Contrarian Investing with Jordan Vogel

Welcome. This is the Insider's Edge to Real Estate Investing with James Nelson, the principal and head of Avis and 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 company. Listeners should not act upon the information without first seeking appropriate advice from an accountant, lawyer or other professional.

Welcome to episode number 222 of the Insider's Edge to Real Estate Investing. This is your host, James Nelson. I'm principal and head of US Investment Sales here at Avis and Young. And today we have Jordan Vogel who's the co founder of Benchmark Real Estate Group. Jordan came on the podcast very early on. I thought it was after Covid, but no, it was January of 20. It continues to be one of the most listened to podcasts. I find myself referencing it quite often. So go back if you've not heard that first episode with Jordan Vogel and that's a great primer for this episode. But today we're going to talk about what Jordan and Benchmark have been doing over the last five years to expand their business. We're going to be talking about entrepreneurship and building a long term real estate business. Since its launch in 2009, Benchmark is specialized in purchasing existing multi and retail mixed use assets, starting off here in New York, but now across the east coast including Florida, Georgia, Connecticut. And so we'll talk about some of the decisions that led to that. And then you're going to hear about risk taking and raising capital along with insights into contrarian investing and navigating regulatory environments like rent stabilization laws in New York. And you're going to definitely want to stick around for the end of the episode. Jordan makes this incredible parallel to raising capital is not like selling Cutco knives. So you're going to have to wait till the end of the episode to hear more about that. But as always, he's bringing you incredible wisdom. We're going to have a brief word from our sponsor and we'll get right into that interview with Jordan Vogel.

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Hi everyone. Thrilled to have back with us today Jordan Vogel, who is co founder and managing member of Benchmark Real Estate Group. Jordan and I checked when we last spoke was a little over five years ago January of 2020. It has been one of the most listened to podcasts. So I am thrilled to have you back Jordan, having this conversation today.

Thanks for having me James. Good to be back.

Wonderful. So Jordan and I have known each other a long time and again it's one of these episodes that we did that I find myself and I'm lecturing at classes and I find myself keep coming back to the episode. And so for those of you listening, if you have not listened to that first episode, go back. It's a great primer for this discussion. But Jordan, for those who don't know you, maybe you could just give the audience a little background on Benchmark Real Estate Group. Kind of what your company looks like today and holdings.

Sure. So we founded the company in 2009. I was working my business partner Aaron Feldman and I worked together for for about five years. We were working for SG2 Properties which is now Fairstead Capital. In 2009 it was the great financial crisis. Everyone's running for the hills and we were the crazy guys that decided to start a multi family platform. And 2009-2013 we syndicated all of our deals. We only bought multifamily value add in Manhattan. Most of the buildings were between Spring street and 14th Street. We did 24 syndications total to about 100 million of equ from 2013 to 2018 we got into the closed ended private equity fund business. We did three funds over that six year period. 2018 we decided we hated the fund business. We could talk about that more later. But it's, it's a great fee business and you're very, very far away from the actual real estate and we're just real estate guys and we're back to doing one off deals. We've expanded since last time I was on your show. And so we built a portfolio in Savannah, Georgia. We buy in Florida. We do lots of high street retail deals. We built a portfolio in Westchester, lots of retail in East Hampton. And so we've really expanded both geographically and by asset class over the last five years since we last met.

Yeah, no, it's amazing to Hear, I think it's. Now you told me exactly when I asked, you had 77 assets purchased to date, over $2 billion of residential real estate. And now, of course, you know, mixed use and as you mentioned, retail as well. You know, Jordan, I think one of the reasons why I've recommended your episode so many times was, and fortunately, Nike hasn't come after me yet, but I actually entitled the episode just do it because, you know, in that first conversation we had, I talked about what's the advice that you have for aspiring investors? And you said, just buy. Just do it. And so it's just that call to action and maybe we could share a little bit. We were having a conversation earlier about that first acquisition because hopefully I still have the story. Right, But I think that the first deal that you went off on your own, and this is New York City, this is still, you know, very competitive. Back in, you know, 2000, I guess it was 2009 and, you know, hard deposit on contract, you didn't have the money fully raised. Right. And so you had 90 days to basically pull this deal off. And, you know, this was literally going into, you know, the equivalent of going to the casino and putting all the, you know, going all in. So talk about that mindset out of the gate because I, I think for a lot of people listening, you know, that first step and whether it's, you know, making a sizable investment, making that commitment and taking that leap, is that just how you were wired or how do you, what do you think allowed you to do that?

Yeah, I mean, it's interesting. It. It is how I'm wired. And so, you know, I'm the fourth generation Vogel of a entrepreneurial spirit, risk taker. Unfortunately for me, my. The prior three generations were never in real estate, which was my only passion. But I am hardwired to be a risk taker. That's part one, part two. Even when you say going all in a casino, like, I am a very avid poker player. And so I love going all in. I like the feeling of my heart pumping. I like the feeling of coming up to a closing and being a little short on the equity and have. And having no choice but to figure it out. And so like that. That is how I get high. And yes, I am hardwired for it. I think the look, we were talking before we started recording about is it possible to become an entrepreneur without taking that risk? And the answer is no. No. And now I'm not saying I reported the last time we spoke, I gave the whole long winded Story about my wife being pregnant, I'm broke, I had $10,000 in my bank account and so I literally would have been homeless if my first deal didn't close. So like, that is not a risk that everyone has to take. But for anyone that's listening, that thinks that you're just going to slide into being an entreprene, starting your own real estate company and not taking any risk, it's just not possible. And this is not just limited to real estate. This is part of being an entrepreneur and parting, part of taking chances. Now if that's not for you, there are a ton of very, there's a ton of great opportunities in the real estate industry where you could get rich with paychecks.

Right?

Right. But if you want to become an entrepreneur, you have to take a risk.

Right? And you did, in fairness, you had the background before having been at SG2, acquiring thousands of units. And also, if I'm not mistaken, you started your career really getting very involved in the asset management piece of the business. So going into this, you certainly knew the operations. You saw how deals were acquired, how they were capitalized. So this wasn't just kind of first, you know, time that you're, you're trying to, to jump into real estate. I mean, you had that backing, so you at least had the roadmap, so to speak. Is that fair?

Correct? Yeah, yeah. I mean, I started my career doing straight property management and even asset management is too high class for what I was doing. I was doing hardcore property management. I was knocking on doors to collect rent and I was kicking boilers to get them to, you know, start working on, you know, Thanksgiving and Christmas Eve. By the way, if you're in property management, a boile always breaks on Thanksgiving every single year. I've had that since I started my company and I had that skill set, but I did not. But it's not a requirement. Yeah, I mean, one of the things that we all have to keep in mind is this is not, we're not trading derivatives. Right. Like, this is not something that is unachievable. Like in a lot of. I've described our business in, in, in simplest terms, it's not that dissimilar from opening up a candy shop, right? We, yeah, candy shop. You have to buy a bunch of, you have a bunch of expenses, you're looking to make a lot of revenue and what is left over? And does that, what is left over generate a return based on your investment? And so obviously I'm simplifying a business, but this is not look, most of the buildings we buy are from mom and pop owners. And so they don't have an established track record. They do not have advanced technologies in their office. They don't have a big team of people to manage them. And so if you want to become huge one day, you will have to have all the infrastructure and all of the knowledge to get this done. But if you want to go out and buy one small building, you can do the paperwork on your laptop and in bed after you finish your day job. And so it is possible to. It is possible to figure it out as you go. But yes, I did have the advantage of learning from some really smart people.

Do you think, And I definitely cover this in the book about the inefficiencies of the real estate market. So the fact that you're buying from mom and pops who have not. They haven't operated the property to its fullest. Right. And maybe the fact that it's challenging to get all the information because it's not like if you're running a candy store, you'd probably be dealing with one wholesale supplier and they offer you all the different, you know, inventory that you need. But here, every time you look at a deal, I'd be surprised if you told me that you get the same set of information. Right. Every single time. It's fact finding and trying to figure it out.

Absolutely.

But is that I would imagine some of that inefficiency is what creates the opportunity.

For sure. And it's interesting compared to the last time that we spoke when I only bought in New York City, we're now buying outside of New York. It's much, much better information outside New York. And so we built a big portfolio in Savannah, Georgia. And on the first deal that we found, the seller opened up his records. Crazy premise of actually providing a trailing 12, that's accurate versus you buy in New York City and it's your. All you're given is five line items for your expenses that were provided by the broker that are four out of the five are incorrect.

Do you think that's a factor of how much demand there is for the market? Because obviously in New York you've got theoretically a lot more buyers than sellers. And so sellers get to name their terms. That's why we look for hard deposits on contract signing, diligence done before contract signing. And to your point, you don't get a lot of that information. So is it because, I mean, Savannah is still a pretty hot market. Right. Is it just that. It's just what's customary or do you think it's a factor? I mean, because if you had that much demand for Savannah, couldn't you just tell the buyers, hey, I'm only supplying this. Figure it out. And I want that. That hard deposit on.

I think it's both. I think it definitely. It started by the competitive nature. So in New York, you could get away with it, because if the buyer doesn't like the information you provided or the lack of information, you know that there's another buyer. So that's how it started. Whatever, 10, 20, 30 years ago, more than 10. So 20, 30, 40 years ago. And now it's just turned customary. The buying outside of New York City has opened my eyes to the. To the crazy way that real estate in New York City gets traded. And so the idea, by the way, in any industry, when you're investing, even that candy shop, you will get detailed records of what that candy store makes, right? You'll get a tax return. You will get actual statements. Only in New York City real estate do you find that you have to buy buildings. That perfect information. And so it's very, very unique to New York. By the way, I would change my mantra from the last podcast. I said, just do it now I'll say, just do it outside of New York. And that is not a. That is not commentary on the state of New York City market yet. We can get into that as well. But if you're thinking of buying a building, you really, really want to get into real estate, you want to figure this out, you want to take the chance, you're willing to take the chance, you could raise the capital, find your first deal outside of New York. And I'm not also saying that to avoid the competition. I'm just saying it of my eyes have been open where it's just simply easier. So the first deal I ever bought in Savannah, Georgia, we put up a 1%, non refundable, refundable deposit.

Right?

1%.

Right.

And so we basically got a free. Look, we were buying a $40 million deal. We put up $400,000, and 60 days later, I told him if I want to move forward or not.

So the flip side to that, though, is, I mean, that's great when you're a buyer, but when you go to sell, you're obviously selling it at the same market. So, yes, New York is a really challenging market to buy into, but once you have it, you have gold, right? And it's a very liquid market, so you can always sell on those terms again. So if you need to, you know, Sell an asset outside of New York. Then you have to, you know, give favorable terms.

So 1.

Isn't there a flip? Yeah.

So 100%, by the way, just do it and buy a building outside of New York for your first one and you could buy in New York for your second one. New York, over a long period of time will always outperform every other market that we're investing in or any other market in the country. It's two parts. It's one is to what you pointed out. If you're going to experience the same thing on the sale. The second part is New York City is a perfect example of if you put yourself in a position to get lucky enough, you get lucky. And what I mean by that is people have called me because they buy the site next door and they need the air rights. And I never even put a value on the air rights when I bought it. When we have sold properties for ridiculous prices to international investors. So like right now, Japanese investors are hot and heavy to buy in New York. As you know, they're not hot and heavy to buy in the Hamptons, New York and Savannah. Trust me, they're only looking at the, the cream of the crop, best stuff in Manhattan. And so there, over a long period of time, I think New York City will outperform. It has for me. But it's just to say it's, it's a cutthroat. Much, much more difficult geography to enter into the market. And so you. If I redid my entire career, I would have cut my teeth of buying a property in another market outside New York where it's. Where it's a little bit easier to get through the due diligence process. It's a little bit easier to get a loan. It's an. Everything becomes a little bit easier, including the management, by the way, the construction management. This is the last five years have opened my eyes to. It's just easier. Everything is hard in New York City is the downside. The upside is the returns are much, much better. So you got to take your pick.

So you can definitely get lucky in New York. And I've seen that time and time again with our clients. But you can also get unlucky. Right? And I think, and we were speaking before, you know, for the first 20 years of my career, investors would pride themselves in saying, everything I own is in New York. Why would I ever go elsewhere? And then 2019 happens with the Housing Stabilization Tenant Protection Act. And if you owned rent regulated multifamily housing, which you used to be able to decontrol, as you know too well, and charge a fair market rent. Now, these rents were frozen in time. And not only that, you were no longer given enough value when you have to go in and renovate one of these apartments. So as a result, I mean, who knows how many apartments are sitting here vacant. But, you know, how do you think about, I guess for a lack of better term, the regulatory risk? Because that's kind of happened in New York. But now there's other markets as well. You know, Minnesota, Maryland has introduced rent regulations. So how do you think about that when you're investing outside of New York?

We, we avoid it. We were, you know, the change, the law changes in 2019 were, were bad for us. They were very bad for a lot of people, and they were completely devastating for people that owned fully rent stabilized portfolios. And in a lot of ways we learned our lesson. And as we start to think about new new areas to invest in, we just completely avoided. And so the, by the way, like, I own a building in Florida. If a tenant stops paying me rent, the marshal will throw the furniture out on the street at the end of the weekend.

Right.

If a tenant in New York city stops paying me rents, I'll probably get really bad news from a judge in about 18 months from today.

Yeah. What do you think ultimately? And yes, I mean, you could talk about the political climate, you could talk about the judicial system, but, you know, is there. You probably have to take a much longer view, but is there a thought that the pendulum has swung so far in, you know, against the landlord that it comes, that it comes back? I mean, San Francisco is a great example where a lot of investors said, hey, I'm abandoning this market. This is, you know, I just, I don't like, this is not a pro business environment. And then, you know, you get this new mayor and, you know, the tech community says, hey, we need to reclaim our city and it's happening and we'll see what happens in L. A. But it's a similar situation where, you know, I think some of these cities realize that, that so much of the tax revenue, I know in New York, for example, the tax revenue here from, from real estate pays about half the city's budget. You know, I think at a certain point they realize you can't kill the golden goose if you want the programs as well. So I know I kind of went off on a tangent there, but. But do you think there's a play where someone invests back in New York saying, hey, one day, you know, the the elected officials will realize they went too far on rent regulation and make it more equitable for the landlord.

Absolutely. Look, the, you brought up the tax revenue. The other part is the quality of our housing stock. And so when you start thinking about the next number of years, if not decades of landlords like myself who stop spending money on rent stabilized buildings, wait until you see like we thought that the Bronx was burning, you know, 20, 30 years ago. We give it another 10 years if they keep the laws in place. And so like the, the pendulum will definitely swing. I am not saying like maybe it's going to swing. I would say it's a 100% chance that it swings. Now, if the follow up question is when. Yeah, unfortunately my answer is I have no idea.

Right.

I can't tell you if it's going to be in two years from now or in 20 years from now. But for sure it is going to swing back because it went way too far. And we see this in all parts of politics of once things go too far, they always swing back the other way. And so once, right now or over the last five years, there was too many tenants that were calling their constituents saying rents too expensive. That was the only complaint. Rents too expensive, rents too expensive, rents too expensive. Give it another five to 10 years, they're going to be calling their congressmen to say the housing stock is terrible.

Right.

I can't find a decent apartment to live in. They're not going to be talking about price, they're going to be talking about the quality of their housing. And then the only way you could change the quality of the housing is to change the laws that they, that they changed in 2019. And so it will definitely happen. It's just a matter of when.

Yeah, we could definitely fill a whole hour on kind of the political landscape when, when investing. And the only footnote I would put on that is I think a lot of what happens here in New York, and I would not be surprised if this applies across the country, that elections are determined in the primaries where, you know, traditionally there's very weak voter turnouts. You know, a reminder for, certainly with primaries coming up here in New York shortly, a reminder for everybody to get out the vote. But so Jordan, clearly you're now investing in pro business type cities and states. So obviously Savannah, Florida, but you know, Texas, Dallas, Austin, I mean these are, you know, viewed as pro business, you know, real estate friendly. So how did you end up on and in Florida, it's really what? Miami, Fort Lauderdale, Palm Beach. Palm beach, okay, so how did you decide on these states and cities? Did you do a lot of analysis of all the different markets and these were the two you landed on or was it.

We did. I mean, it's. They're pro business, they're red states, they're warm states, there's population growth and people want to be there. All pretty obvious ideas. This was, this wasn't rocket science, like AI data driven nonsense. This is just people want to live in warm red states today where the taxes are better and they're pro business. Part of it for me is, by the way, there's parts of Texas that are as good as the Southeast. I just don't want to fly there. So a lot of this is also like, we manage all of our own real estate and we have to be thoughtful and practical of how far we will go because it requires in Savannah, we had to build our own property management team. And it is a lot of work and a lot of travel. And so some of this is just from a practical standpoint. If I, if I lived in Los Angeles, I could have found cities in Texas that checked every single box that, that Savannah checked for us and we would have built a portfolio there. The, the other thing I just want to touch on as we're comparing, you know, Savannah versus New York is there's massive value in diversification. And we were talking before the portfolio, before the podcast started, of all of the clients that you have, that only multi generations of families that only invested in New York City and now they're investing elsewhere. That's just prudent investing. By the way, if you like investing in stocks, I could guarantee you don't own one stock. It's, I mean, I, I like many other people, like when, when the Madoff fiasco came and the number of people where it came out, where they had 95% of their investments were with Madoff. And it's like I would just scratch my head and be like, what is with these people? How could you ever consider it? The reality is, is we were way too concentrated in New York City. And every single market in is cyclical, right? And so the, the rent law changes of 2019 were devastating for many in New York City. Guess what? No change to the values in Savannah, no changes to the value in Florida, no changes to the value in the rest of the country. And to build a good portfolio, and this is not talking about like, where should you buy your first building, but if you're going to buy 77 buildings, it is prudent to diversify your risk and So a lot of it. I am a very big believer now, even more so than the last time we spoke of. Timing is everything.

And what comes first? Is it really the deal or the capital? Was your capital starting to tell you your investor base, like, hey, Jordan, this has been a great run in New York, but I want to see stuff outside, or were you basically starting to introduce them to these new opportunities outside the ladder?

The latter. We were. It wasn't. It wasn't capital driven. It was a. We came to recognize that. That we have to diversify out of New York. We have to. By the way, we've been incredibly active over the last two years. And most, if not all of my competitors who only invest in New York City have been very, very slow over the last few years. And the reason is, is we've been hot and heavy in the Southeast. And by the way, I think that that pendulum is changing, too. I think that there's a oversupply issue in Savannah today, and we're going to be investing less in Savannah over the next few years. Happens to be a time that I'm getting more bullish on investing in New York City right now. And that is typical. That that should always be the case. There should always be good times to invest in New York and not such good times to invest in New York. And it's every asset class and every geography. And so if you can build a platform that has different avenues of where you want to invest, it allows you to sort of turn off the spigot and turn on the spigot, depending on what you think you should be investing in today.

So you answered what was going to be my next question. But I do want to dig into this because real estate values are also no doubt driven by supply and demand. And so, you know, on one hand, you know, post 2019 rent laws, you saw all this New York capital, you know, start to disperse, right? So suddenly the Southeast gets bid up. Now, that could be a great thing, depending on when you catch that in the cycle. But then can it be too much of a good thing where there's so much competition, where I know a lot of these deals ended up selling at 3 caps, Austin, Texas, gets oversupplied. I think the vacancy rate there now is 20%. Although my listeners who invest in Austin always tell me, well, James, depends what part of Austin you're investing. But, you know, is there a risk that if you're kind of following the herd and where other investors want to be, that these deals get bid up to a level where they they don't make sense anymore for sure.

And by the way, if you never follow the herd. Right, right. Like I'm a contrarian investor. And so like when, when the world was fleeing investing in New York City at the beginning of COVID we did half a dozen of the best deals I've done my entire career. And like following the herd is, is, is no good. Following the herd is for, is for large institutions that sort of can't. That just need to allocate too much money. And so you're throwing money into Austin because that's.

That the safe choice.

The safe choice, yeah.

No one's ever going to question, hey, why did you do this deal in Austin when everybody else is. I'm glad you brought up the point about being a contrarian because I was going to mention that this was probably April or May, and you remember the deal as well of 2020. So we were out in the market with this estate sale down at McDougall street and we had offers. We had a contract out at north of $40 million. Covid hits. We didn't know if it was the end of the world. We didn't know. I mean this was pre vaccine. And I remember the conversation we had. And if I'm not mistaken, you're the first person who actually laid down a bid. You might not even remember. I think it was probably $15 million. But you said, james, I have no idea what values are going to be today, but I'm willing to take a long term bet. This is what it is. It's got to be a cash deal. But I mean, talk about conviction. Like I said, I mean we're not talking like late 2020. That was probably like in April 2020 if I had to guess. You remember that?

I remember that. I also remember, by the way, we, we threw on masks and we're touring buildings right through Covid. I mean, at the same days that you were sitting on at home watching the death count on cnn. Yeah, me and my team had our masks on and any broker or owner that was allowing us to tour properties, we continued to tour. Now, I don't bring that up to say like I'm some martyrs, like, you know, anything to, to discuss in terms of my feelings about COVID It's just to say we had real conviction that this was going to, that this was not going to and New York City forever. And so prices fell like you couldn't even believe. Yet by the way, it proved to be correct because rents have gone up 30% since the first day of COVID And so we, we love contrarian investing. I remember a time we bought a building on East Second street and Avenue B from the Wilf family, 194 East Second and there was an exact moment of time about 18 months ago where rates ticked up to we borrowed at six and a half percent. We were able to buy this building at a 6.1% cap rate. It's a hundred percent fair market building at 66 Apartments. It's amazing. And we were the only ones that were saying, let's buy. Now. Everyone else was saying, I'm afraid that interest rates are going to keep going up. And if cap rates, you know, if interest rates go up to 7%, then cap rates are probably going to be at a 6 like this. The numbers don't work. And we bought the building. It's the highest interest rate loan I've done my entire career. And six months later, everyone is yelling at the broker, saying, why don't you show me this opportunity as six gap? His answer was, I did right. He showed it to everyone. It's just so. I am a very big believer in being, having conviction. Time will tell if you're right or wrong.

Right. So how do you know when you're in the moment what the herd is doing right? And conversely, how do you know when everybody's going left and you want to go right? So I guess the question is pulse of the market. So how do you know real time? Because sales comparable sales are always rearview mirror indicators. So when we come up with a sales report, that means the deal was probably negotiated six months ago, then the contract was signed, it had to take 60, 90 days to close and then come out in our sales report. Whereas you're in the moment, how do you know what your competitors are or aren't doing?

So look, the. Ask the question why? Like there's not enough of people saying, questioning the data. And I'm not saying questioning if the data is correct, of questioning what does that mean to you? And so what I'm. What I mean by that is the data comes out that, that it's a, you shouldn't buy in New York City because rents are going to go down if you just blindly accept every single thing that you hear or read. That is the exact opposite of how we run our acquisition group at our company. It's not to say that we discount data as being correct or incorrect. We just question it. We want to verify on our own if that data, if what everyone else is saying makes sense or not. And so what I mean by that the everyone, everyone predicted that rents were going to plummet during COVID Everyone there's not. You can't find a single market report that, that said anything other than rents were going to go down. We said that, we asked the question, why? Why, where are you moving? And so we knew for certain that people were going to have to be restricted to staying at home. I didn't want to take a bet that day that office rents were going to go up. But why? Why go down? You still need your apartment, by the way. You need your apartment more than ever.

Right?

You're not going anywhere. It's not like Covid wasn't going to kill enough people. That's going to change demand in New York City. And so we questioned it. And so when everyone else at the beginning of COVID was running for the hills and not buying, we went all in.

Right, so is this just your thesis or was there actual data points to suggest? I mean, maybe you were looking at your own portfolio because again, this is a great example. I mean, I think at that time there were people that, yes, they still needed a place to live, but that a lot of people said, well, I'm going to go live with my parents, I'm going to go live in the suburbs. I mean, it did create some near term vacancy and some downward pressure rent. So was this thesis, was this just kind of you had this theory or was it actually you were proving it out and you were seeing what the rents were actually doing real time in your portfolio?

No, no, we had no data to prove that we were going to be correct. We use intuition. And so what I mean by that is, by the way, and you are absolutely correct, in the short term, rents did go down. We lost a fair amount of tenants.

Right.

And guess where we lost them to. You hit it on the head. They moved home to their childhood apartment and slept. You know, they moved back to Long island from the West Village and their parents were happy to have them home. Do you actually think that that 30 year old that works in an investment bank is happy sleeping with his in his parents home?

They were back as soon as they.

As soon as you could. And so a lot of this is, this goes back to the question of asking the question why the data supports that rents are going to go down because people are moving out. And the logical answer is I should avoid investing in New York City. The more interesting strategy is actually think is this going to last for a long time or not? And so it's, look, contrarian, investing is more challenging because you're taking more chances.

Right.

If you're looking to just follow the herd and you're looking to just because it's worked perfectly in the past, my belief is that it's going to be great going forward is a recipe for disaster. That is those are the, those are the investors that are investing in overbuilt markets that is way too late. And so a perfect example is like New York City in like, you know, 2012 look like an amazing time to build condos, but by the time you actually delivered them, you were past the peak. And as I said before, and I'll say it again, I am such a big believer today on, on market timing. I mean one thing I found over now doing this for almost 25 years is it's a rounding error in terms of execution and knowing how to add value to a property. At the end of the day, if you buy a property, we used to buy properties at A3 cab and then now in today's market you're probably selling them at a five and a half cap. It doesn't matter how good you are at execution, you are not going to make money on that deal. Vice versa, if you're buying today at you know, at a five and a half or a six cap if you believe, and I'm not going to give my belief right now, but if you believe that you're going to sell it for a 4 cap, trust me, you'll make money even if you screw up on the renovations.

Very good point. Because when you, you take these contrarian perspectives, sometimes it could take a while to play out. Right? So you have to match the right kind of capital I would assume. Because if this is really kind of short term investors who want you to complete the business plan in two, three years, do you have to find the right kind of capital that's willing to be flexible on the timeline? I mean, how do those conversations go when you're structuring these deals? You mentioned that it started off you had a lot of friends and family. It's kind of graduated more towards a lot of the family offices. You know, when you have this thesis and you've got the family office, it's interested. Do you tell them, you know, look, this could be five years, it could be 10 years, we could, you know, this could be a forever hold. I mean, how do those conversations go?

They, it's harder, right? Like my, my entire career I've been trying to convince investors on things that are not easily proven. And forget about like this global, like, you know, it's not like, we're coming up with such innovative business plans that it's just like it's going to blow your mind. But the typical deal that I buy in New York City, we are underwriting rents that you cannot prove. So we're buying a, you know, I bought a great building on 12th street and, you know, off of 5th Avenue about 10 years ago, and the highest rents in the market for that type of product were $4,000 a month for one bedrooms. And we underwrote 6,000amonth.

Right.

The. That's hard, right? Like institution.

What is it right for today?

6,500. By when we sold the building, it's probably 8,000. The. Look, the easiest thing to do is to follow the herd. You just say, let me find a building. I'm going to be able to show 100 comps that perfectly support my, my thesis. But we were doing a renovation, and we were creating a product that didn't prior, that didn't exist in the market. So that becomes hard. And the way that you get across the finish line. Well, look, trust is a big thing. So if you've done it for your investor before, you start to gain some credibility. But it is challenging. And it's not even just the equity, by the way. We're often buying buildings and underwriting rents that we are in that we have a massive disagreement with our lenders. The debt's not getting comfortable that we're going to be able to execute on this business plan. So, yes, a track record.

And they're even in a safer position.

That's right. And it's hard. But we, we strive to have outsized returns.

So let's talk about your capital partners now, because when you started off, it was friends and family. And I remember you said, make a list of every single person you think can write a $25,000 check, whether it's, you know, someone you went to school with, someone you used to work with, et cetera. Now, clearly, you still have a lot of those investors who've continued investing all these years. But now when you approach these new family offices, first of all, how do you find them? Do you have to have the track record, even have the conversation? And then for our audience, because I think, I'm sure a lot of the people listening to this right now, they've got the friends and family, and they're ready to graduate. So is our family offices the next step as opposed to go to institutions? And. And if so, how do you go and access that capital? How do you get the meetings and how do you convince them to do the deal.

Look, family offices are very, very hard to meet. Institutional equity is a lot easier to meet. The we still have our, our high net worth syndication business going. We have about 300 active investors and then we have half a dozen family offices. We're typically on our deals for deals that are less than $10 million. We're syndicating for deals that are over $10 million.

Typically have a equity check not, not.

The correct equity check. We'll typically have a family office that's investing somewhere between 50 and 80% of the equity. We're syndicating a small portion and then Aaron and I are, are investing for as the GP the for sure. When you're starting out you should focus on a syndication. It is very, very hard for institutions especially in this market to get comfortable with new operators. But that's okay. Like you don't have to do $100 million deal for your first deal. Like you could do a few million dollar deal just to get going. News flash for everyone that's listening, you don't get rich on any given deal ever. And we've done, I've done 77 deals for Benchmark and I probably did 180 deals when I was working for SG2 Properties. Literally 180. It's you. There's no deals that, that you're going to get rich and retire from. This is not if you want to do that get into like social media or tech or whatever you like. In our business it's about building long term wealth. And so like you can make if you make a little bit of money on a little bit of deal but you gain experience, you build relationships, you get more investors. Investors lead to more investors. That's part one, part two. And this is some of the secret sauce which I'm going to share with you. You are when you pitch investors you are offering them an opportunity and, and that is that took me about five years to figure out. Now do you remember Cutco knives?

Yes. Ever hear I think we still have a set right?

So like Cutco knives for the people that are listening that don't know about it it's this funny it said like they have an army of college kids where they say to the college kids go sell these knives to all your friends, parents. I think the commission's like 20 or 30%. You're buying a garbage set of knives. And we had someone come to our house, one of my college buddies and pitch my parents my father said I don't need these knives. I don't like these knives, but I've known you forever and I'll take a set. That is not what we do for a living. And so once I figured out that we are not begging, we are not asking, we are not in a position that we need the investors, I am offering you an opportunity to make money. Once I came up with that differentiation, guess what it allows me to do. I talk about this all day, every day with everyone that I know. And so if I'm sitting down, want a dinner with a friend, now, you have to be careful not to like, bother people about it.

Right?

But all I'm doing is telling them what I am about to do, what our idea is, what our thesis is, what we are buying next. And I'm willing to offer you an opportunity to make money.

So this is amazing. And thank you so much for sharing because, you know, again, it's so true, and especially if you seem not even desperate, but that you, you know, that some somehow, you know, coming, you know, begging for the capital as opposed to saying, hey, this is an opportunity that I'm bringing to you. But, but still, how do you find that balance? Because you're still signing contracts and even if they don't have hard deposits, if you have 60 days or whatever, I mean, there is a time frame where it's, hey, I've got this opportunity. But also. Okay, well, if you're interested, you got to let me know soon, right? So how do you navigate that conversation to create some urgency while not seeming desperate where you need that capital to close the deal?

Yeah, it's challenging. It's a tough business, raising capital. It's definitely an art. There's no exact science of how far you should press on versus not. I remember the first deal that I ever raised capital for, we were so desperate at the end, we were $600,000 off on a $6 million raise and we were supposed to close in. And we had an investor that implied that he may be willing to invest $600,000. And Aaron and I got him on the phone, it was about noon. And he was saying he was asking questions, he was unsure, he wants to think about it, he wants to talk to his wife, blah, blah, blah. And I looked at him and I said, look, if you don't let me know by 3:00 clock today, you're out. And guess what his response was? I'm out. Of course he's out. And so a lot of this is, is learning through practice, right? Like if you press someone, you put a gun to someone's head. To invest in one of my real estate deals, I could already tell you that they're out. So that was way too extreme. But what I'm talking about when I'm saying you're offering someone an opportunity is if they, if they smell desperation, they're also out, right? And so you gotta find what's in between.

And you probably have to have enough irons in the fire, right, where you have enough options, where it truly is a competitive process. Look, I've got multiple people. I mean, I know the same thing. We go sell a property, if, if the buyer senses that they're the only game in town, they're going to torture you. I mean, part of the broker's job is obviously to create the market and to have multiple options. You know, Jordan, because I'm sure so many of our listeners would love to tap into the family office network. I mean, was this literally just through introductions through your friends and family who said, hey, Jordan, you should speak to my friend who runs an office? Or are you working with debt equity brokers to, you know, open up these capital relationships? How do you actually find them?

Yeah, ours has been all organic, and so a lot of it's been friends of friends or investors introducing us to, you know, larger investors. We've had one of our great family office relationships actually came from through a broker, a real estate broker who got a phone call and was looking at deals for many years with this broker. And they were always too late to the, to the finish line. They always would ask, well, even if I bought this, who's going to manage it? And then the broker said, well, why don't I introduce you to a experienced group? And the debt brokers, just to answer that specific question, typically are not introducing you to family offices, they're introducing you to institutions. And for institutional size deals, I would highly recommend partnering with a equity broker. And I'd say it for two reasons. One is the name of the game today, specifically in 2025, is knowing who has money to invest today. And so there's too many institutions right now. No one will ever tell me, like no institution will ever tell me that they turned off the spigot, right? If they tell me they turned off the spigot, their fear is, I'll never bring them a deal ever again. And so if I try to be a sharpshooter, like, I find a deal that needs 50 million of equity, we need an institutional partner. The what ends up happening is the groups that don't want to invest, they'll just nitpick our underwriting and come up with 10 reasons not to do the deal that's very, very easy to do in our business. And so hiring a equity broker, who knows which group is active today, which group is actually going to like the exact deal that you have. And a lot of it, by the way, is not even deal specific. Like if you call a fund on the wrong month when they're just about to close out their fundraise, they'll say no anyway, even if it's fantastic deal. And so I think equity brokers is a very good path towards finding larger deals. But specifically with your question of if your audience is looking to get into this business, don't worry about family offices, don't worry about institutions, go find a good deal, have conviction and go syndicate it.

Love it. Jordan. With only a couple minutes left and I know the advice from last show was to go and buy and let's. I'm hoping that our listeners took your advice and they've now amassed a couple properties. Right. And you know, oftentimes investors can start with a smaller multi deal and they've got a couple, you know, deals under their belt. I think more advice today about scaling right and going for, you know, you've done the, you know, the 2 million, the $3 million deal, you want to graduate to the 10 or the 20, you know, what is it that you would need to do from, let's say from an operations standpoint? I mean, when you kind of graduate from kind of, you know, small single owner to really building an investment company, what are the key steps that need to happen to have those capital partners look at you as a credible partner to go out and invest? And I think kind of flip side, I think there's also that challenge of interacting with the broker where you're obviously looking at a deal that's much larger that you've taken on. So I know I've wrapped a couple questions into this, but again, this thought process of kind of building the portfolio, going from small to larger, kind of presenting more institutionally, not just on an operations standpoint, but attracting the capital and having the credibility maybe when you haven't necessarily done it before.

Yeah. So a few things. One is if you have bought a building over the last number of years and you could sell it profitably today and your goal is to build a bigger portfolio and have better investors, you should sell today, period, end of story. When I first started my business, I was interviewed by the New York Post and I said that my goal is to have a thousand unit portfolio in Manhattan. My goal today is to have a zero unit portfolio nationwide. And it's because I used to think that I could build this. You know what I want to do? I want to recreate what the classic families like the, like Sol Goldman did in the 1940s. And that is a urban legend at this point. Like the, those guys were buying buildings for $7,000 for you know, 400.

Now they just have the land they were smart enough to just, they just leased it to someone else, let someone.

Else operate our business. Real estate since like the early 2000s has turned into commodity. Like where a investment class is something that you buy, you execute and you sell. And so it's in order. By the way, even if you want to build a massive portfolio, you're going to have to sell some of your early deals profitably to show the track record. If you can't, you better start spending some time of how of developing a pitch to show your performance. And what I mean by that is performance in real estate could come in twofold. One is an actual track record. I bought it for X, I sold it for Y. I generated in a irr of Z. That's the easiest way if that's not possible. Pictures mean a lot. Showing that your rent row was X And now it's 2x shows a lot. Showing that you said you were going to renovate in six months and you did in five and a half months shows a lot. And so you're able to, you have to be able to tell a story that you are good at what you do. And so institutions will buy into that. But the easiest path is to sell some of the buildings. In terms of my best advice in terms of growing a company is hire talent. We were way too slow, Aaron and I in the early years of just worrying about every last dollar and we had a team full of kids in my office, we now have a team full of masterminds in our office today. And we have to pay for it, right? Like you have to pay more for the salary. But I now have, in every important position in my company, I have someone that is better than I am at individual job. And it doesn't mean you should go out and spend millions of dollars on salaries for people. But it's just when you hire, when you need your first property manager, don't hire the 22 year old from college. You got to hire someone that's bringing, that's bringing something to the table that makes you outperform.

And what are the first three hires then? I mean if, let's say someone's found the opportunity themselves that are self managing but now it's time for their first hire. Is that that an acquisitions person? Is it you get more of a generalist. Is it a, a cio? I mean what are the, you know, if you go from, you know, maybe a partnership to you know, a five or six person company, what do those positions look like?

Property management, construction management, execution on business plan type employees. The. Not everyone will agree with this by the way. Like if you're.

Some people might third party it. I mean we hear people say, look I'll just third party.

You could third party it too. So bring in an asset manager to oversee people. The, you know, the third party property manager. At the end of the day, we are investing in a real asset class. Like you could touch it, you could feel it and you have to get to the building and if you look, you could grow. Like you're going to need every single person that you've named in your company one day.

Yeah.

But at the beginning what you should be focusing on is who is going to lead to higher returns for your investors. If you could generate meaningful returns, you will grow, period.

So one last bonus question before we and Jordan, this has been amazing. The first episode I know was definitely one of the all time favorites. I know this one is going to be as well because there's so much information and really appreciate, you know, the candor and sharing as you said that the secret sauce. So someone's listening right now and they've got a great opportunity in Savannah, Georgia but they know this is, you know, above and beyond what they can do. That person calls you up and says, Jordan, I've got a deal. Can we work together? Can we partner? Is that something that you're interested in? And if so, how does that, you know, how would that conversation potentially go? And how could you work with someone like that?

100%. Look, the first 10 years of benchmark, we were the sole GP on every deal. And the last five years we've done a, a whole bunch of joint ventures and code gps. It's interesting, the older generation for me, like the, like the classic great Syrian buyers of New York City partner on everything, right. And a lot of those guys can fund the entire deal on their own. So the question is, why do they partner on it? And the answer is. Back to what I said at the beginning of this conversation. Diversification. And so we've done lots of code GPS over the last five years and they're great. It allows us to do more deals. It allows us to have more exposure to different areas and everyone brings something to the table. And so the way that we structure these deals is we say we look at every part of what's going to make that deal successful and you split up the fees and the promote based on that. So if you're bringing the deal, you're bringing the equity. If you say to us, hey, could you manage it? Sure, but we want the management fees. If you bring me a deal and you want to manage it, great, you could deal with that nonsense for 5%. It's that sort of mentality. But the, it's been a great way for us to get more exposure to more markets. It's been a great way for us to, to sort of let, to extend the, the benefits of our equity. Because I'd rather put less equity into more deals than to put all my eggs in one basket.

Awesome. Jordan, this was amazing. Thank you for taking the time again. I know again our listeners are going to get a ton of value out of this and you're probably going to get a lot of inbounds after, after that last, last response as well. So thanks again.

Thanks so much, James, and thank you.

All as always for joining. You know, the, the best thing I think you can do is I've referenced this before, but one of my mentors, Rod Santomosimo, has said knowing isn't doing right. So you this is incredible information that Jordan has so generously shared. It's really incumbent on you to now put that into action. You know, going back to the first episode title just to do it, to get out there and again, make this actionable. As always, you can go to james nelson.com I built the site for you. That's where you can find the show notes. That's how you can find out how to connect with Jordan. There's also a lot of helpful information there to help you gain the insider's edge to real estate investing. So thanks again for joining.

Until next week, thank you for listening to the Insider's Edge to Real estate Investing. We appreciate your subscribing and sharing with your friends. If you haven't already, please connect with james@james.com nelson nyc on LinkedIn, Instagram and Twitter. Please also visit james nelson.com where you can find the show notes and other episodes along with an exclusive video series and other helpful resources so you can gain the insider's edge to real estate investing. Until next week.