81: The US Real Estate Market with David S. Rose

Foreign 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's one of the largest investment opportunities in New York and around the world. Now here is your host, James Nelson.

Welcome to episode number 81 of Real Estate Investing Live from New York. This is your host, James Nelson. I am principal and head of Tri State Investment Sales at Avis and Young. And welcome back everyone. Thank you as always for tuning in, for telling your friends and it gives me so much pleasure when I read the reviews, the ratings and hoping that I'm inspiring you all to either jump in and make your first investment or up your real estate game. And every week you're hearing from incredible investors, their stories and David S. Rose, who you'll be hearing from today, is no exception. And he's got a really interesting story. He is an Inc. 500 CEO, serial entrepreneur, angel investor, author, keynote speaker, and we had him on at our Clubhouse show that's now the first and third Thursdays of the month at 12 noon Eastern. So definitely tune into that as well if you're on the Clubhouse app. But what David has done and what you'll hear about in this interview is not only growing up in a real estate family and leveraging that knowledge, but his passion for innovation and how he is now creating a platform for institutional investment in real estate and doing this in a securitized way. So this is something that has been talked about for years and I think finally David has been able to break through the service here and he talks about their first offerings. They are out in the market with now. So very exciting. And I think for all of you maybe who are thinking about getting into the game, but maybe for fear of there being capital out there to invest that this opens up a whole new world of investors. Now granted, David S. Rose's platform is with the US Real estate market is to appeal to larger institutional type investments. There's certainly a whole world elsewhere also with crowdfunding. And if you didn't hear the interview with Janine Yorio from Republic, definitely go back and listen to that because this is a space in the market that is moving quickly and you should definitely learn as much as you can about it.

And now it's time for our Investor Spotlight. And with us today is David S. Rose, who is an Inc. 500 CEO, CEO, serial entrepreneur, angel investor, author and keynote speaker who has founded or funded over 100 pioneering companies. He has been described by Forbes as New York's Archangel, by Businessweek as a world conquering entrepreneur and by Crane's New York Business as the father of angel investing in New York. He is also a New York Times best selling author of both Angel Investing the Gus Guide to Making Money and Having Fun Investing in Startups and the startup checklist, 25 steps to a Scale High Growth Business. He has been an incredible friend. He's got an unbelievable story and we're going to be talking about that. But also his latest venture which could very well revolutionize the real estate business, which is U.S. real estate market which he has co founded and is the CEO. So David, welcome. Thank you so much for joining us today.

It's a pleasure to be here. Looking forward to it.

Wonderful. So David, I know that you grew up in a New York real estate family, so maybe talk a little bit about that. What were those early days like? Was real estate discussed at the dinner table? Tell us a little bit about those early days.

You couldn't avoid it. So as you know, my family has been in real estate for literally a century, which gives you quite a bit of instilled real estate in your bones from birth. So the company, the family company, which is Rose Associates, was started back in the 1920s by my grandfather and his brother, my great uncle, who was the first David Rose. So that's why I use the David S. Rose, because he was the original er, David Rose. And by the way he was also one of the earliest angel investors. So I am a fifth generation entrepreneur, probably fifth or fourth generation real estate guy and a third generation angel investor which gives me a lot of at least accumulated familial time and grade. But in any event, so Dave and my grandfather Sam Rose started Rose Associates back in the 1920s and originally they were, it was a construction company which very quickly began developing its own properties. Back then real estate development wasn't a thing. You were, they were builders. So I grew up thinking my family were builders. My father was a builder because the company, as other similar companies who were started around that time styled themselves, we were builders, owners, managers because real estate consisted of finding a property, you know, arranging the financing, building the property and then you built it, you owned it and then you leased it out and you managed it. And that was an ongoing core real estate perpetual kind of thing. So that's what real estate was for a good part of the 20th century. So it was started by myself, my grandfather, great uncle, who began in the Bronx with one of their first major jobs there was 1000 Grand Concourse. As the middle class began to come up from Manhattan into the Bronx and then they expanded from there into Brooklyn. They did a number of jobs in Brooklyn and then when the Mitchell Lama program in New York, the first middle class tax abatement program happened, they actually did project number one, Mitchell Lama project number one and number of projects in Queens. And then they moved into Manhattan and started probably in the 40s and 50s in the media, post war era building properties in Manhattan. And at that point the next generation came along and that was my father. My great uncle Dave Rose had no children and he and his brother Sam were very, very close. And Sam had three sons and all of them after their military service went into the business. And so when I came onto the scene, being born in the late 50s, the business consisted of my grandfather had died when I was relatively young, so my great uncle Dave Rose, who had a nice long life lasting well his 90s and his nephews, my father and his two brothers. And it was really interesting because again back then family businesses, everybody did everything. And as you know, real estate is sort of very entrepreneurial and you build things and everybody's a jack of all trades. And so for many, many years, you know, 50 some odd years, everybody, they were all partners doing their their own thing within the the family business. But they were also very far sighted and they were one of the first companies to consider organizational psychologists which now nowadays these are big things and you can find them management consultants and the like. But back then it was a new thing and so these whole personality MMPI and personality inventories and stuff. And so they had an organizational psychologist come in to see how they could help improve the functioning of the business. And he gave them all these exhaustive like 6 hour personality tests and stuff. And then my father and his two brothers met with the psychologists, present their reports and he gave each of them their psychological profile and they each took their thing and read it. And as my father reports, he looked at this thing and it said, oh, Dan Rose, incredibly intelligent and far thinking entrepreneurial and looks at different kinds of things here and loves planning long term stuff. And he's thinking, all right, great, this is like a horoscope, tells you what you want to hear, everybody's beautiful and above average. And he's looking at his brothers and they're all equally smiling. And so he says okay, well that wasn't worth much of anything, what we wanted to know. So then the psychologist after they had finished said okay, now switch the Papers, read the other ones. And so my father looks at his older brother's thing and says, oh, Fred Rose, you know, you know, bright but, you know, you know, short tempered, you know, competitive, likes, you know, you know, doing things this and that in the moment and so on. And my father is reading this thing and is saying, huh, what? I wouldn't want to be described like that. And he looks at his brother who was reading his profile and, you know, this long term, you know, how come thinking about whatever it is, he wouldn't want to be like that. And so it turned out that they each realized they had very different personalities. And this profile was saying, you know, this psychologist consultant came in and said, instead of just everybody doing everything and running around the whole company, why don't you divide up the responsibilities that are appropriate to what you actually enjoy doing and like doing? So on the basis of that, they reorganized the company and my uncle Fred, who was absolutely the archetypical builder, took over construction and he headed all construction. And, you know, Fred Rose is one of the legendary builders in New York City. And he loved going out there. I mean, he would, he would come back when I had Lincoln center in blacktop and walk a job and make sure the concrete was setting appropriately. And so he was beloved by every construction guy in the city. And my father, who was this entrepreneurial long vision financial guy, became the long term strategy, planning and development end, the entrepreneurial development end of doing things. And my third uncle, my other uncle, who was very conservative and not given to these flights of entrepreneurial fancy and didn't really like getting on a construction job in the middle of the day, became the head of the management operation. And so she had my father doing development, Fred doing construction, and Ellie doing management. And it worked really, really well. And so for the next 30, whatever plus years, they worked very harmoniously in this business together. So that was them. And I grew up with looking at that and visiting construction sites and looking at the jobs they were doing and listening to my father's thing. My father also, by the way, and I use the present tense because my father is currently 91 and as alive as I am, probably more energetic than I am.

You know what, I can definitely att that because I sat next to your father on the day, as you know, before COVID when the real estate board in New York did their big event. And he is a live wire. Oh, man, he had everyone going. I mean, tons of energy. Is he still very.

He still is. I mean, he loves it, right? I don't Know if you, if you managed to escape being on his mailing list. But he. So when I was a kid, he gives a lot of speeches and talks a lot. There's many roses. Talk a lot. And he, but he also writes. And whenever he gives a speech, he actually writes it up and then sends it out to list of people. These are sort of like op ed pieces. And so. And he gets called to speak on a whole lot of different subjects. And so over the years he was giving speeches on everything from politics to sociology to black white relations. And he was one of the people who funded the march on Washington. Martin Luther King, an extraordinary guy. And so he writes all these things and he sends them out and you know, and the next thing you know he's got so many of them and people are now hungering for this that they get published in a book about six years ago called Making a Living, Making a Life. And so the blurb quotes from that were from people like Fareed Zakaria and I mean Anthony Downs. All kinds of interesting people. And so it was picked by Kirkus Reviews as one of the 50 best independent books of the year. Oh my gosh. So it's award winning books and he keeps on writing. So here's this guy who gives speeches and there is a magazine called Vital Speeches of the Day, which you might see on newsstands that prints the speeches from the president and whatever it is. And they have an annual speaking awards thing where they give awards to the best speeches of the year called the Cicero Awards. And they're typically, these are go to the, this is for the professional speechwriter universe. So they go to the people who actually write the speeches instead of the people who give them. So then the people who apply for these things and get into the magazine are usually these speechwriters. My father a few years ago won six of these awards on six different topics in Vital Speech magazine. So any event. So with all that happening, he then came out with a second book. His second book was just published last year and it's called the Examined Life, which is more of these wonderful essays on real estate and sociology and charitable giving. So he is an extraordinary, brilliant guy, charitable guy. And so anyway, so back to the business. So here he was doing the development and the entrepreneurial piece of it and the company was expanding and you were hitting, this is the post war era and you're now talking about the, you know, second half of the second half the 20th century. And so we're all very tightly knit family. And so you want to expand but he decided that we should maybe expand to shuttle cities, a place where he could go in the morning and come back for dinner with the family in the evening. So looked at Boston, looked at Washington. And so he's the guy who became at one point the biggest developer in Boston. He did one financial center in Boston, 99 High street, which is the Keystone Building, Boston Wharf with cable and wireless in the uk and then in Washington, he was the guy who did Pentagon City, which was next to the Pentagon. So one of the great giant new towns there. And it wasn't even things that they developed. So remember, the firm itself did construct. We didn't do construction for other people, we only built for ourselves. But we did management, third party property management. At one point, Rose Associates was managing, I think 30,000 units mostly around the city, as well as developing today.

Right.

Until the sale. Yeah, they were managing Stuytown until the sale. And so back in the 70s, they were brought on by HRH to be the managing and leasing agent for a new development that they had done back in the 1970s. And it was a superblock on 42nd street between 42nd and 43rd. And so this was the idea was in the early 1970s that, you know, the whole midtown was going to move west and get really, really big. And so the rabbits, Dick, Rabbitsch and the Horowitzes took this whole superblock and got the city to agree to do a loan for it. And they built something called Manhattan Plaza, which is this double giant tower, whole enormous thing was getting, I think close to $100 million loan from the city to do it. And then unfortunately, like the shark and jaws, dump, dump, dump, dump, dump them. Along comes what back then was the big financial crisis. And everything went to hell in a handbasket. And New York City turned around and said, oops, sorry, we actually don't have the money to be able to do this. And so we can't supply the loan on this property. So what do you do? If you're talking about $100 million mega at that point, it was the sort of equivalent of Hudson Yards back then. This giant thing. What do you do with it? Here's the guy who was brought on to be the managing agent for that and says, well, let's think out of the box. It turned out the only way that they could actually get this up and finished was with Section 8 subsidies from the federal government. For those of your listeners who are not in New York City, Section 8 or not familiar with subsidized housing, Section 8 is the deepest level of subsidies where the federal government will, will provide vouchers to the landlord so that the tenant only pays one quarter of their income. And if your income is zero, you pay zero in rent, your income is 100 bucks, you pay 25 bucks in rent. And so very deep subsidies. And so they could get these subsidies for this new housing development. But you can imagine what the neighborhood felt about the idea of this giant thousand plus unit development coming in with these deep, deep, deep subsidies. And so as far as this neighborhood, which was the Clinton neighborhood in New York City, it was formerly known as Hell's Kitchen, but it come up over the 20th century and was now a very solid working class neighborhood. The idea to them of deeply subsidized people coming in, they're all drug dealers and thieves and welfare moochers and stuff. And there was enormous objection to this. And so what do you do? You can't, the building couldn't survive without it. You can only get these things there. And the community was going to blow the thing up because they really hated it. So the guy who was charged with renting this up, my father says, well, let's think out of the box. Well, how about if we try and find a demographic that will qualify for Section 8 subsidies because they have no money, but that are really high class people who the community will accept. And so quoting Mike Todd, who as you recall, was Linda Taylor's first husband, who said that when he was growing up, his family was often broke but never poor. My father realized that there was a class of people who fit that characteristic. And it was actors, performing artists. And so, you know, actors live hand to mouth. They get it big, they wait tables the rest of the time. And so they are, they weren't perceived as being drug addicts or, you know, panhandlers. And so he said, okay, well, how about if we make this entire project, just rent it out to actors and people from the theatrical community, Actors, musicians, stagehands and so on. And so the first reaction to that was, well, that's crazy. Nobody's ever limited a, a multifamily property by occupation before. It's probably illegal. How can you do that? And he said, well, no, you're not allowed to discriminate on race and color and national origin and religion. But where does it say you can't discriminate against people who aren't actors? And so after a lot of work doing this, they said, okay, let's give it a shot. The city supported it. And so that's how Manhattan Plaza for the Performing Arts came Into being. He brought a guy named Rodney Kirk who has, who worked for the Episcopal Church and had been in their coordinator for Upsell. And Rondi came in and helped create this entire community. There was a waiting list for the subsidized housing, 6,000 person waiting list. And so it ended up being, I think, 70% for performing artists. You had to belong to one of the Actors Equity or Screen Actors Guild or the Musicians union, stagehands union. 15% for people from the neighborhood. So that took care of the other people in the neighborhood and 15% for the elderly in the neighborhood and enormous waiting lists. And as you probably know, anybody in New York knows this has been one of the mega Successes of the 20th century development New York. It helped to spur the whole redevelopment of Times Square and the west side of Manhattan. There was actually a film came out last year, a year and a half ago, a film came out about Manhattan Plaza. I mean, people, I mean, Samuel L. Jackson worked as a doorman there and Alicia Keys grew up in there. I mean, it's an incredible, incredible thing. And again, that's all. This one brilliant guy, Dan Rose, that was his idea to do that.

Now, were you at a young age, would you tag along? Would you be helping out at the buildings? Did you have any jobs at the family business growing up?

Well, so it's interesting. So I heard all this secondhand from my father, right? And I heard about the speeches which he gave to all of us at home when he gave out and talked about the jobs he was doing. So I followed the whole development of Manhattan Plaza and the idea and watched it firsthand take place and come up with the idea and how do you get it done? And I learned a whole bunch of fascinating lessons from him, one of which was here I was watching this extraordinary masterpiece with Manhattan Plaza taking this disaster and making it a triumph. And there at the grand opening, I went to the grand opening of the thing and the mayor is giving out keys to the city of New York and the big roof cutting and who's there? Well, the guys who built the building and the mayor and the head of the Screen Actors Union and the local Democratic, whatever it is. And then I'm looking at my father not even on the podium, is he there? I mean, forget getting a key to the city. Name isn't mentioned. And I'm sitting here saying, you know, I mean, this is, this is not fair. This is not appropriate. I mean, so when he came home, I had confetti and a whole party for him saying this is what he had Done. And I was devastated that the guy who I had seen do this from the beginning got zero credit for it. And my father looks at me in this very kindly way. He's my mentor, my role model, and says, the most important thing in life to learn is you can get anything done if you're willing to give away the credit. And my goal was to get this building up and occupied, and we did it. And so the fact that everybody else is taking credit for this brilliant idea, that's perfectly fine with me. And so that was one of those seminal things early on that you want to.

Well, I'm glad you could share that with our audience today, and I'm sure they're certainly grateful and what it's done for New York. And now we can read his letters as well. So. Amazing, amazing story. And for you to learn firsthand and to have your father as a mentor. So, I mean, I guess through school, did you always think that you would then end up in real estate or.

I assumed I would. When I was in sixth grade, they wrote, there was an essay, what do you want to be when you grow up? And I said, I want to be a builder so I can build houses for people. And then when I was in high school in the Bronx and Horace Mann, I took a course in urban studies, which I found was fascinating. We had the mayor of New Haven come in and talk to the class, and it was really interesting. And so then when I went to college, I wanted to continue that, so I went to Yale, and I majored in urban studies. So my undergraduate degree from Yale is in urban studies and all about city planning, where I had the delight to find another mentor. And so my advisor and mentor at Yale was a guy named Alexander Garvin, who created the Study of the City class at Yale and still teaches it. I then interned for Alex when I was in college, where he was actually the deputy commissioner of HPD. I actually rewrote the manual for the 421 program taxpayment program in New York. Alex eventually served as Director of Comprehensive Planning for the Planning Commission and on the Planning Commission, and is still a very, very close friend. I met my wife working for my later wife when I was working for ale. And so here I come out of school with this degree in urban affairs, urban planning and family philosophy was, well, you'd have to get a real. You can't come just work for the family business. You got to go do something else. So at that point, I was, again, luckily, fell backwards into government because I had done Volunteer work for Pat Moynihan. Senator Daniel Patrick Moynihan, who was both a friend of the family and I had been admiring him and volunteering for him. And here I'm getting out of school and out of the blue he calls me up and says, I need somebody to be urban affairs person. How would you like that role? So I said, great, I'll take it. Where do I sign? And so my first job out of college was working for Moynihan as his urban affairs expert in New York, which was an enormous amount of fun. And then ended up because we got along pretty well as his body man and driver and advanced man in New York. And then I ended up running his regional office in New York at the age of like 21 or 22. So let me tell you, there is nothing more fun for a 22 year old kid than running a senator's office. Regional office, where my boss, by the way, was Tim Russert in Washington D.C. before he went to Meet the Press. And I mean, I was conducting congressional investigations. I was writing op EDS pieces for the Times. I was sitting on boards with the mayor. 22, all in the name of the senator, which was really amazing.

But ultimately, you know, we had. I interviewed Rachel Loeb, who has now just been named the interim CEO of the New York City. And she came from the private sector and now is in the public sector. And I asked her, I said, you know, Rachel, why, why would you. We have a lot of aspiring investors here, We've got a lot of college students. Why would they think of going into the public sector? And she said, the type of frontline experience you will get is unbelievable because you'll get thrown into a situation where you'll be on the other side of the table from developers who've got decades of experience. So it definitely sounds like there's something to be said.

Well, but there wasn't. It was fascinating. First of all, you got here, a young kid got thrown into the middle of all these major things. So I worked in the city at 42nd street, which was the original plan for the redevelopment of Times Square. I worked on the housing in the South Bronx, where semi coincidentally, this woman that I had met working for Alex Garvin, who was his counsel, eventually was running the housing in the South Bronx for Ed Logue. And so I worked on that and had a lot of experience there. But ultimately I decided after two years of working for from Moynihan, that as much as I was having fun and really loved it, it that at heart I really was a private sector type. And the government could help direct and guide the private sector and provide incentives and penalties and so on and so forth and overall planning. But the motive power of society was in the private sector. And so I reluctantly, sadly, after two years, bid a farewell to Moynihan, where, by the way, I was succeeded by my brother. And my brother, who also had a background in planning. And he then went on to a glorious career in public service, being chairman of the New York City Planning Commission. I think, you know, my brother, actually, Joe Rose. And so he went into public sector and I went back to the private sector, now went to Columbia, got my MBA in real estate finance at Columbia and joined the family business. And so then I spent, you know, a decade in real estate development, going through all facets of the business, developing my own things. I was the primary person on the Ellington, the 52nd 8th, the multi story, large, multifamily residential there. And the interesting thing was about the timing when I came in. I am just old enough, so I came in along with computers. And so computers had had no utility in real estate except for processing rent rolls for large players until then. And it seemed to me that this wonderful tool, the personal computer, could be used for a whole lot of stuff in real estate. And so that's how I have the sort of dubious distinction of inventing the field of proptech, or if not inventing it, at least being one of the early pioneers. We were among the very first people to use computers and spreadsheets to do pro forma development analysis. Now you think of anybody listening to this podcast today says, how on earth could you possibly do a pro forma without a spreadsheet? Well, back then you did it on a spreadsheet of paper by hand, or you retyped it. So I brought it out. There was a program, the first spreadsheet was called VisiCalc on an Apple II, which actually had been written by two friends of mine, Bob Frankston and Dan Bricklin. And so we used these spreadsheet to do these things, and that helped to revolutionize, as everybody soon knows, all of real estate. And then as I went on through all the various other aspects of the company, when we were doing the Madison Green condominium opposite the Flatiron building in Madison Square Park, I suggested to the partners that we use computers to help sell real estate for the brokers in the condo there. And they looked at me like I had three heads. So I actually mocked up a table that I built myself with a 25 inch monitor. Back then a 25 inch monitor meant a 25 inch television set under the, under the desk and showed them what you could do with it and they reluctantly said, okay, go ahead and do it. So here we on Madison Green, we had the world's first computerized real estate sales office that I built for every broker in the sales office had a computer built into their desk with a whole display. Totally state of the art. We then applied that kind of technology to selling commercial real estate. And down in Pentagon City, when we did one financial center in Boston, we were one of the leaders in shared tenant telecommunication systems. Then as I was rotating through construction and I was building the Ellington as an assistant construction super, I was punch listing the whole building. And I'm thinking there has to be a better way than taking a clipboard around with punch listing. So I actually developed the world's first computerized construction punch list software. This is now back in the 1980s. So I was doing all of this tech in real estate and real estate. Eventually I was doing more stuff in tech than I was in real estate and I had some side gigs and I fell backwards into venture capital financing. Got my first VC financing round for one of my side projects in 1991 and then moved into the tech world. Spent the next couple of decades in and then including becoming an angel investor when the whole tech world blew up in the dot com crash. And then because I'm an entrepreneurial type, ended up founding New York Angels, which is one of the largest and most active real estate investment, not real estate, early stage private equity investment groups in the world and angel investors. And then I developed a platform to make angel investing easier which is called Gust. And you've heard of Gustav. Gust has now connected over 1 million startup companies with over 1,000 early stage angel investment groups and accelerators, accelerator programs and the like. And so that led us into thinking about the capital market space connecting investors and buyers and sellers and people who own stuff in there. And so we started working on a capital markets platform and then we realized, wait a minute, there's actually some low hanging fruit here because there happens to be an asset class, which is the world's largest asset class of $50 trillion that is right now completely opaque and is all inside baseball. And sure I know where all the bodies are buried and that's what I grew up in. But it's very inefficient. And inefficient markets are wonderful for people know how to deal with that particular market. Not so great for society as a whole. If you're looking for efficiency. So we said, well, you know what? If we can actually create and use technology to create an efficient capital markets platform for institutional investment in real estate, we could really hopefully revolutionize the industry. Provide people who have properties with an outlet for selling them that is very efficient and effective, and provide buyers of property with a whole host of things that they don't have. Now, if you think about how real estate works today, imagine if you had the stock market, but the only things you could buy in terms of investing in companies, you could either be a private equity firm and buy a whole company, lock, stock and barrel, or you could put your money into a mutual fund and let the fund manager decide what to buy and how to do it. Imagine if you couldn't invest in the stock market by investing in stocks. Well, that's what you have in real estate, right? Your choices now for real estate is you either got to buy a whole building direct investment yourself and buy it and own it and operate, or alternatively, you give your money to somebody else. Either a sponsor who pulls together a deal and the sponsor is making all the decisions and you're wholly illiquid, or you're putting your money into a reit where the REIT manager is making the real estate decisions and what to buy and sell, and you're purely passive. So we said, you know what? We think that there is a very large universe of institutional players, sort of from the large family office and on up, people who are writing checks in the upper sixes, seven, eight figures, who would like to have the flexibility of a portfolio the way you'd have a portfolio in equities, but do it in real estate. They know what they want to do. They know whether they're looking for core, core plus, and whether they're looking for multifamily or office or whatever. But right now they have no way to pick and choose and to buy pieces of things. And so what we have done with US rem, the US Real estate market has taken us a couple of years, but we have created this platform that allows institutional investors to buy pieces of properties with, with the ability to resell them, no restrictions or lockups on reselling them. And you can buy as little as a quarter million bucks apiece, up to lots and lots of millions of bucks. We're starting out doing core properties and core plus existing things, mostly multifamily, in areas that are up and coming. And so what we're seeing is this is apparently filling a real need that we identified in the market for people to be able to make intellectual decisions. And it turns out that the tax treatments of that, while they're not eligible for 1031 exchanges because it's a security sale, not a real estate sale, it turns out that the tax treatment of these things is remarkably good. And so the comparable, if you're looking, if you're an investor with allocating a portfolio, the comparable here is sort of tax free municipal bonds because it's that kind of a return, except the return is actually 2, 3, 4 times what you would get on a muni and you're getting in real estate and then you can hold and sell whenever you want, want to sell. So that's a very long winded answer to your question.

Wow. Well, no, we covered a lot of ground and just going back a decade or two and then trying to catch up. I mean, what I'm thinking as you're speaking is how far this industry has come. We still have so far to go. But I mean, I've only been doing this 22, 23 years. And to think when I started the business, I don't even think I had email. We did the blast fact, everything was in hard copy. I stuffed a lot of mail. And back then there wasn't like a multiple listing service. There wasn't even. Everything was done quietly. An owner would call up a neighbor on the block, hey, do you want to sell? And to give credit to the founders of my first company, Bob Nackle, Paul Massey, they said, look, we're going to go represent owners. We're going to let the world know that the property's for sale. You know, for starters, we're going to put a for sale sign on the building. We're to going, going to send out a lot of information and you know, fast forward 20 years, we're all leveraging technology, you know, the databases, using predictive analytics to figure out who are buyers, sellers. But I think what you're doing with this marketplace, and it was really, and you were again kind enough to come on to our weekly clubhouse show and you talked about this. But the way you put it today, as far as comparing it to the way someone would otherwise be investing in the stock market, really drives the point home. Because you're right. I mean, real estate has been such a, you know, you use the word opaque and I don't think I could entirely disagree with you. I mean, certainly a closed environment, it's an insider's game where, you know, the sophisticated investors come in, they acquire more and more properties, they have the relationships, they have the abilities to get in and someone who's maybe not in the business who would like exposure to it. To your point, it's really just either, you know, investing in a reit, which typically tracks along with the stock market, so are you really even getting, you know, diversification there or, you know, investing with a sponsor and being passive? So I guess the question is far. So you're basically creating for individual build buildings, you know, their own mini, you know, almost like an nasdaq. Like its own.

Exactly, exactly.

So maybe talk a little bit more about the mechanics, how you're doing this, because I would imagine this is very complicated to pull together, but maybe you could kind of tell us exactly how this works.

It's not all that complicated, but it's really challenging. The idea is relatively simple. So what we are doing is we're combining real estate and securities. And so the regulatory structure here is a risk. So we're effectively creating a single asset, professionally managed REIT to own this one property. So for example, what happens is an owner says, I want to sell a property through the marketplace. They give us 90 days to sell it. We go out, we create a reit. And this REIT is an independent reit. It's got an independent board of directors, the same way you'd have an independent board for a pension fund or something like that. So it has an independent independent board. They're not stock, they're not real estate pickers, but they're people with real estate experience and securities experience. And then the REIT itself appoints an asset manager, third party asset manager, a major, well known name in real estate who specialize who's going to provide the real estate expertise here. Right, but they're not a sponsor, so they're not taking the personal risk of doing it. But they are a highly skilled third party sponsor, a third party asset manager. And then we go out and then we, we place the property to all of these institutions, large family offices and the like. And so at the closing, you effectively have a simultaneous double closing. The investors put their cash, buy, acquire shares of this reit, which turns around then at the closing and acquires the property for cash. There's no debt or leverage on these things. So we're aiming initially at core properties with no leverage. It turns out that when you actually look at the numbers, everybody says, how can you do real estate without leverage? It's all about leverage. Well, you know what, for core real estate, it's not about leverage. And actually when you look at the numbers, when you put. First of all, core real estate typically has Very little leverage. But adding leverage to core real estate simply increases the risk without really increasing the return significantly. So these properties are unlevered, which means they have this really interesting tax advantage, which is that check with your own tax advisor to confirm, I'm not a tax expert, et cetera, et cetera, et cetera. But when you, when you get the distributions from the reit, and as you know, a REIT is required to distribute at least 90% of the income to the property of the cash to the investors, that cash comes back to the investors primarily as a return of capital. And return of capital is not taxed because you're getting back the cash you put in. So essentially you would compare the numbers here to what you'd be getting on other tax free solutions like a tax free uni. But yet it's real estate and you have the real estate potential for appreciation and everything else in there. And so now, so because these are our securities, because we only are selling to larger players here, accredited investors and above, that means that there are no restrictions, that we are not adding any restrictions on resale here other than the regulatory ones, which is a 90 day holding period. And so then after that you can keep your hold your stuff at any point or sell all or part of it. We're now in our market with our first property, but we're looking to do next year up to one a month cadence or even beyond that. So when you now have dozens or hundreds of properties in a marketplace, you begin to have the real liquidity of people trading these things. We'll have an early upfront liquidity facility, a liquidity provider who will provide a bid bid on all properties. So you know what, you can always get out of it. But the idea here is that by creating a platform using current state of the art technology that allows institutions to buy fractions of buildings instead of the whole thing, to allow them to do it really rapidly and cleanly up front, write a check, here you go, like a securities sale. And to have them not add any restrictions on the resale of these things so they can rebalance their portfolios and sell as they want and allow people to who couldn't buy an entire property to get that same property in a fractional piece of it. You can't buy Apple Computer, but you can buy a share of Apple. Similarly, you can't buy the whole building if you don't have the big checkbook, but you can buy a piece of it. And then we think that this provides a whole host of new ways in which people such as yourself can get involved. And anybody with a real estate background, you think of all the things that people do, their brokers, intermediaries, their managers, their analysts, analysts, they're leasing it. There are all of those roles still exist, but now once you have a marketplace in play, it opens up the whole world. So I would not be surprised at all once this gets going. To see people who are today traditional sponsors of real estate say, wait a minute, that's one way of doing it. But if you can utilize this new kind of market. For me, if I can find a property, I'll lock up the property and then I'll go around and effectively pre sell it and I'll do the syndication in the through this marketplace and access this large universe of buyers with these really flexible holdings and then move on to the next one. And so I think we're going to see a lot of players in all parts of this. Wow.

I have so many questions and I don't want to overcomplicate this for the audience, but it does seem that this has been tried before. I know at one point I think they were trying to create a single asset REIT for the Empire State Building. I know that that ultimately did not happen. But there's also been these. Delaware's statute trust, Statutory trust.

Yep.

Right. So in there. And that was always seen as kind of the vehicle where if you have a 1031 exchange and you want to just go in for a portion of the building, you can do it. So you know what is different about what you're doing. And sorry, I'll add one more thing. You also hear about these coin offerings for buildings, right? I think those are ic. So why did you pick this structure? Has it been done before? And if it hasn't been done before, why not?

Why not? So first of all, as we've been discussing for this whole podcast, real estate moves very slowly. Technology was the last place to hit it, and it's been very opaque and as you point out, very inside baseball. So people like our family, and by the way, the US Real estate market, I can't give you the name names for the public distribution here, but you know who they are. Many of the major New York real estate figures have invested and seed funded this because we're all aware, we know how the world works and we're all aware that the world is going to be changing. And you might as well like Levi Sprouse selling picks and axes at the Gold Rush kind of thing. This kind of market is going to be the way stuff goes in the future. So there are a lot of major current real estate players who are are involved in doing this. But to answer your question, the challenge here, things have been tried before, and people have tried doing, taking a building public, right? So effectively a publicly traded REIT. But as you point out, REITs track the stock market. They are not really insulated as an alternative to the marketplace. And so those haven't been successful. There was somebody who tried a really nice shot at this doing stuff in Boston. It didn't get out of the gate. There was then a whole nother universe of people doing crowdfunding. So we've all realized, I mean, everybody who is at least a little bit farsighted looks at the real estate industry 10 years ago or so and says, okay, it's really inefficient. There's got to be a way to improve this. And so the first pass at doing this, analyze the problem as follows. Oh, this is all inside baseball. And the problem here is it's all those old, dead, white guy New York City brokers, you know, people like you and me, who are keeping all to themselves, and there's no access to anybody else. So what you want to do is you want to democratize real estate. You want to open it up to retail investors. Anybody can do this. Build your own real estate portfolio $100 at a time, and create that. And so there were a bunch of real estate crowdfunding platforms that came into play. One of the very first and best of them is Realty Mogul. And I was actually one of the first investors, and that they're out in California, a remarkable team. They've done some great stuff, raised money very quickly at a high valuation. Well, it turns out that if you're trying to buy real estate $100 at a time, and you're trying to buy a really big building, it doesn't quite work that way. And so retail investors are not looking. They don't have the same appetite and the same holding period, the same sisflights, as we call it, as an institutional investor for a long period of time and transaction costs can kill you. And so all of that, there were probably a dozen or more, two dozen of these real estate crowdfunding platforms that tried. And so Realty Mogul is still around and it's still doing fine. But that market never took off the way people thought it would. Then you have simultaneously, in another part of the financial universe, this whole blockchain stuff coming into play. And so blockchain, for those in your audience who aren't familiar is a new type of technology with a distributed ledger technology underneath it. And it's the thing that cryptocurrency is based on things like bitcoin. So bitcoin is not synonymous with blockchain. Bitcoin is a cryptocurrency has nothing to do with real estate. But the underlying technology allows you to do interesting things. So a bunch of including creating what are called tokens, security tokens, which are effectively securitized piece of something else. So a lot of people said, okay, well crypto is really big and distributed ledger technology and blockchain is going to be big, which parenthetically it will be very, very big. And so therefore let's apply it to real estate. So let's create these tokens almost like a crypto coin digital token that's tied to a building and we'll sell that. Well, the only problem with that, there are a couple of very high profile attempts at that which fell flat also because it turns out that a lot of the bitcoin currency stuff, it's all speculation. There is no underlying store of value to bitcoin other than what people think it's worth. And so a lot of the trading in bitcoin is among the same people who are trading cryptocurrency and hoping if not for the greater fool theory, at least that other people will see the same vision in it that they see. And so those people, real estate, that's a building, that's a very different kind of a thing. So that crowd is not particularly interested in real estate by real estate. And as you and I probably know, anybody who is in real estate, the idea of any of this crypto digital, but they don't want to touch that with a ten foot pole. So there is absolutely zero interest in the real estate side of doing any of this new fluting stuff, which doesn't track the things that they know about. And so basically, while there has been an enormous amount of noise in the digital space for ICOs, initial coin offerings for security tokens and stuff based on real estate, none of them has had the least bit of success in the US at this point. Will things like that happen? Absolutely. That is going to be the future. But that future is five years out, 10 years out as the world gets there, by the way, at that point, since we are under the hood or using that technology to build this whole platform under the hood, we're going to be ready for that when it comes out, but the world isn't there yet. That brings us to the last piece that you were talking about, which are folks who are doing retail orientation oriented fractionalized interests. And there are folks like Lex and Cadre and others who are effectively buying things on their balance sheet and then turning around and reselling it to retail members or effectively low end accredited investors on their stuff. But that's really a distribution way. So we look at those as sort of hybrids of the old world and the new world. There are still sponsors involved, there is carry involved, there are all the fees that we know are pertinent to all this kind of real estate stuff that go in there. What we're doing is really a clean break. This real. I mean, it's not a wild and crazy crypto thing, nor is it business as usual with hidden sponsor fees and carries and loads and everything else. This is a very highly, radically transparent. What you see is what you get. One property equals this one professionally managed reit and you buy and sell shares in this. You're buying and selling shares synonymous with the property. It's really, really tax advantaged. We're starting out with the core and core plus and then the reception we've been getting in the marketplace is really strong from buyers and institutional buyers. And so we think that this is the beginning of hopefully a very interesting new era for real estate which will provide a whole lot of opportunities for a lot of players in the space.

Unbelievable. And I've got to imagine clearly getting the first one off the ground and figuring how to do it. And I know we've been, we've known each other for years, but I know when you came with this idea and I know how much work has gone into this and your team to make this a reality. So really excited to hear about this first offering. And I mean, where do you think this scales from here? I mean, does the US real estate market, which you've created, I mean, this becomes, I would assume, a platform where if someone wants to go in, in and create that portfolio, they can get some multifamily exposure here, office exposure there. I mean, I've got to imagine. That's your vision.

Yeah, absolutely, that's the vision. You got to start somewhere. There's a great book called Crossing the Chasm by Geoffrey Moore which says the biggest problem for innovators and first time folks is you try and boil the ocean. You try and do everything. So try and do one thing first and nail that and then expand from there. And so yeah, this is a marketplace and the New York Stock Exchange trades everything from Apple Computer to raw land deals or whatever. And so in widget manufacturers, in this particular case, the US real estate market certainly could trade everything. But we're crossing the chasm and starting with the first beachhead, which is in core and core plus multifamily, typically in a range evaluation range of. We think the sweet spot initially is at about the 50 million to 250 million kind of range. There's no technical reason you couldn't go above or below that. But that's about the right level for institutional investors with fractional sales. We anticipate that the typical check size for the bite size for buying a piece of these will be in the seven or eight figure kind of range. And then you'll be able to. And so the properties are in figure 100, 150 million, something like that. At a pop, you can begin to build a really decent sized portfolio. And then over time, I mean we've had some people talk to us and dangle $500 million properties and stuff, which I would love to do, but that might be a little bit much for us to bite off day one. The first property we're doing now because it's a security sale, not a real estate sale and I'm not a security broker and neither are you, I can't pitch a security here. I will tell you that. It's a multifamily in the New York area, which is really great new construction, post pandemic, really really interesting. And so anybody who's interested, by the way, should reach out to us@hello usrem co h e L L O SREM co and our official registered securities brokers can tell you about it. But we think that this is going to expand rapidly. And so the other stuff, we're now underwriting the next half dozen properties and these are primarily multifamily core, but we're also seeing some triple net leased, interesting properties, some industrial triple net lease, some storage stuff that's happening. I think the market, overall market isn't quite ready for hospitality or retail yet. Although we have one in that we're looking at that's a very interesting long term, 20 year triple net from AAA tenant, which might work. So yeah, this is I think going to be the future of real estate. It's going to take a while, a few years for it to get up to speed. You know, we're looking to do, you know, half a dozen things. We have the first one in the market now, looking to do half a dozen by the end of the year, then you know, one a month or thereabouts next year and then Ultimately, you know, if in three years we're doing, you know, we ourselves are helping to hunch them through, you know, a couple a month, and then it's a marketplace with a really active group of people and sponsors and others. Think about like being a fundless sponsor. You could be a sponsor without putting cash money down. You tie up a property, you come in and you, and you, and you place it and then you move on to the next one. And so we think a lot of folks like that are going to be coming in and using their real estate abilities and taking advantage of the platform, which, as you point out, took a lot of time. Took us a couple of years to figure out all the regulatory stuff and get everything done because you're blending securities and real estate. But now that we have this platform to do it, it's a very, very efficient way both to invest in real estate on the one hand and to sell real estate on the other.

No doubt. Well, David, this is tremendous and can't wait to hear about all your future successes here on this new platform. We only have a couple minutes left and so I'd love if you could give advice to. And maybe it's the college students out there listening. Maybe it's someone who's been involved in traditional real estate and wants to get into the game. They want it, whether it's prop tech or they want to get involved in this space. What would you say to that person, you know, if someone wanted to come work for the US real estate market, what, what would you, you know, what is that skill set? What are they studying in school? If someone, you know, maybe it's a longer term owner who wants to get involved, what would you say? What would be good advice on how they can properly prepare themselves for this?

So, so those are great questions. Those are two or three very different questions, right? So for somebody coming out school who wants to get into real estate, my first question, and I, by the way, I answer questions like horror like this all the time. First question is, what do you mean by real estate? Right. Real estate as we know, covers a whole range of sins, as it were, right? There are developers, there are brokers, there are property managers, there are analysts, there are construction people there, you know, and so, and these are all wildly different professions that all happen to be involved with the built environment. So the first thing to understand is that real estate is actually not one gigantic thing, it's a whole bunch of different things. And figure out which part of real estate, if you like selling things, you want to be a Broker, Right. A broker can do very, very well, but a broker is not a developer and a broker isn't a construction guy. Right. On the other hand, if you're an entrepreneurial type, you might want to be a developer. If you're an architect, that's something else entirely, as a matter of fact. So in terms of investment, I think you mentioned that I'd written two books to New York Times bestsellers about how to do a startup and how to do an investor. I can for the first time pre announce here on your podcast that I'm working on my third book, which is actually in real estate.

You heard it here first.

We're breaking news here. What's interesting is that unlike the previous two, which I wrote myself, this one is going to be effectively an anthology and it's going to be the comprehensive guide to investing in real estate. Because it turns out, turns out that investing in real estate, like joining real estate, you're talking about, are you investing in real estate by flipping a house? Are you wholesaling? Are you buying a property and holding it for forever? There are a whole bunch of ways to invest in realty, investing in a prop tech startup, all different ways. And so each chapter is going to be written by the leading expert in the country in that space, how do you do a big JV deal? How do you invest in a reit? How do you invest in a, how do you flip? How do you wholesale? Right. And so that's going to be a lot of fun. We're working on it now. Hopefully that'll be out later next year. So to quickly answer your your question, I would say figure out what particular part of real estate you're interested in. Right. Is that the entrepreneurial aspect of doing something like flipping? Is it the sales aspect of brokering? Is it the long term buy and hold of investing and then focus yourself in that area. These days you have to have spreadsheet skills, you have to have finance skills. Real estate is ultimately all about money and things attached to money and securitized versions of that. So you have to get those kind of finance spreadsheet basic stuff down. That's the, the core.

David, this has been incredible. Wow, my head's about to explode. So much information here, so many places to go. So I'm sure this will not be the last time that we'll be collaborating and just really appreciate your coming on the show today and giving our audience some insight into the future.

It's a pleasure and I look forward to coming back as often as you want. Invite me.

Wonderful. Well, David, thank you again for joining. Thank you all for listening. This is James Nelson, your host of Real Estate Investing Live from New York. If you like this episode, please share it with your friends. We love your ratings, your comments. Please subscribe if you haven't already. On itunes, Spotify, wherever you get your podcasts, we're here to make you the best investor possible. So until next week, thank you again.

Thank you for tuning in this week. 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 on Wednesday mornings at 7:00am Eastern Time and 4:00am Pacific Time, as well as always on Demand. We'll talk again next week. It.