Appraising with Jonathan Marcus

Foreign this is the Insider's Edge to Real Estate Investing with James Nelson, the principal and head of Avis & Young's Tri State investment Sales Group. In this program you'll learn game changing strategies to outperform the market. James will teach you how to source, execute and capitalize on the best real estate opportunities in New York and around the world. Now here's your host. This podcast is for educational purposes only and should not be relied upon for investment decisions. The opinions expressed are those of the guests and not their companies. Listeners should not act upon the information without first seeking appropriate advice from an accountant, lawyer or other professional.

Welcome everyone to episode number 176 of the Insider's Edge to Real Estate Investing. This is your host, James Nelson. Thank you as always for joining. Thank you. For those of you who've gone to james nelson.com to sign up for our newsletter, we built this site and the newsletter for you. We're here to help you gain the insider's edge to real estate investing to learn game changing strategies to outperform the market. That's what the show is about. That's what the website's about. That is what this podcast is about as well. So today, with no exception, we have a great guest, Jonathan Marcus who's going to be talking about how to understand value in real estate investing now. John is principal at New England Investment Partners, which focuses on the national market and actively pursues the acquisition of office, industrial, retail and multifamily properties. And the company takes a conservative and holistic approach to add value while improving the tenant experience. And you're going to hear about getting involved in real estate when it's a family business, which might apply to several of you. Listening and how to navigate that. How to start off on your own as well with real estate investing you're going to gain insight and moving from multifamily properties to office. Jonathan discusses the advantages that come from continuing to move forward and raise capital when you find a great deal. So we're going to have a brief word from our sponsor and we'll get right into that interview with Jonathan Marcus.

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

All right, welcome everyone. I'm here today with my friend John Marcus, who is principal and co founder of New England Investment Partners. John, thank you for joining us today.

Thank you for having me.

Wonderful. So for our audience, maybe you could start by just giving a little sense of your company, your holdings, geographically, asset type, that kind of thing.

Yeah, New England Investment Partners, we obviously started in New England and our primary focus has been for the last number of years commercial properties, retail, office, industrial. In the originally starting in Massachusetts in around the Boston area and then moving to Fairfield county and focusing hyper focusing on Fairfield county since then over the past couple of years we've actually expanded it back into multifamily but in the Southeast, in the North Carolinas, South Carolinas, Tennessee, Alabama, Atlanta, Georgia area.

Wonderful. And I know we had the chance. I think we met. I'm trying to remember where and when we met, but it was somewhere in Connecticut. I live in Greenwich. You have a great office property, several of them actually in Stanford. So I think that's where we caught up. But it's always amazed me how you've been able to do the commute from the Boston area down to Stanford, down to New York and now the Carolinas as well. So John, maybe give us a little sense about how you got into the business. You were saying before that you started in the appraisal side side and then you decided to get onto the investing side. So maybe talk a little bit about that transition and how it came to be.

So it's definitely. Real estate's been in my blood for multiple generations. Actually I didn't really want to go into real estate at first. I wanted to be an electrical mechanical engineer and I was told I was not smart enough. So don't even try. So then I went into real estate.

You said before we were trying to get the set up here and there's always a last minute glitch. You had some pretty helpful suggestions. So could have, you could have fooled me.

So originally when I first I was very lucky. I started in appraisals actually. Yes. Right out of school, right out of college. Residential appraisals that did not last very long. It got kind of boring very quickly.

Did you have to get licensed before you did that or what kind of.

Training did you do to worked under somebody else's license. But yes, I did get a license, but I did work under a master, similar to a broker where you can have multiple levels of licensing. So, but I did work under another brokerage firm, I'm sorry, a appraisal firm, and did for about six months did single family home appraisals and then went to work for a commercial appraiser, more of as an analyst and also the same thing for about six months to a year just to kind of understand that side of the business.

Did you teach yourself how to underwrite and do the analysis? Was it kind of like learn on the job?

For residential, it was a lot of drop down menus and yes, they, they pretty much had a very succinct process. The company was a great company, but they had a very succinct process of exactly how you came to the values, all the different factors and you basically just went through a checklist. On the commercial side, the guy who I had worked for, he was brilliant and he really spent the time teaching me for the short period of time that I was there how to understand value. And there were certain things like even to today that I still go back and I remember how he had shown me. So we were, we were, one of the deals we were analyzing was in and around the Science Museum in Boston. And I remember there was a condo, there's an apartment tower that was built there and we had to evaluate it for a court case. There was, I, I don't know if it was two owners suing each other. I don't remember all those details, but I remember when we drove up, he asked me, okay, well what do you see? And I said, okay, I see a building. He goes, okay, what else do you see? And you know, I mentioned a couple of things. He goes, well, why don't you look at the cars that are in the parking lot? I go, why would I care about the cars in the parking lot? We're evaluating the building. He goes, well now you understand by looking at the cause of the building parking lot, you understand the type of people that live there, you understand the demographic of people that live there. You, you understand so much more by looking at the whole picture, not just the asset in and of itself. And to this day there's a number of things that I learned from him that I never would have realized when analyzing real estate.

I'm smiling because that kind of old school mentality reminds me that there was a gentleman I used to work with. Ben Fox, you know, some have called him kind of the godfather of retail brokerage. And he, we'd show up in front of a retail or a restaurant bar and he'd say, yeah, these guys do good business. And I said, Ben, how do you know that? We're sitting here at like nine o' clock in the morning. He says, look at all the cigarette butts on the sidewalk. So yeah, it's pretty, maybe it's not scientific, but so that interesting. So do you think you're training as an appraiser? And I'm trying to think, have we even had a former appraiser on this show? But do you think that mindset of how you underwrite a property stuck with you as an investor? Because I can tell you it's very different how an appraiser maybe approaches a value as say maybe a broker does, with a broker opinion of value as opposed to maybe you do as an investor. And so what, what would you say to that?

I mean, to be honest, all your life experiences culminate to how you, to how you value real estate. It's irrelevant whether it's an appraisal or engineering or honestly even just your shopping. I remember a good family friend of ours who ran a very public fund. He would ask the mothers in the community, where do they shop? And that's how he picked a lot of the stocks and the companies that he would invest in. He would use the personal experiences to understand that. So yes, as an appraiser for sure, you know, understanding how the different aspect of how we looked at value maybe not helped as much in terms of coming up with our personal value, but it does help with a lot of the process. So when we're dealing with the lenders, it's understanding their perspective because they see the value through the appraisal, they understand those aspects. So now if I understand how the appraisal comes to its value, I understand how to deal with the lender.

So this might seem like a really specific question with appraisals, but comparable sales, for example, because when you're looking at an office building in Connecticut or wherever that you're looking at and you're trying to compare it to the comp set, I've noticed that appraisers will have, okay, here's the price per square foot and then here's a half a dozen different ways that we've adjusted the price to make it sync up with the subject property. And it could be location, it could be condition, it could be timing. So I don't know, maybe I'M getting too much into the weeds. But, but do you, when you think about. All right, I have to justify as an investor, I'm sure you're trying to figure out am I getting a good deal? And you're trying to reconcile this purchase compared to other sales. Like is that appraiser mindset of, of how you compare other properties does that.

I laugh because that is one of the things I got tremendously frustrated with with appraisal and why one of the, one of the many reasons why I left. Value is only what one person is willing to sell for and one person is willing to buy for. That is the value of the property that could be changing on a minute by minute basis. When you're coming up with comp sets, it's irrelevant because sometimes people will buy just because they have a feeling. I mean, there was a deal we were looking at in Westport that we put an offer in and somebody came in significantly higher than everybody else. And the only reason why is because he loved Westport because he's from Westport. It had no real monetary additional value. So now is the value of that property that much higher because that one guy was willing to pay? And that's the problem, is the value is what a buyer and a seller can come to an agreement on. That's the value. But that can change depending on who the buyer and who the seller is. So coming up with these concepts is very difficult because. Because there are so many other variables than just the grass outside, how much land is there, how much square footage. There is a tremendous amount of variables. And to some extent you're making up a value and you're just hoping that you're close.

So one way that we address this in our broker's opinion of value, and I don't think this is appraisal standards, is the user premium. And so when we have maybe it's an office property, maybe it's retail and it's vacant. Okay, we can. We have a pretty good sense of how an investor is going to underwrite it because they're solving for a return. But as far as that premium that the end user is looking for, above and beyond, that's really subjective, right? Is it. Are they going to pay 20% more than the investor? 50%. So again, I think your point is that there's probably, when you underwrite a deal, there's probably the way that 80, 90% of the investors are going to underwrite, but there's always that outlier who's going to have a special reason.

Well, but Even within the investor pool. You know, it's funny because we go through this debate internally, like, what are our returns? What are our returns need to be? And they're constantly changing. And they're changing based upon the company's, how the company evolves and it changes with market condition. So even when you say, yeah, we can figure out what a typical investor is willing to pay for it, but can you? Because different people's cost of funds are very different. I remember when I first started out, I was bidding on a property and there was another individual who was bidding against me. They were a much more established company. I remember she came over to me and she said, look it, I'm going to buy the property and you can never compete with me. And not that I don't like you, but I'm just being honest. And the reason she said that to me is her cost of funds was so much cheaper than anything I can ever do. She said she was basically getting money for almost free to buy stuff. She goes, how can you compete with me? So it's hard to really pinpoint value because every investor is different. Some investors today are like, hey, if I can't get a 12% return, it's not even worth my time. And some will say, you know what, if I can get an 8% because I got so much cash just sitting around not doing anything, I'll take an 8%.

So I think with the way you're explaining the bidding landscape, that I have a sense of how you're going to answer this question. But I would assume that when you underwrite a deal and decide what you're going to pay for it, you have your formula right and it's worth what it is to you. And you probably don't get caught up in these bidding wars where, you know, who knows if the person on the other side what their motivation is. But is that. Would you say that you've got your guidelines and you stick to them and you really try not to get emotional in a bidding process?

You make us sound so good. We try not to get emotional. Usually where are when we get emotional and we found that we have problems is when we've already gotten the deal, already negotiated, the purchase and sale, we're very close to the closing, and then there's always something that comes up and you want to make that deal close and you say, you know what? Originally you said, you know, if this is the case, there's no way I'm going to close on this deal. And then you're at the one Yard line. And that issue comes up and you're like, oh God, I told myself I wasn't going to cave. And then you end up caving. So we do get emotional. Do we have a secret sauce? I mean, we like to claim we do, but no, I mean, the truth is, you know, the way we analyze it is we do it almost on the back of a napkin. Because one of the things that at least we've seen is the software to analyze deals is incredibly sophisticated from the last even 15 years. I mean, it's incredible what AI has done, different softwares have done, and how you can get so in depth in the analysis that sometimes you forget get to look at the big picture. You know, I, I, I had somebody send us a deal. The someone sent us a deal the other day and the numbers were looking so good, but they forgot to look at the location. I mean, and that's the essence of real estate. Yeah, the numbers look great. The, the leases looked phenomenal. So then you're buying the leases, but are you buying the real estate or are you buying the leases? And the hard part is sometimes you analyze it so deep you forget to look at the basic stuff.

Yeah. I have to ask because I've certainly been on an AI kick over the last couple months and everybody's talking about it. Now that we're talking about it, I'm sure downloads are going to spike and maybe we'll go viral. So how are you using AI? Are you using this right now? And if so, is it to pull data? Is it to analyze properties? And with full well knowing. Okay, after you get the recommendation, you, you have to then kind of take a step back.

And so right now the only way we're using AI is because we're really bad writers and it significantly helps our ability to write.

Okay.

Now, I mean, the truth is, it's so new and trying a blank. I know there was a couple of books I was reading specifically about companies and technology and there was one that really stuck out with me that the greatest companies don't use technology for technology's sake. They don't implement the technology because the technology is there. They figure out what their problems are and if technology helps advance their process to get through the problems, then utilize the technology. So at least for us, I mean, AI is such a new innovation and the big data is such a new innovation that we haven't really figured out. Okay, well, how's best to you? Is it, I mean, yes, we use it for, with costar, we use it with a lot of Other programs that, you know, culminate tremendous amount of data and give us back the information. But I don't know if we've fully understood how are we going to use this in the future.

Right. So I don't know who originally said that, but that was certainly one of the takeaways from this AI conference that I just went to last week down in Miami. And the panel was basically saying the same thing is, you know, it's. Don't just go for the thing with the bells and whistles. Go for what is the problem and what can solve. And one of the case. Cases or the applications would be, for example, summarizing and doing lease abstract. So if you're looking at an office building that has 50 leases that you would have to abstract by hand, you know, now by plugging into some of these systems, it can summarize and get back to you with the, you know, the key points that you would need. Now, that being said, I've asked a client who actually has used it for that purpose. He says, still not as good as the human being because all these leases are different. And so.

So we actually do use it. Now that you bring that up, we use it in actually for accounts payable. So it's the approval process. We do use AI technology that we use a software that before, people would hand fill out their invoices and their approvals, they would sign the sheets. Now it actually gets uploaded, it gets coded, presumably by a computer, and then it goes out as an email for approval to the manager. And then the manager clicks off, signs the approval, makes any notes, and then it goes automatically into our payment system and gets processed a lot faster. So we actually do use AI and technology in that way. And there are probably a host of other items that, that, you know, I can't think of, but those are things that more streamline the process. Not. We weren't using a technology for technology sake. We were using technology because that helps streamline the process.

Perfect. So now I'd like to get into the DeLorean and go back to the future. And for the. Yeah, for, for those of you listening out there in college have no idea what I'm, I'm talking about. Well, never mind. So in any case, let's talk about your first deal. So you move, you make the plunge. You say, okay, I'm done with doing appraisals. I'm getting bored. What inspired you to say, okay, I want to go and be a principal and tell us about your first deal and how you pulled that together?

So I actually got very lucky. A friend of my father's allowed me to utilize a property he owned that I would manage it for free and I could utilize the. Yeah, what's the term linking of. Wow, I'm drawing a blank. There's the.

What, the, the management software? No, no, no, no.

Utilize the, the infrastructure he had. No, the. The equity within the deal.

Got it.

Okay. To finance that deal and buy my first deal.

Got it.

Okay. So basically, he allowed me to leverage the asset I was managing, use that capital to go ahead and buy my first apartment building.

Wow, that's a. That's a trusting friend.

It is. You know what, hon? I could not. It would not have gotten started without that. And, you know, everybody says you get lucky and you have to thank others. That is the number one of the top things that I was lucky enough to have in my life that somebody allowed me to do that. And he also did tell me, I know where you live, so you better pay that.

But, so what was the first deal? How did you find it?

So, as I said, I came from a real estate family. Third. No, I was fourth generation. I was fourth generation. And with all family businesses, they're, you know, you expand it and then sometimes they contract. So this happened to be a contraction, and we ended up buying some of the real estate from family. So I ended up buying some of the real estate from my family. My grandfather in particular. My grandfather and grandmother, it was originally his father's, and there was a gap in the generations of who wanted to do the real estate. It was, you know, kind of a down market. And I said, look it, I. I not really interested in running a family business because now at this point, the family has gotten very big and it would just be way too complicated. And honestly, it moves like all business, like your business also, it moves so fast. You can't have people that you're, you know, beholden to that. Okay, yeah, I need to do X, I need to do Y. Okay. I need approval for every last thing. So I said, you know what? Willing to buy you guys out and let me buy some of the real estate. And that's how it got started.

So, John, and only to what extent you feel comfortable sharing, but. And certainly there may be listeners who maybe they're coming into a real estate family, and again, they want to take a different direction or that dynamic where, you know, after several generations, it's spread out, but you still have to come to a price. You know, if I'm a partner, if I'm family member, and I'M getting bought out. Most would say, look, we still want what's fair. And how did you establish what was fair without going to market and without hopefully causing any family rifts or, you know, worse. In some of these cases, you see litigation, you know, whenever you see father, you know, sons suing father and this crazy stuff that, that happens. But. But I'm assuming you're going to tell me that it was pretty.

It's never fun. Okay. You know, it's never fun. It's. That part is never enjoyable. Thank God we never had any fighting. There wasn't really much fighting, but that was mostly because the older generation had such a strong iron hand and they said, hey, here's what's going to happen. And yes, you are correct. It has to be completely transparent appraisals. Come up with the value, make sure everything is reasonable and be transparent. But it's very difficult. I mean, I give a lot of credit to family businesses that can survive a multitude of generations because it's very hard. And as you said, usually people are, you know, they want to change things the way that they want to, but you have so many different bosses and in how you work. I mean, there are some families that have done a phenomenal job. And I know they've actually received consulting. They bring in outside consultants to really manage the family dynamic aspect of it. You know, I know a bunch of people had said, you know, a lot of people would go ahead and they'll work for other companies before they come into the family business. So that this way, you know, there's not this entitlement feeling because that sometimes happens. And that's where you get into a lot of fights. It's tricky. You know, I'm kind of glad we're no longer a family business. I mean, there's something that's sad that we're not a family business anymore, but there's something that's actually kind of nice that it's not a family business anymore.

Well, and I've seen, I mean, read of situations that have certainly gone astray, but more times than not, you know, it makes sense because again, maybe the family dynamic that started the portfolio, again, things change. You know, maybe they want to be more passive. Maybe the new generation wants to come in and grow the portfolio. Maybe. Do you know, so. So there's a lot of success stories out there where I think the younger generation has really built on the success. And it sounds like, I wonder how.

Many have gone past four generations, like really gone past four generation is survived as a family. Business. I wonder, is there a statistic on that? I wonder how many. It's got to be very little. It's really hard to keep that.

Yeah. And at certain point, does there need to be kind of a governing board and some type of. I mean, I think a lot of those companies, probably, if they're that substantial, probably they end up going public or have some. Some type of governing body. Because. Because if not, you're right. After every generation, assuming the family continues to grow, you get a lot of people, and especially when some don't want to be in the real estate business, then. Then how do you keep everyone happy? And. And how do you also.

Yeah, well, that actually creates some of the dynamic challenges, at least that what I saw is some of the people who are not in the business don't necessarily understand the, the decisions that are making, and then they start questioning each other.

Right.

And it's the trust thing that ultimately becomes the biggest challenge.

So what were the first properties that you. I mean, what kind of building was this? You took over? It was multi family. Okay.

Started multi family.

So how many units? Where was this? And did you go in and say, okay, I'm going to go in and improve this property and I'm going to raise the rents. Tell us how that. What was the business plan and how did it go?

First building was 10 units on Beacon Hill. And I was just hoping and praying I wasn't going to lose everything I had.

Okay.

It was, it was just you. You did not sleep that for. I remember that first year, I kept. Every night I had a dream that one of the tenants was going to be cooking something on the stove, not pay attention, start a fire, and the building was going to burn down. And I was sure that was going to happen. I mean, the first couple of years were tough. I mean, I don't think we really didn't make money for the first 10 years. I mean, thank God my wife is an attorney. She's a very good attorney and she made a good living and she supported us for the first 10 years.

So if you didn't make money for the first 10 years, I mean, that would suggest either maybe you paid, maybe you were overly generous to your family, or did things just not go according to plan? I mean, I can't imagine when you bought it, your plan was to not make money for the first 10 years.

But it's because you're also building. So it's not. It depends on what you classify as make money. We were constantly rolling the values back in, so we were Rolling the profits back in and either buying more or improving. So that first building I actually still own to this day and we completely gut rehabbed it, I mean, tore it down. That's a crazy story I have to tell you. On another time we actually were, we had a loan on the property. We forgot to tell the lender we were tearing it down and rebuilding it. We had the cash to do it and we tore it down. And they came for an inspection. They called us up and they're like, well we're coming to inspect next month. Can we get into a couple of units? I'm like that's great, but there's really nothing there. And they're like, what are you talking about? They're like, well we tore down the building. And they're like, you realize we have a mortgage on the property. And we're like, well we plan on rebuilding the building and it's going to be incredible. And they're like, yes, but you didn't tell us that.

I'm sure that was probably in the fine print not to demolish the collateral.

They said how long is it going to take you? And I said nine months. And they get, you got six months. And I'm like we're going to rebuild this in six months.

Wow.

And we did.

So from there, as tough as it was, did you say, hey, I'm onto something here. And did you start buying more multifamily? Because at some point you made a pretty big shift into some major office plays. So just trying to figure out the trajectory here.

So how that happened was a lot of our other assets. So Beacon Hill was a phenomenal area. The rest of the assets we bought were mostly in Chelsea because those were, you know, those are high cap rate areas. Chelsea, Massachusetts is, it's a more challenging neighborhood. You know, you got higher cap rate deals but they were very much management intensive.

Were you self managing these?

Self managing it.

So does that mean you're going in, collecting rents, tenants don't pay toilets, DEA.

Raids, evictions, you name it. Yes. I had no employees to start, but.

At that point the returns justified. I mean I would imagine those kind of deals you were looking getting cash flow day one otherwise. And it's one thing making a 10 year bet and Beacon probably another.

Well, but you're rolling, but you're rolling the money back in. So the properties needed a tremendous amount of capital. They were cap, they were long term, they needed a lot of capital improvement. So a lot of the buildings we had torn down over time and rebuilt. So you had to build that cash flow. So yes, we were making cash flow over those 10 years. But as I said, when we tore down the building on Beacon Hill, instead of distributing the money out to ourselves and we spending it on dinners, we were rolling the money into a bank account and saying, okay, we plan on rebuilding this building in five years and we're not going to take financing out to do it. We're just going to tear it down and build it off of cash. That's kind of how we had done it. It was very, probably not as sophisticated as I would do it today because I didn't know that much about financing at the time. I didn't understand how to utilize financing probably in the best way. For me, it was, okay, people are paying me, I have excess cash, I'm gonna stock it into an account. And as we need to renovate units or tear the building down and rebuild, that's what we're using the cash for.

So at what point did you start getting into office? And again, how many square feet is your office portfolio encompassed right now?

You know, it's not, it's bad luck to count.

Okay, well, I mean, but we're talking about, you know, I want to say.

I mean, it's got to be over a half a million, maybe getting closer to a million square feet.

Okay, so a lot of square. I mean, actually it's more close enough. But the point is going from a 10 family to, you know, 100,000 square foot plus office buildings. I mean, that, that, that was probably a pretty big leap at the time.

So as I mentioned, Chelsea was a very tough area to, you know, it was very intensive and it was emotionally intensive. You were constantly doing evictions. Collections were brutal. I got burnt out of multifamily. I honestly got flat out burnt out. And it was right around the collapse of like 2009, and the market was kind of collapsing around us. And there was a deal in Beacon Hill. It was an office building right next to the State House. And I just remember saying it was, it was about 60% occupied and we were buying it at was a 7 and a half cap at the point. Great location, great bones. And I'm like, this is should in theory be a no brainer. We couldn't get financing. We ended up having to get, at the time, we didn't have that much cash. And so we had to bring on a partner, a liquidity partner, you know, big partner, which nobody was willing to give us money. I mean, that was probably the hardest deal I've ever worked on to get done.

And what kind of partner was this? Like a private high net worth?

No, reit. Actually, it was difficult. West. They were a phenomenal partner.

So how would, how would an institutional partner like that take a sh. You had never done an office execution, so why, you know, in one of the toughest times in the market, they figured they'd roll the dice with you.

We were begging everybody at that time, everybody. We were begging and we knew the value was there and we knew there was a tremendous amount of value there. And.

But how did you convince them that you actually knew what you were doing?

They saw it as well. I mean, it took a while. I mean, we went through a lot of, we went through a lot of different groups that we spoke to until they finally partnered up with us.

Did you have the deal under control when you were doing that? So you just tied it up?

I, I had tied it up and you know, we originally went out to individuals.

Did you have, was the deposit hard or did you have it still?

The deposit was every dime I had in my savings. Harder. And it was hard. And it was hard. Wow. Yeah, it was, it was, it was, it was definitely scary at the time. Cause it was something we've never done before. I remember putting down that money. I'm like, wow, this is all the money I have. I got nothing left. And it's hard and we have no choice. We can't. You know, is the thing to say is if failure is not an option, well, then you can fail, right?

This reminds me, and for, for those of you listening, you'll have to go back and listen to Jordan Vogel's podcast. I mean, this is sounding reminiscent, and this is where, you know, where he put everything on the line for a non refundable deposit. And he's like, okay, I got to raise $4 million in the next 60 days. And you know, again, for those of you listening, we're not endorsing this. It's probably better if you can, you know, type those properties with soft deposits, make sure you have your stable of investors. But, you know, look, I, I, but.

If the deal's good enough, the money should come. I mean, so we've never done, you know, we've always talked about, well, should we do a reach? We do, you know, raise the money in advance. I mean, to this point, even today, I mean, we are probably the largest where we do syndicate the deals, but we are the large, one of the largest investors in every deal, us personally. But we had talked about, do we raise the money in advance? But Then again, if the deal is good enough, the money's there. So that's really. If you're looking at it that way, why do you need to raise the money in advance then? It just puts undue pressure on you to spend that money.

No, I totally get that. And why you would do deal specific. But again, going on the line with a hard deposit, I mean that's.

That was scary.

Yeah. So. But obviously it sounds like that went well.

It went very well actually. So we did well. Divco, divco West. I actually give them a lot of credit. They stepped in. They actually did the management because we didn't have nearly as much experience back then. They came in and we sold it a year and a half later and did very, very well.

What did you buy it for? What were you in for?

What did you sell it for? I don't know if I remember it and I'm afraid to misquote.

So like a 2x equity multiple, it.

Was, oh, in a year and a half, it was probably over 2x.

Okay, good.

Yeah, it was, it was phenomenal. In a year and a half. That's incredible. The guy who bought it after us, he's also very smart and he sold it for an astronomical amount.

Like, yeah, I think you have sellers remorse. When you saw him resell, were you like, damn, I should have held on to that a little longer.

You know, at the time when we sold, we were still nervous that the mark, I don't know if you remember, but even in 2011, the market was still shaky and we could sell it for a 2x. I mean that was like a no brainer at the time. You know what, he had the foresight to see that Boston was still on an incredible trajectory. And I give him credit. You know what, there's nothing wrong with the next guy making money too.

Okay, so with the profits, did you then just say, hey, let's, we love this office space, let's, let's do it again?

Well, so that's actually when New England Investment Partners started, was right after that because now we had more liquidity. And I partnered up with Ari and we actually started New England Investment Partners. And our first deal under New England Investment Partners was actually a deal that it wasn't out of foreclosure, but it had gone through foreclosure. And then the guy who bought out foreclosure sold it to us. It was a workout world in West Hartford. That was actually our first commercial deal and the first deal in New England Investment Partners.

And did you know Ari from before?

Yeah, we actually went to college together.

Okay, and how did you decide to become partners and do this together?

So he actually found the deal and, you know, we kind of said, all right, let's try this one off. Let's not jump incomplete to bed together. So I guess New England Investment Partners was started, but it really wasn't formed per se. And we kind of tiptoed in. We did one deal, it worked out well. And then he happened to find another deal and we. We found that we complemented each other. I mean, we fight like crazy because we're very different. We have def. We definitely think of things very differently. So we argue those out and actually come to a very good position. And that's what we have found, is that my skill sets and his skill sets actually complemented each other and kind.

Of checks and balances.

Checks and balances.

So this might sound like an obvious question, but whether it was the. The Beacon Hill office deal or the Not Wally's World, but was the Workout World.

Workout World would have been nice.

You said these are no brainer deals. So what gave you the conviction at the time? Like, how do you know when it's a great opportunity?

So it's funny because probably three years after the sale, okay, three years after.

Reset on the first one, you said, this is a no brainer. So how did you.

Until the day we close, I am constantly doubting whether or not we're making the right decision. Ari is the opposite. He's like, you know what? This is awesome. We're doing this. This is great. And I'm like, this is a terrible idea. This is a horrible idea. And, you know, that's what's kind of funny about it is that kind of juxtaposition helps us find really good deals.

Is it how you look at risk too? Because if, And I don't know if this is kind of a pattern of buying office retail that has a lot of vacancy. I mean, there's risk to go in there and say, okay, we've got to improve this. We got to bring tenants. So I mean, is it kind of risk profile too, that you have to kind of have confidence that there's going to be someone out there?

I mean, there's no. Yeah, for sure. There's no one real formula for it. So it was. It was interesting. We were looking at a deal the other day and it was fully baked in terms of. It was like a 95% occupied or 90% occupied office building, which, you know, in our minds is pretty fully baked. And it was a decent cap rate. It was an eight and a half cap. Okay. Location, you know, why not buy it? And then we real, you know, but in our mindset, what we were saying to ourselves is there's more room for the values to go down because, you know, people are always moving, people are always coming. You're not always going to stay at 90% occupancy. So what's your real upside value? Okay, you got cap rate compression, which is completely out of everybody's control. What are the things that are within your control to create more value? And that's why we kind of like that sweet spot of 50, 60, maybe even 70% occupancy. So if you're buying at that point, you have the ability to create value as opposed to the other assets. I mean, unless it's below market rents, which is a possibility. But there they were, they were pretty much market rents. So what are you actually doing to create value? Are you just holding it and. Okay, you're holding it and you're getting cash flow. So then what are you really doing?

You want the. The upside?

Yeah, but real upside, you know, something that you are physically going ahead and you're doing something to create that change. It doesn't naturally happen.

That makes a lot of sense. So let's talk about, you know, early post Covid, you know, mid, late 20, 20. You own I don't know how many square feet of office since then. I mean, again, if we're just talking Stanford, I've heard Connecticut at some point, vacancy goes up to like 30%. I mean, how are you kind of, you know, what are you thinking? What's going through your mind at this time? How are you dealing with this? I mean, this is happening to everybody, right? So how did you process that situation? Like, what kind of triage needed to take place? How did you get through it?

So. Okay, well, maybe I'll step back a little bit further. When we first came to Fairfield County, Connecticut, for the last number of years, it's actually had a rough reputation. You know, everybody always looked at Connecticut as in, oh, why are you going there? Everybody's leaving. GE left. You know, a lot of these big companies were leaving, and it was all a narrative that people were buying in. And that was actually some of. I guess that comes. Goes back to some of our philosophy is we try and look at the narratives and understand what is fact and what is emotion. And what we were realizing is, you know, we had one investor who actually told us he had a friend who had a mansion in. In Fairfield county. And he couldn't give it away. And I remember hearing him say that and saying, no, you, you probably could give it away. I'm sure there's somebody that would take it, but you just think it's worth more than what it's worth. But there is a value. So that was. If that's the mindset of everybody there, then there's probably value to be bought where there are a lot of people who are thinking, I can't do business here, so I'm just going to sell it at a discount. So that's when we actually started looking in Fairfield County. So the same thing now, like the 30%, when we analyze, like when we bought some of our buildings in downtown Stanford, the vacancy rates that we were told was, oh, it's north of 30% vacancy. But you really got to look at, not, you got to dive into the details because there are a couple of very large buildings that have a tremendous amount of vacancy. When you take out those large buildings, the vacancy rate is actually a lot smaller and it's a lot tighter of a market once you take out those buildings. Okay, so now you say, well, why are those buildings vacant? Well, some of them, they were, you know, the debt was too high. The owner couldn't be making deals. So the debt is eventually going to take over the property. They don't want to take over the property. Nobody's there to make, make deals. So the leasing agents can't get leases done. So that's a very good reason why those deals are those buildings have so much vacancy. So you take those buildings out and actually the, the market was much better. The thing we are seeing right now is there is still significant demand for office, but a lot of the tenants are shrinking. Not the smaller tenants per se, but the larger corporate tenants are realizing they had too much space, they took on too much space because they were seeing big growth. But the smaller tenants who couldn't really afford to make the mistake of taking on too much space, they actually have the right amount of space and they're doing fine. And they're, some of them, in some cases, they're still expanding. We have a couple of tenants right now that are actually growing, not actually shrinking.

You know, I, when asked about how's the market, I always, my response is, well, what asset class? Where are we talking about? And you certainly, when talking about the office market, you cannot paint the market with one brush. I mean, it's so specific to industry and submarket and building. And so I, I love the fact that you're not just listening to the headlines, so to speak, and you're really kind of dialing into kind of what your specific business plan is and looking at the, the individual asset.

So I learned that from you.

What's that?

I learned that from you when we were talking about, yeah, look, I have a dream to own in New York City. Love to own.

Still working on that.

We're still working on that. But I remember you saying, like when, when the office market was absolute, you know, disaster in New York, it was right in the height of COVID and you were, you know, we were talking about different options. You were saying, well, you got to look street by street, you know, one street over, you know, you're one street closer to Grand Central. That's going to do a lot better than, you know, something that's four or five streets over. So you can't paint that massive brush of, oh well, all office in New York City is dead. No, no, no. There's going to be some ones that do significantly better and there is a reason. Like what you said, you know, location. If people are commuting in and people will start commuting back in and the traffic's going to get bad, they're going to want to be near the central stations. So those offices should come back a lot faster.

So now you've gone back into multifamily. So I guess it took what, 10 years for you to recover from some of those experiences in Chelsea. But now you're going down to the Southeast. So, you know, for those of, for those listening who are thinking about, okay, what's a good investment thesis, where should I be going? How did you come up with the Southeast? I mean, again, if I had a dollar for every New York multifamily investor who told me they're going to invest in the, you know, the Southeast, you know, I'd be doing pretty well. So we can last couple years.

So we can't take credit for going to the Southeast.

Okay.

At all. We actually didn't want to go to Southeast. It happens to be the only reason we went back into multifamily is because we brought in an individual into our office who is phenomenal at finding deals. And he really let, he knew the Southeast, so he was trained in the Southeast. So the only reason why we are in the Southeast is because that's what he knew. And it was funny because some of our investors are long term investors like John. What do you know about the Southeast? You know nothing about there. Why are you going there? I go, you're Right. I don't. But the head of acquisitions for our multifamily new multifamily arm, that's his specialty. That's what he knows. That's what we're going to focus on. Because you really need to know street by street, you need to know those areas. Like, I can't just go in and buy in New York City unless I have some specialist like you who's telling me this is the place to buy because it is so very localized and so very specific.

And what makes him so great at.

Sourcing opportunities, that's his secret sauce. I can't divulge that. Okay, you know what?

I'll have him back. I'll have him on the show.

It's actually interesting. So he has a phenomenal gut. He doesn't use the fancy formulas, he doesn't use fancy software. He uses like a basic, basic spreadsheet. And he understands value. You know, he also grew up, you know, kind of like a real estate family. And he just has it ingrained, value. I mean, he looks at a deal and he knows what they're doing.

But how does he find it? Is it just the relationships? He knows the brokers, he knows the landscape. He's cold calling everything.

Oh, I mean, he is on the phone non stop, like I thought. I used to talk on the phone a lot. He puts me to shame. He is talking to everybody and anybody. So he speaks to every, you know, every broker in the Southeast knows him. He knows a whole bunch of the owners. You know, he's been doing a fair amount that. He's really got a nice reputation now. Okay, I'll come to him too.

I, I had to ask because when, when I hear and, and a lot of what I talk about in the book is, you know, sourcing opportunities. How do you find a great deal? So this is all really helpful and, and I, I hope the audience is taking notes.

It's local, you know, that's, that's why we went there is because he really knew it, otherwise we wouldn't. Yes, Southeast is a great market and, you know, people have been going down there. But who are we from the Northeast to understand what people think of values and, and what people want? I mean, multifamily, in essence. You're really providing somebody a home. Right. What people want for a home in the Southeast is a lot different than we want in Northeast. I, you know, how many people in the Northeast want an outdoor pool when you can go swimming in what, one month, two months out of the year down in Alabama, if You don't have a pool. Oh, my God, you are done, right? It gets hot down there. And those are the things that, you know, if you're not from there, you don't understand those aspects that, you know, he specialized in this area for a long time that he now understands it.

So, John, with only a couple of minutes left and just advice that you would give to someone looking into, to get into the business and for you, and you said it was kind of jumping right into it. I mean, obviously you had the background as an appraiser, but you said some family members, maybe they go work for a big shop. But what would you say to someone looking to get into investing? Do they start off on their own and just figure it out with that 10 family, or do they go work for a big shop? What's the right path run the other way?

You know, there's no, there's no one right answer. You know, it's funny because I've given people advice in the past and thank God they didn't listen to me because they did much better by not listening. It's, it's really hard, you know, it doesn't matter. You know, it's funny. You do get a lot of. I get a lot of brokers that say, oh, I want to get in on the ownership side and I want to make that switch. And I, and I, and I tell them, you know, grass isn't necessarily greener. As long as you're good at what you do and you love what you do. Why does it matter? Does it really matter which side you want to be on? Not really. You could do very well. A lot of friends who are very successful, mortgage brokers, real estate sales brokers, capital markets brokers, and a lot of people that are very successful on the operation side. Some people are very successful on the appraisal side. It doesn't matter what you do, as long as you love what you do. Because there's going to be a lot of down days and a lot of updates and you got to be able to get through the down days. And if you love what you do, it's easy to plow through the down days.

I love that. That's awesome advice and I will, I, I, I, I almost want to end on that. But I have to ask you, John and I know. Thank you. You said you did. I guess you have the book. Hope it sounds like you read it. You've given out a couple copies cover to cover. Maybe you learned something.

I've actually quoted it once or twice.

Okay, good. I Like that. So the question is, in the name of the show, the insider's edge to real estate investing, what would you say your insider's edge is?

Sheer will you know, if you like, failure is not an option and it's irrelevant. You can't. I mean, that is our edge. Our edge is we're just going to keep. You asked me a question before about. Just to quickly diverge about during COVID Covid was a very challenging time. It was very scary. We didn't know if we were going to survive. We had no idea what was coming. It was something we never would have expected, never could have planned for. But we did know that since failure is not an option, you just put one foot in front of the other, and that's the insider's edge. You just literally are. What we do is we just put one foot in front of the other. We see a deal that we think has value, and we just dive in and we just keep drilling and keep drilling and keep drilling. And you know what? A lot of times we get a ton of no's and we stick around. Stick around the rim long enough that eventually, you know what somebody does say yes. And then usually once, you know, everybody celebrates when you buy. We only celebrate when we sell. Because when you buy is when the challenges actually start. People forget. It is a tough business to operate. And you know what? You. You just gotta chug through when you get a notice that all of a sudden your largest tenant is vacating and you have no idea how you're gonna backfill it. Those are some rough days. And you just say, you know what? Let's figure it out. We can't stop until we solve it.

And also, of course, important that you love what you're doing. That also.

Love what we do. Yes, love what we do. That's for sure.

Well, this is awesome. John, thank you so much for sharing your story. I know our audience is going to get tremendous value from this, so really, really appreciate it.

Oh, you're welcome. Thank you for having me. This is wonderful.

Yeah, I know. This first podcast appearance. At first you said, James, I don't know about this. You know, you got that. But I.

This, this is really great. It's nice.

Good, good. Well, thank you everybody for joining. This is your host, James Nelson. And really appreciate. If you like this episode, go ahead and rate it. Share it with a friend. Comments. That's what helps other people find the show. We're here to help you gain the insider's edge to real estate investing so you can gain the advantage and outperform the market. You can also go to james nelson.com that's where you can find show notes and a lot of other helpful ish items there that we built the site for you. So until next week, thank you again for joining.

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