there's zero cash flow. You're buying a vacant building and improving it. Maybe talk a little bit of asset class choice through the lens of risk tolerance.

I've always been involved in value add acquisitions, value add investments, and that's a personal preference preference. As Paul was saying, you want to do what you enjoy. I enjoy creating value. I enjoy trying to figure out the puzzle.

By the way, I've got to stop you because it's good that before we did the show, we warmed up with Peter Piper, picked a peck of pickles because you just said now I forgot what you said, but it had three P's and you nailed it. I gotta say, that was really crisp, really clear. Kevin's giving us thumbs up in the studio. I'm sorry, I hope I didn't ruin your train of thought, but I had to say carry on.

So.

I did it. I killed the moment. Asher, what was he saying? Bring us back. Bring us back.

You got me on the ppp, Public private partnership.

Now, wasn't you were talking about having value value.

Returns. So what I look at over time is how we can achieve attractive returns on a stabilized basis. So ultimately, I'm looking for that triple net lease yield plus because I'm not looking for a lower yield and to be passive. I'm willing to be active. And as Paul's referring to, I'm prepared to. I have a capacity for more work and I'm willing to. And I expect a premium for putting investing more work into our transactions, our investments, our effort. So is there. I know a lot of people focus on irr. I don't really understand irr. It's because so much of it pivots on what the residual value is. And that is such a function of the marketplace at the time. And I'm not smart enough to know that in 10 years, cap rates will be X or that interest rates will be Y. And. But what I do know is I want a premium as a return on my equity in a foreseeable period of time. And that's what I underwrite. So I'm looking at the second or third year after I'm able to achieve the value add that. I've underwritten great points.

And I was thinking back to your NYU class, when the way you start the class is you ask the question. So everyone's here who wants to be a real estate investor. Everyone raises their hand. And then you talk about what happens in the closing. The closing. Who gets paid? The broker gets paid, the attorney gets paid, the bank gets their fees. Right. And then. And then the title guy gets paid.

And then.

And then the developer, what are you doing at the table?

You just sign guarantees. Guarantees. And you sign covenants and environmental guarantees. It's all about exposure for the principal.

Right. And when a deal goes great, as you're entitled, you're making your promote, you're making your return. But I think what you then said to the class is, if things don't go well, any brokers in the room, any attorneys, do you give your fees back on the transaction?

No, I haven't seen it yet. But I'm waiting.

And then you ask the question, how many of you still want to be investors? I think there were still about four or five, maybe five hands that went out.

Those are the four that weren't listening.

Good. Asher, what has Jeff talked about his metrics in your world? Cap rate is the metric to differentiate assets. I keep saying 5 to 6%. That's probably a generalization. I mean, it is probably a wider range. But one of the appealing factors of what you do is based on the credit and based on where you can finance these opportunities, you do get some really attractive cash on cash return. Is that the metric that investors are looking for in your world?

Yeah, a lot of the people that we work with, about 70% of them are 1031 exchange buyers. They're looking to take that money and continue to earn on it. They're looking at what is my annual return, what's my cap rate. A lot of them are looking at what type of financing could I get on this and what's my cash on cash. Those are the two metrics that are the primary focus of people based on.

Where you can borrow money today on triple net assets.

It depends on the strength of the tenant, obviously. But we've seen investment grade BBB tenants where they're getting sub 5% fixed for 10 years on 25 year AM schedules and they're putting down about 40, 35%.

So that's what we call positive leverage. We usually don't get that in New York. That means you're actually, it's the strength.

Of the tenant that really dictates what type of financing you're able to get. But the banks are making financing readily available. So it's, that's been Right now what's primarily been driving down the cap rates in the net lease sector is the financing that's available.

We only have a minute or two left, Paul. I'll let you take us out. Jeff and I, we've talked about what it's like to invest in other markets because we've both spent our entire careers here in New York selling properties. And maybe elsewhere it is possible to tie up a property. And what we mean by tying up is you sign a contract, maybe you put down what, Jeff, 25, $50,000, depending on the deal size, you have a 30, 60 day due diligence period. Asher, you get those in some markets as well, which is code for it's a free look at the deal. If it doesn't go well, you get your good faith deposit back and life goes on. Paul, New York is the most competitive market in the world. The way transactions are done in New York is 10% hard deposit. You don't have exclusivity until the seller countersigns your contract and sends it back to you. In this market, more times than not, there are multiple contracts that are out there so uber competitive here you're going down the line. Once you have it, you're signing on the dotted line, you're putting down 10% hard deposit. That's really scary. An investor who's thinking about their first investment based on all those conditions, why would you still advise them to take a crack at New York?

Well, as a seller's agent, I would absolutely advocate that we should eliminate all due diligence nationally.

Okay.

I don't believe in it. That's admirable, a crazy thing to think about. We want people to know what they're getting. So I don't mean to be misunderstood that way. In fact, knock on wood, I don't think we've had anyone ever in our careers, in both of our careers allege that they didn't know what they were getting. So job of the broker is to provide any information that you'd need when it comes to experts, expertise with phase ones and phase twos. I think that's a nominal cost in relation to the transaction that you're likely to be doing. So I think that when people ask for due diligence periods, I usually say back to them, why do you need it? If you've got a banking relationship, they're going to give you some range of financing that you're going to get. You're going to do all your due diligence so you know exactly what you're getting with the property from a physical perspective and a perspective on the tenants and all that. And you should be willing to put up a 10% deposit. Don't be afraid. If you don't have that amount of money, you should be considering probably a smaller asset or maybe finding a partner.

Who'S willing to help you put up the money and kind of de risk.

Exactly. So don't be afraid when you found the thing that you really want to commit to it entirely and it'll work out.

Love it.

Well, that's a great way to end this segment, gentlemen. Thanks again. This was a lot of fun. And now we're going to go to another quick break. This is James Nelson. I'm your host of Real Estate Investing Live from New York on the Voice America Network.

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

Sam.