Data Driven Decision Making Part 1 With Rich Sarkis

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

Welcome to episode number 104 of Real Estate Investing Live from New York. This is your host James Nelson. I'm principal and head of Tri State Investment Sales at Davison Young and thank you as always for joining. It means so much to me that you're tuning in that you're sharing this episode with your friends. Please keep the comments, the suggestions coming. I really appreciate it. If you haven't connected with me, please do so James Nelson NYC on LinkedIn, Twitter or you can follow me on Instagram. Last but not least, please, if you have not, check out james nelson.com I built this site for you. This is the investor hub where not only can you find all the podcasts and show notes, but you can also find a helpful video series. And actually for today's show I'm going to be playing the audio for you for step number one in the ten step process on how to get the insiders edge to real estate investing. Step one is what to buy. We'll be talking about the different types of investment opportunities out there after that and I'm entitling this episode Data Driven Decision Making and I have with us Rich Sarkis, the founder of Reality. Right off the bat he announces some exciting news that he just sold his company but he is staying with them to continue to build and elevate their platform. But I thought this would be interesting to you all because to be a good investor you have to be able to really analyze the information to get building information, owner information, building records and reonomy is a super helpful tool that I think you're going to find very useful if you have not checked out. So we're going to do step one after a brief word from our sponsor and then we will get into the interview with Rich. And finally this is part one because for part two I've asked my friend Ash Zandi to come and talk more about data driven decision making. So thanks again. Gonna have a brief word from our sponsor and we'll get into step one in that interview with Rich.

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 their 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 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.

Step 1 what to buy first, you need to decide what type of property to invest in. This includes the location, the type of property, risk profile and management intensity. For location, consider your neighborhood or where you work. You probably know the area better than many outside investors. You know what areas are poised for growth. Think about new developments, infrastructure projects or companies that are opening up. Invest in surrounding properties that will benefit. For example, I remember how drastically the Chelsea neighborhood in New York City changed early on in my career. The city had upzoned a manufacturing corridor to high density residential. 3040 story towers seemed to go up overnight. Savvy investors bought up just as the neighborhood was taking off in much the same way. A few years later, galleries came to West Chelsea bringing culture and nightlife, whereupon property values increased tenfold in some cases. After picking a neighborhood, think about which asset class you want to buy. They include multi family, office, retail and land. I'd stay away from the latter. If you're just starting out, there's just too much that can go wrong beneath the ground and during the construction process.

Process.

Your experience might help you decide. Are you a retailer? An architect who spends time designing offices? Are you a handy person who likes to renovate around the house? You also need to consider how much time you can spend. Do you have a full time day job? Do you have the time to actively manage? Of course you can retain a managing agent, but real estate is a hands on business where you have to closely watch your investment. You might also want to start small. Many investors begin with a multi family with four or less units, especially if you can live in one. There are very favorable governmental loan programs for first time home buyers. Multifamily is also considered the most conservative. If you lose one tenant, you can almost always find another. By comparison, if you own a freestanding retail property and lose your only tenant, that could be a big concern, especially if you have a mortgage to pay. If you're thinking about buying an office building, you need to be well capitalized. Even if the property is in good condition, there is still a big cost to do tenant improvements and leasing commissions to pay for lease up. It could sometimes take close to two years to have income coming in. Lastly, you have to consider your risk profile too. Yes, the riskier properties like retail might pay a higher return, but it can come at a cost. That being said, the credit of the tenant plays into this as well. Having a major drugstore as your tenant as opposed to a mom and pop can give you a lot more security and also allow you to get more favorable financing. Above all, don't get into something which is above your head. Podcast Tip Listen to my interview with Ian Ross entitled Know youw Market. He's invested all over the country across multiple asset classes, so we'll give you some great insight on how to select a market and what makes for a great investment.

So now it's time for our investor spotlight and with us today is Rich Sarkis, who is founder and Executive Chairman at Reonomy. I've known Rich for probably at least five, maybe even 10 years and I can say that also I am a customer of Realmy. I use the platform every day and so I'm excited to bring you all this show because I think by leveraging data you can make better informed decisions for your investing. So Rich, thank you so much for joining us today. We really appreciate it.

Absolutely. Very excited to be here. Thanks for having me. James.

Awesome. So right off the bat, huge congrats. I heard you were just acquired. So I know we're probably not breaking the news on real estate investing live from New York, but maybe tell our audience a little bit about what that involved and what that means for the future of Reonomy.

Absolutely not breaking the news, but certainly not that far removed from it. So yeah, exciting news. We've just joined forces with Altus Group. Altus, of course, is the large publicly traded company that's based out in Canada that has a number of different products that a bunch of folks in the CRE market know and love, Argus Software is one of them. They've got a lot of deep stuff on valuation analytics, predictive analytics. And it's interesting, when we first started chatting with the fine folks at Altus very early this year, actually I remember having an initial reaction saying Altus Group, I don't know, I don't think that it's like, you know, that and reality kind of go together because, you know, and I've talked to them about this, but I wouldn't think that tech forward or innovation was one of the first thing that springs to mind when you initially ask customers or folks in the CRE space about Altus. But as Mike Gordon, their CEO, said to me a few months ago, this isn't your dad's Altus group. So this has basically been a completely new management team that was brought in 12, 18 months, months ago with a really strong focus on data analytics, technology, design, modernity. And so as I got to know more about that new vision and strategy and sort of cultural alignment, one thing led to another. And yes, it culminated in the transaction that closed about a month ago in mid November.

Congrats, that's awesome to hear and really looking forward to hearing how your technology evolves. So, for our listeners, or maybe someone who's never even demoed real, maybe you could just explain to our audience, I.

Don'T think there are any people. Everybody is completely familiar with Rhiannon.

They've been in a CAD for the last three years. At least they're tuned into the podcast. We know that we at least have a phone. Yes.

Yeah. So it's interesting. I founded Reality almost a decade ago now, and I did not have a commercial real estate background at all. I'm not one of those founders in proptech and CRE tech that sort of knew of the pain points firsthand and said, hey, I'm going to start a company that's going to solve these pain points. I've been an entrepreneur for a long time, going back to when I had hair on my head. Your listeners won't see it, but you know that that's got to be a long time ago. And so when I sort of started getting interested in the CRE space, I was sort of struck by the fact that you've got this massive asset class, many different participants, obviously, folks on the debt and equity side, valuation, appraisal, the brokers, insurance, et cetera. And yet, despite all that value at stake, it was really lagging other areas of capital markets, whether it be securities trading, et cetera. And so I decided to found a business that was really centered around technology, modernity, but also simplicity and delivering the solution in a very simple and elegant way way. And so the way we started the business and that's remained true to this day was really let's leverage technology, let's leverage machines, computing, AI, machine learning, to do all the heavy crunching, right? Collecting the data that's out there, but it's invariably very messy and disjointed and unstructured. Let the machines and the algorithms cleanse through all that Validate it, structure it, but let's deliver it in a way that brokers, lenders, institutional investors, service providers need it. And that means simple, elegant, intuitive and easy to use. I never wanted anyone to have to put on their resume, hey, I'm certified in reality because that means it's hard to use. And so essentially the easiest way to think about real economy is basically your data platform for cre. And so what it does is it takes publicly available data, private data through third party relationships that we have with title companies, credit bureaus, geospatial databases, et cetera, and delivers it in one of two ways, essentially either our web based platform, that's our core product, we started in New York, we expanded that to national coverage about four or five years ago. Now the easiest way to think about that one is the two of us would go to Zillow to find our dream home or research whether we want to buy a house in this town or this other town. You go to the Rhionomies web platform to do that same level of searching, map based searching, filtering, searching anything that's not a single family home. So duplex and above on multifamily and all the other food groups, warehouse, office, industrial, vacant land, et cetera. And the other big line of products that we have are enterprise grade data APIs that companies such as yours, right ay, big banks like JP Morgan Developers, Tishman Spire, Brookfield etc, use and leverage those APIs to augment the data purview that they have as well as build applications on top of that data structure.

For those of you who are newer to the business, especially the brokers out there who've benefited from Rich's platform and being able to easily access owner and building information. I gotta take you back 20 plus years. When I started in the business we got were, you know, each office had the blue book, which was basically Chromebook where it had every owner's, you know, by address, every owner's information. And we'd go in and we'd kind of, we'd photocopy it, we'd put each property in a three ring binder. And I went from, you know, this is clearly between, you know, before Google as well would go and take photos of every single building and then I had my notes in a three ring binder. So you know, today to have this information at your fingertips and I think you alluded to it, you know, real estate was very slow to catch on. Like Fintech figured it out very quickly. But massive inefficiency in our market and with information. And so for you to be able to access that, not just for New York, if I'm not mistaken, you cover across the U.S. now, is that correct?

Across the U.S. right? That's right. And it's funny, just as a brief anecdote, obviously, I think you started your career at Massey naclo back in the day. And I remember when. That's where I first met you. And then I was sitting with Paul Massie. This is going back almost a decade. And similar to you, he was reminiscing about when he first started the Blue Book, which literally, physically, for those listeners who are not aware, it physically is this big book. Right. It's not a Kelly Blue Book online or anything like that. It is a physical blue book that was released once a year. He was telling me that part of the masseynacle thing back then was you have to know your territory. And that was the. The, you know, the right. You have to go through, you know, the sort of. I wouldn't call it a hazing, but it was sort of like, you know, it weeded some people out.

Right this way. It took three months to catalog property.

Exactly.

So I had to log 2,500 properties and take photos of all them.

And you literally have to walk. Right. And then, like, the owners are. And it was a very, to your point, time intensive. And I remember Paul saying that, and maybe the record was, you know, something. Someone had done it in 52 days or something. And I remember demoing the platform. This is when we were just in New York and said, okay, well, let's pretend this was your sort of radius or your. Or the blocks that you covered. And I drew it on the map and basically it automatically populated all the properties that were there. And then with one button, I just downloaded an Excel file with every single building, all the square footage, the physical attributes, every single owner. But not just the LLC, right? The names beyond the LLC, their contact information, phone number, email, etc. And he was, you know, it was just like an epiphany. So, yeah, it has historically been a very analog industry and, you know, we've really tried to digitize it and bring it into the 21st century.

Yeah, I mean, I know the other thing was any public records, if we wanted a CFO, I remember having to go down to 25 Beaver street and wait 30 minutes in line and for every, you know, for every cfo. So to have this information at our fingers. Tips today has been a game changer, and I think we owe a lot of thanks to Mayor Bloomberg. If I'm not, he was the first one and really a leader to say we're going to give open source data, you know, because before I would imagine the city said, hey, this is our information. We're not going to open it up, want to come in and ask for it in person. They can, you know, they can foil for it. But he said, look, we're going to provide the data and then we're going to look for smart people and companies to come in and see how they can leverage it. And there's been so many incredible technologies that have developed from it. So that was really, I mean, I don't know if New York was really the first city to do that, but it definitely seems to, you know, to be the norm now. And it just makes, you know, transacting so, so much easier. So tell us about, you know, because I know as a broker, for me it's very helpful to know obviously who owns a building, the contact information, you know, all the building information, zoning, if I want to go and look for a certificate of occupancy. So I mean, that's kind of basic information that a broker would want to know as they're making their calls. I know you've got comparable sales there as well. So, you know, a large part of our audience are investors and they might right now be relying on brokers to provide them information. I don't know if you've ever thought about, you know, your audience or I'm sure you've thought of it. I don't know if you have the stats and you know, how many are brokers, how many are owners, but you know, for those investors out there, how would you suggest that they utilize?

Absolutely.

Source opportunities.

Yeah, yeah. And look, about 20% or even almost a quarter of all our users this is nationally are actually folks on the equity investing side. And they range from mom and pop investors who buy one asset either because frankly they're hobbyist developers, they're a dentist, lawyer, doctor, etc. Who their financial advisors said, you know what, it's good to diversify and you should own a five unit multifamily, it's great cash flow, etc. All the way up to the Brookfields, Tishman Spires, Blackstones, large institutional investors, as well as hedge funds, private equity, et cetera. So let me talk about how the three groups of investors use it. On the one end of the spectrum, the individuals, these are not calling them hobbyists, I guess, doesn't do them justice. I think these are people who put their money where their Mouth is, but it is not necessarily their day job or if it is, they're certainly not at the scale where they're buying portfolios and looking for that kind of stuff. The way they use Realmy's web app and they typically only use the web application. They are not interfacing with our enterprise APIs, that requires too much tech investment and etc. They use our reality web application the same way. As I mentioned on the onset, you and I would use Zillow, right, as sort of a tool to do outside in research, triangulate, find either properties that meet specific criteria or also to be able to take what their brokers tell them are good potential target opportunities and do some additional digging for themselves, etc. And oftentimes we'll have the brokers as well as those, those investors who both have Reonomy and there's some cool functionality that you can actually share links, put notes, tag things, etc. So they'll work very much that way, collaboratively, etc. Then you've got folks who are, you know, on the opposite side of the spectrum, large institutional investors, whether it be Tishman or Brookfield, etc. And I'll give you an example that my good friend now at this point has become a good friend. Paul Galliano at Tishman said when I first demoed it to him, you know, there were some well founded skepticism, right, because, you know, as I'm sure we'll talk about, there's a lot of noise and a lot of stuff in Proctec, so it's sort of tough to sort of sift through all that. But I remember the epiphany for him was they were looking, or they were looking to develop a site in, in Brooklyn. And one of the things similar to the whole Massey Naco situation, they wanted to know who owned all the buildings around it, they wanted to know what potential air rights were available, et cetera. And that's a pretty, as you know, time intensive, laborious process that requires a lot of sleuthing, etc. We were able to go directly onto the site that they owned and that they were redeveloping and through our interactive map, click on all the adjacent properties and find out not only who owned it, what the air rights were, zoning, et cetera. And that was very valuable to them to sort of say, okay, well you know, should we actually buy the contiguous lots? And you know, is it possible to build even higher up there? And so that's how a lot of the larger institutional buyers do it. And then the third group is sort of the, the hedge funds, private equity and some institutional groups where they actually pivoted. They are not as interested on a single property basis, but much more interested on portfolios. Right. For a few reasons. But one use case is if I'm a hedge fund and I want to know if I should long or short a publicly traded reit. One of the things I would really love to know, and it sounds basic, but actually even a public REIT doesn't disclose at the individual address level what properties they own. And they certainly don't disclose who the tenants are. Right. If it's a single tenant portfolio. And so what they use our platform for is to basically take a REIT and then you can just punch in that owner name and we have a knowledge graph that has combined all the different LLCs, corporations, trusts, et cetera, that all tied to that one single sort of parent entity. And we'll say Here are the 2,500 different properties across 200 different SPVs, LLCs, et cetera, that actually form this portfolio. And here are the tenants here who holds all the debt, et cetera. So they can do an incredibly powerful but granular bottoms up analysis of that reit. And so that is another way in which folks on the equity side, the investor side, the, you know, on that side of the house, uses Real Economy's data and platform to make better decisions.

That's fantastic. And again, for our listeners to make the best informed decision to have this research tool to again see what's happening with the neighboring property. Certainly if you're looking to do a development and finding the air rights, and I've used that feature all the time, it makes a ton of sense. What about, have you ever thought about bringing on listings as well? I mean, there's obviously other data platforms out there that show properties for sale. Do you capture that information? And then maybe you could also talk about your comparable sales. How do you, you know, how do you vet that information? You know, if you have comps, how do you know what the cap rates are? So, yeah, I guess, yeah, two parts there.

Yeah, yeah, yeah, two, maybe even, you know, two and a half, three parts, I think on the listings. And I would even add the leasing front. We have not gone down that road partially because to your point, there are others who have sort of built a big, pretty big moat there who are, you know, really specifically focused on listings, lease comps, etc. Whether it's, you know, big companies like Costar or newer ones like Comstack, etc. And so we view ourselves very much as complementary to that stuff. On the leasing and listings front. We do have transaction data to your point, around sales comps, etc. So we have all the transaction data, all the sales data for every building throughout the US that's not a single family home. But again, if you look at a company like RCA who goes deeper, but perhaps not as broad as we do, certainly definitely not as broad as we do, and they will give you commentary and cap rates, etc. We view ourselves also as a complement there. Right. So the way we like to think about it, and this is going back to the Altus transaction where we really had a meeting of the minds with, with Mike Gordon and Jim Hannon, the president of Altus analytics, where we want to be the first point port of call. Right. Whenever there's anything you want to know firsthand about a property, you go to reonomy. Because what we have done by leveraging technology and machines versus humans to do the research, it allows us to get every building, whether it's a, pardon my French, a shitty, you know, five unit multifamily in a tertiary market or a trophy class A office building in LA or New York, we will cover it. Whereas for most of the other companies, because they have humans doing the research, invariably and naturally they're going to focus on the sort of the top of the pyramid. Right. And so we will not necessarily give you the deep sort of commentary and cap rate type info, but we give you what a lot of our clients call, you call the spine of data. Right. All that you can then build on top of. And so that's where we really want to be the first lookup that you do on the reality platform. And then you can go deeper, depending on what your needs are on various other systems that we aspire to interact with and also, you know, have, have connections with and interactions with as well.

Yeah, that, that makes a ton of sense the, the way you, you explain that and so appreciate that. How would you recommend to investors if they, you know, or brokers for that matter, if they were using your platform as a canvassing tool? Yeah, what attributes? And now we're kind of getting more into the predictive, you know, type discussion. You know, what things would I want to be looking for for a property on your platform that might signal that, that that owner is looking to sell?

That's a great question. So I'll give a macro, almost a disclaimer. I will say there is no platform, including reality, that you just press a magic button and it makes Money for you, Right. We like to say that for a broker, reality is the best tool to help you make more money faster. But as you know, and I hope most brokers, even if they're coming up in the industry, know it still takes hard work and effort to translate the data, the information, the insights into actually making money. Right. No one's going to make the call for you. No one's going to actually do the work for you. And any platform or any product or any person that promises that, you know, hey, you know, pay us $5,000 a year and you'll make, you know, whatever is lying, because you are going to have to put in effort. That said, what we have done is we have built a series of algorithms that are signals for potential opportunity. We'll call it opportunity. And that's how it's sort of framed on the platform. One such opportunity, to your point, is likely to sell. We actually have built an algorithm that says a property is not likely to sell, sort of medium likely to sell or highly likely to sell. It's based on a number of factors and it's constantly evolving. This is truly machine learning, where more factors are going in, it does back testing and then it trains itself. But that's one of those things. And you can either do a search directly on the platform to say, hey, I'm interested in Salt Lake City, Utah. I'm interested in multifamily. Show me all the multifamily units of at least 10 units, but not more than 50 units that haven't taken out a loan in the last five years and are likely to sell. Right. And the system will actually say, okay, this is what we think that set of likely to sell buildings are. But the beauty of freeonomy, also, as you get more familiar over time, you get to be a power user and you can put the parameters yourself. Same way on Zillow. Right. The more familiar you are with real estate, the more you know what you're looking for. You can not only say, okay, the number of bedrooms and bathrooms, but you can say you're built. You can say, you know, things around location. You can say all that stuff. You can really. There's over 200 different filters and parameters that you can set Rheonomy. And it's very easy to do that way that you can create your own sort of target list. And the beauty of it is you can actually save that and track it over time. So if there's changes, a property takes out a loan, new occupants come in, it trades, anything like that. You can actually send alerts and the system while you sleep is tracking that for you and will send you alerts even as an email digest every Monday morning or whatever. You set it in your inbox so that you can stay on top of it and the system is working for you while you sleep, so to speak.

Amazing. And that's really, to me, the exciting part is how do you leverage this information? How do you make data driven decisions? So you already alluded to this at the beginning of our discussion, but maybe talk a little bit more about this partnership with Altus and what the future plans are. Where do you see going from here?

Yeah, great question and obviously a topical question. As I said, I think I was pleasantly and positively surprised about the sort of the strategic alignment, the meeting of the minds, et cetera. And I think I can really distill it to three things. One is we have spent a lot of time, money and energy, we being reonomy independent of Altus, around building the premier knowledge graph in the industry. And that's just a fancy word of saying we've built technology that takes the core entities that really matter in commercial real estate, obviously properties, but it's also the companies, the people and the transactions that matter and then link them all together and by doing that in an efficient way, you're able to start answering really valuable and tough questions, right? Like what does a portfolio look like? What is a portfolio likely to look like? This particular owner, what do they do in times of distress? What do they do in a bull market? Right. And I like to say it's not just about seeing really clearly in front of you, it's starting to see around corners. Right. That's the predictive analytics part. And so we really found there's a lot of alignment around what we have built and the data assets that Altus has and has garnered, whether it's through ARGUS or other means throughout the years. The other one is just a lot of synergies around people. Right? As I said, we are relatively human capital light. We've invested a lot in technology, R and D. We'd raised over $100 million over the years to really pump that into building this ip, this patented ip. A lot of it is patented at this point and they have done similarly, but they also have the benefit of they have a lot of tax appeals professionals who are boots on the ground, who actually are the source of truth for a lot of data and information that they gather on an ongoing basis that is incredibly synergistic with what we have. Right? Because that source of Truth that ground truth data that they are able to collect on an ongoing basis. Incredibly valuable when you pump it into our knowledge graph. And the last and this, you know, it sounds cheesy and it's a throwaway a lot of times, but there has to be a values and cultural alignment. And as I said, the new management team that was brought in about 12, 18 months ago by the Altus board, interestingly does not come from commercial real estate, comes from the credit bureau, credit agency background where there's a lot of similarities. And so A, this is not their first rodeo, B, they understand the value of data and weaponizing data and actually giving it to the end user in a way that's powerful but simple to use. And so there was really this sort of light bulb moment that went off for me that says, wow, they actually look at this the same way that I do and that was incredibly important for me. So I think, you know, when you take all those three things together, right, we are very excited about the product pipeline that we can jointly have together. It's going to accelerate a number of things that we've been wanting to build. We've got a product development pipeline that's you know, a mile long and it allows them to take their installed customer base, they're a great brand name and installed brand name with a lot of investors, brokers, appraisers, et cetera and really give them a complementary set of tools, data analytics, predictive analytics that is very valuable to them. And the last thing I would say, James is I'm really one of the things that was important to me is that they have a very open mindset. And I don't just mean by hey, they're open to new ideas. I mean they want commercial real estate to sort of and data and cre tech and prop tech to be an open system, not a closed ecosystem where if you subscribe to my product that means, you know, we don't play nice with anyone else. And heaven forbid if you commingle your data with our data, it becomes, you know, very murky. We and they and the royal we want an open system where obviously everybody maintains their data and owns their data and you know, your secret sauce is your secret sauce and how you think about a likely to sell building is going to be yours but the data flowing, the systems integrating, etc. Incredibly important to have tools and platforms that play well with one another because frankly we have that in our everyday life. Imagine my Apple iPhone without the App Store, it wouldn't be nearly as powerful as it is if Apple just said, well, you can only have Apple apps on your iPhone, I don't think that would go very well. But if you open it up, that's really where you unlock a lot of the value for the end user. I think that's something that was very important to me and ultimately is going to be important to our end user in this whole marriage, so to speak.

You definitely spot on with that and it's, it's a great point. So maybe I'd be curious. I mean you've been. Rionomy is now almost nine years old, I believe so. So, and again, you said you didn't come from a real estate background. I know you were at McKinsey before and Boston Consulting Group. I'd just be curious, how did you decide to start this company? What was it like back then to get this going? I mean this is a massive, massive undertaking. So I'm sure the audience would love to hear a little bit about your story, how you got this off the ground.

Yeah, so, yes. So I've been an entrepreneur for well over two decades now. I started my first business back when I was in college. The sexy way of saying it, it was an international arbitrage business. Really what it was is I was absolutely fed up and sick of paying an arm and a leg for my textbooks. And I found out that you can buy the exact same textbooks that are available here in the college bookstore for a fraction of the cost. I'm talking, you know, 15, 20% of the cost overseas, primarily in the UK. So you know, long story short, I set up a whole supply chain, virtual inventory. We had about a thousand student reps at colleges throughout the US promoting this service, which would basically promise to save a boatload of money and did for students. The unfortunate thing there is the five major book publishers sort of didn't like what we were doing to their monopoly price gouging model. And so they banned it against us and quasi shut us down. And so in a moment of weakness to your point, I said, oh my God, you know, I had a great education, but I went to a liberal arts school, Williams College, and I said, oh, you know, if I have gotten more of a business education, maybe I would have been able to structure the business where we've been resistant to these folks, et cetera. So I said, you know, let me go to business school. Not thinking that I would stay the full two years, that I would find a new co founder or two and start a business in the first year and then do that, because that's really what I'm passionate about. Ended up going to Wharton and back in 2005, unlike today, that was really a hotbed of finance, right? It was all like sales and trading, private equity, investment banking. This was before 0809. Sort of blew all that up. And so a bit of a miscalculation there. Had a great time, learned a lot, met a great bunch of great folks, but didn't really find that entrepreneurial spark that I thought I would find. So pure option based reasoning, to your point, ended up going to McKinsey thinking that it would really be a good way to round out that business education. I'd be exposed to a whole bunch of business problems, smart people within McKinsey at the client, et cetera, but thinking that I would do that for 12, maybe 18 at the outside, 24 months and then go back to building a business. Well, four, maybe four and a half years later, I was still there. I just been promoted to a junior partner. And I remember having dinner with my wife, being all happy and showing her my new business card that said, you know, associate partner. And we had been together from back when I was in college that she had seen me with the fire in my belly as an entrepreneur. And she gave me one of these looks that only she can, which was like, dude, what are you doing? This is not what you are excited about. And I remember starting to talk to her about it. I said, well, you know, it's still kind of risky to leave this cushy McKinsey job in New York doing financial services work and do something that I don't even know what that is. And she. And then to her credit, she said, yeah, but you know, this is not what you're meant to be doing. You're really good at building something. And So I quit McKinsey not knowing what I was going to do, but knowing that I wanted to go back to my entrepreneurial roots. This is back in 2012, so almost a decade ago now. And what I started doing was reconnecting with folks from my entrepreneurial past, right? Founders that I had sort of come across over the years, venture capitalists, et cetera. And one of the guys I reconnected with is a guy by the name of Brad Sforluga, who is the managing partner at a seed based seed early stage venture capital fund based in New York called Primary Venture Partners. He had been to Williams around the same vintage as I, maybe a few years before that. And we had sort of stayed in touch over the years. And when I left McKinsey I pinged him, I said, hey, let's grab breakfast, I have some exciting news. And I told him I left. And he said two things. One, you're crazy to leave that job without knowing what you're going to do. But number two, there's this guy Charlie Oshman that I've met a few times that you should meet. He's been talking to me about commercial real estate data. I don't know much about it, but it seems like it's a really big space that's ripe for disruption. And I said, you know, why not? I'm meeting with everyone, I'll meet with Charlie. And so a few days later, we got together at a LPQ in Midtown on 51st street for what was meant to be a half hour meeting. Two and a half hours later. And this is the cheesy part of the retrospective movie. I called my wife and I said, that meeting I just had, that I was telling you about, I think it's going to change our lives. And I literally said that I'm not, you know, I'm not sappy, usually I don't call and say that kind of stuff. But the three things that really stood out, one, and I mentioned it before, just the sheer size of the asset class. I had spent, if I'm honest, some total of 0 seconds thinking about commercial real estate. I lived in a multifamily rental, I worked in an office building. But I am, I did not think or interact with commercial real estate. But when Charlie was talking, I'm like, holy shit. If you think about it, most companies have or interact or touch commercial real estate, whether they're tenants, whether they're brokers, landlords, insurers, you know, list lenders, list goes on and on and on. Was floored by the fact that it was massively inefficient at McKinsey. As I said, I had done a lot of work on financial services. Other areas of capital markets where it's an absolute table stakes. It's not a luxury, it's a table stick to have access to pristine real time data and then the analytics layered on top of it to underpin your decision making. And here was a place where it's still by and large a lot of asymmetric information advantage. Who do I know, what do I know that the other guy across the street doesn't know and all that kind of stuff. And these are big multimillion, in some cases, billion plus dollar decisions being made on that. And the last thing is there hadn't been much real tech disruption There had been a lot of stuff on the residential side, Zillow, Trulia, Redfin. But when you looked at the large incumbents in this space, and this is somewhat still true even today, they really are not technology driven companies. Right. They had almost brute force the problem and said, oh well, I'll throw bodies at the problem. I'll have hundreds if not thousands of researchers gathering the data. All that stuff. There hadn't been that real huge inflection point from a technology point of view. And so that really was the sort of the spark in me as an entrepreneur that said, I think there's a big there there. And that was sort of the birthing of reality, as I said almost a decade ago. Trip down memory lane there.

Amazing. What a story. And again, massive, massive undertaking. But you've really figured out a way to simplify it. And I love what you had to say earlier about just making it easy to use and accessible. So. Well, Rich, this has been awesome. I guess my one last question that I ask is what advice would you give for an aspiring investor? And I'll ask it in a little different way for you because maybe it's someone who is really interested in getting involved in prop tech as opposed to maybe buying properties. So to someone who wants to get into your space, you know, maybe they're at college now, maybe they're at Williams at a liberal arts college. I mean, what would you say to them? How would you get involved in the proptech space?

Absolutely. I alluded to it before and it's, you know, it's a riff off of that. Don't be afraid to do the work, don't be afraid to immerse yourself, et cetera. Look, I think one thing I learned right, if I can figure out how to at least know enough to be dangerous in commercial real estate and proptech, etc. It's not rocket science, but you have to be willing to do the work. You have to be willing to understand the intricacies, the data, et cetera. And I'll go back to, you know, the first year when again, I knew nothing about commercial real estate, but it was only four of us and we were developing the first version of reality, which was New York City, you know, web application. I remember going into the Department of Buildings website, Acris, which is the New York City Department of Finance, where all the records are, to your point about certificates of occupancy and just pouring through it and just like immersing myself and trying to understand how are documents structured when you have a consolidation of Mortgage versus a new one and what's a construction loan? And you add the three of them up and it actually gives you the total dollar amount and how they're actually filed makes a difference and all that. And I remember having immersed myself and asked enough people and not be afraid to ask people, not be afraid to quote, unquote, sound dumb. And acronyms are actually quite intimidating. Commercial real estate, there's a lot of acronyms, right? And a lot of things, you know, let's say, you know, this type of exchange and this reg and this regulation opportunity zone and all that stuff, don't be afraid to ask questions. And if you do that for long enough, and it's not that long, you measure it in months, not years. Suddenly and slowly there's this sort of like light bulb that goes off and you start to, you know, I almost joke, it's like, you know, in the Matrix movie where you see all the numbers and then suddenly it all starts to make sense. And, and for me, that happened probably towards the end of that first year where then I could actually sit down with our engineers and our data scientists and literally come up with the rules of how our algorithms would work to calculate the debt on a property or to figure out who's the owner is, et cetera. I would have never been able to do that had I not actually sat down and done the work, asked questions when I didn't understand, once, twice, three times, still asked the questions. And then it clicked. And so I'd say anybody who's aspiring or even anyone who's in the space right now, don't be afraid to do the work, don't be afraid to ask questions. And I think if you do, there's tremendous opportunity to be successful in various aspects of commercial real estate.

That's awesome advice and a great way to end the show. Rich, thank you so much for coming on today and sharing your story. We really appreciate it.

Absolutely. Thanks for having me. James, it's been a pleasure.

This is your host, James Nelson, Real Estate Investing Live from New York. If you have not already, please subscribe to the show. Leave you ratings. It's a way that we spread the word and also connect with me at James Nelson NYC. Finally, please go to James Nelson.com I built this site for you as an investor tool. That's where you can find the podcast, the show Notes, but you can also find a lot of helpful tools there. So until next week, this is James Nelson signing off. Thanks again. Thank you for tuning in this week to Real Estate Investing live from New York. Please join your host, James Nelson for another program next Tuesday at 7pm in New York, 4pm Pacific Time on the Voice America Business Channel. All shows are rebroadcast on Wednesday mornings at 7:00am Eastern Time and 4:00am Pacific Time, as well as always on demand. We'll talk again next week.

Sam.