Development Pipeline with Jed Resnick

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.

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Welcome to episode number 214 of the Insider's Edge to Real Estate Investing. This is your host, James Nelson. I'm principal and head of Tri State Investment Sales for Avis and Young. And with us today we have my good friend Jed Resnick. I have known Jed for probably close to 20 years, back to his days when he was at the lefrac Organization. Today he holds a very senior role as CEO of New York City's based Dutch Douglaston Development. And although I've known Jed for a long time, shame on me for not getting him on the show earlier. It was not until I heard his interview on the Shaping the NYC Skyline interview. That's a great podcast to check out, especially if you're transacting in New York. Had the pleasure of myself being on that show as well. So always a good lesson for me, listening to other podcasts out there, bringing great speakers to you to help you gain that insider's edge to real estate investing. So today you're going to be learning about managing a real estate development and building a pipeline. Jed has more than 40 years having focused on a wide range of projects and specializes in both market rate and affordable housing. You're also going to be hearing about the three legged stool of development which includes design, legal and regulatory framework and financing. Okay, that might be four. Okay, so maybe a four legged stool. But in any case, Jed explains his firm's vertically integrated model which includes construction through Levine Builders and property management via Clinton Management. For new developers, Jed emphasized the importance of flexibility, creative problem solving and teamwork. As always, you can go to james nelson.com I built this site for you. That's where you can find the show notes. That's how you can figure out how to follow Jed on LinkedIn. He's very active there. In the company website. There's also helpful articles if you haven't seen. We actually post weekly content for Forbes. There's useful videos and some exciting announcements that are going to be coming out shortly. So you're going to want to sign up for the mailing list if you've not already done that. @jamesnelson.com we have a brief word our sponsor and we'll get right into that interview with Jed Resnick.

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Welcome everyone. Thrilled to have with us today Jed Resnick, who is CEO of Douglaston Development. I'm really looking forward to this conversation today. I've known Jed for at least a decade, maybe two decades from back in the day at LeFrac and I recently heard Jed on a podcast. They said I've got to get you on the show. You've got a great story and it's really interesting what Douglaston is out there doing. So welcome. Thank you for joining.

Good morning. It's great to be here.

Yes. And I know you, you also battled the, the Rockefeller Center. We're, you know, here, we're, we're here December in New York. So appreciate you making the, the track over here at 530 Fifth Ave.

Absolutely. And, and I, I'm, I'm afraid to say it is closer to two decades.

Yes. Well, we've, we've been doing this a while so I really, I want to get, I want to go back and hear about your story, but maybe just for our audience to just give them a sense of Douglaston and what you all do, maybe give a little background on the company and then kind of the, the portfolio and that, the types of developments that you doing today.

Sure, sure. So we pride ourselves on being one of New York's more sophisticated developers with a real specialty in complex multifamily development. We do all kinds of multifamily, mostly ground up some preservation work. We do everything spanning from partnering with New York City Housing Authority to rehabilitate public housing up through luxury condominium development and every stop on the train in between. But really our specialty is apartments residential in and around New York City with a focus on the things that are hard. We have a hard time competing on the things that are easy.

Right. So I'd love to kind of hear more about because we've certainly had developers on the show who are very focused in the affordable space, certainly ones who are focused on the luxury space. I'm trying to think of developers out there maybe could name one or two, but I mean obviously complexities on both sides of the equation. So how are you able to kind of effectively have that expertise at both ends of the spectrum and everything in between?

Well, it starts with the fact that there's a lot of commonality. And I should say that I joined Douglaston, it'll be seven years in January and prior to my time at Douglston, I had very little interaction with the world of affordable housing. But the truth is that building buildings in New York City is really hard and the process is kind of the same without regard too much to how much you're going to rent the apartments for. There are certain, there are certain parts of doing it and doing it well that are common across the board. Obviously the financing structures are very different, but that's just one piece of development. I like to think of development as a three legged stool. It's the intersection of design of a broad array of legal documents and government regulations and then the whole finance piece or what are we going to build, how are we going to make sure that we're allowed to build it and who's going to pay for it are kind of the big three questions of development. And a lot of those pieces are the same. Whether you're building Section 8 senior housing for low income seniors in the Bronx or you're building luxury mixed income rental rental apartments in Jason to Hudson Yards. It's a lot of those pieces are very similar. I should also say that, that in New York when you're doing quote unquote luxury or market rate rentals, every single one of those projects has an affordable component. So there, there, there's a lot of value in having the relationships with the city agencies and the right players to execute that well, because whether, whether you have a rezoning with mandatory inclusionary housing or when City of Yes passes, hopefully this week, next week you'll have the universal affordability preference. Every tax abatement has an affordability component. So there's always, there's always an affordable housing element to what we. To what we do in any of our rental projects. And it's really handy to have that expertise. And the other piece of it that's important is they are. I don't want to say that affordable housing and market rate housing are countercyclical to each other. They're not exactly countercyclical because interest rates impact both and the general economy impacts both. But they're differently cyclical because the funding sources are different. And affordable housing is not really driven by a cash flow return on equity as much as as managing government programs to execute. So it allows you to. It's a bit of a buffer against the fact that our industry, as you know better than anybody, is. Is uncomfortably cyc. There's good times and bad times. There's a real estate cycle. And one nice thing about having our affordable housing business is that it provides kind of a baseline level of activity that is less buffeted by the winds of the market conception on the investor side.

That makes a ton of sense. And I want to get into some of those affordable projects and also some of the luxury high rises that you've done as well. But just for our audience and to give a sense of the Douglaston platform, because Jeff Levine, who founded this, as I read, you know, this is what 6th Decade started with two people, Levine Builders, which, you know, maybe tell a little bit of the story and how, you know, Douglaston became the development arm. I don't know if you all are still doing fee development. You have a property management business now as well, so.

Absolutely. But I have to correct the record because. Because Jeff and. And his wife, Randy, may. May watch this. And it's six decades. That.

That's okay.

That would make them. That would make them too old. Okay. The business started in 1979. Okay. Jeff founded the business. Really. He founded levine builders in 1979 in their kitchen. Okay. He had been. He loves to tell the story and tells it better than I do, but he had gone to architecture school and realized at some point that you could make more money in construction than architecture and worked in the field and actually as a. As a construction superintendent foreman overseeing workers, and at some point decided to go out on his own and started his own contracting business. And over the ensuing 45 years or so, 46, 47 years morphed into or expanded into development. First. First because some of his clients, some of the owners that he. For whom he was building, brought him in as a partner. And then at some point, Jeff realized that, that with the construction expertise that. That the company had built up he could do development as well as the people who were hiring him to build the buildings. And then later on he realized that, that if you really want to take care of your assets, you need to manage them. Property management is very hard business. An investor once told me years ago that never get into the property management business because it's just HR all the time. And that's close to true. It's a really, really difficult business. And it's, and it's HR because you have a giant staff that's that, that you need to manage and it's, and it's HR in the sense that it's customer service and it's, it's really, really hard. But if you hire a third party, they're not as, they're just not as invested in, in, in the outcomes and it's really important. So, so Fast forward to 2024. W.E. douglaston Development is the, is the development arm of our, of our business. We sit alongside Levine Builders, our, our construction manager or general contractor depending on circumstance. And Clinton Management is our full service property management business. So we really provide the full service end to end lifecycle to our, to our projects from site identification and acquisition, design, financing, construction operations. And it's one thing that's, that's really helpful about that is when we are at, in the development side, when we are designing a project from the beginning, we have the construction folks and the management folks at the table, which allows us to value engineer and, and design for constructability from the beginning. You know, we're not, we're not taking the architect's plans and shipping them off to a contractor who says this is great but there's no way I can build this. We have, we have a, an eye on, on responsible construction and responsible costs from the beginning. And we also have an eye on operations. So we're thinking about things like how are they going to get the garbage out of the building and where is it going to go? How, what's the path bicycles take from the bike, the bike room to the street so they're not disruptive in the lobby. We're thinking about real deep nitty gritty nuts and bolts operating issues from the beginning so that we're not, we don't have to come back later during construction or after completion when it's much more expensive to change the way the way a building operates. Things like security and amenities and optimizing the back of house space for staff efficiency. All these things get kind of baked into the design from the beginning. And we find it's a real competitive advantage.

And is any of the construction or management today third party or. It's just, just for the Douglaston properties now.

So at this point, all of our, all of our construction is all proprietary. So Levine Builders builds all of our, all of our projects. And, and we are, we are the owner for all of their projects. And Clinton Management runs all of our proper projects. We don't do any third party work. We obviously have, have partners in, in lots of, in lots of different capacities across the portfolio. But, but we, we are one integrated and vertically integrated service provider. That, that, that, and, and I think it, I think it gives us a leg up.

And as CEO, are you CEO of Just Douglas and. Or of all the affiliated businesses?

Just Douglaston. Okay. Just Douglaston. I can't, I can't pretend to be good at property management, and I definitely don't know how to build a building. Okay. But I do try to be an educated consumer of those services.

All right, good. So how many people tell us a little bit about a day in the life of a CEO? Because, I mean, what is your typical approach? Where are you focusing your time? I mean, you're very kind that when I call you with a deal, you pick up your, you know, the phone for me. I'm sure you've got, you know, and I met with your acquisitions team. But, you know, how do you, how do you figure out how to focus and prioritize your time throughout the week?

I don't know. I have no idea. I reject the premise of the question.

Okay.

The, the typical day. Yeah, I don't have those.

Okay.

I don't have. I recently, I recently had actually did an exit interview with, with a junior person on my staff who was going back to architecture. She had decided that, that she had been an architect and a planner and tried development and decided that really her passion was architecture and was going back and we were chatting a little bit about what development is. And more or less what it is is a series of dumpster fires. And every single day I focus on the one that's burning the most. And I never know. I rarely know when I wake up in the morning what today's challenges are going to be. But that's the, that's the job.

Is it defense, though, or is it. Because I got to imagine there's a lot of strategy and offense involved in delivering a portfolio.

It's every. It's everything. It's everything. And that's what I love about it.

It's.

It's every single building and every single Potential project. Every single piece of land is a, I like to say, unique and beautiful. Snowflake. Yeah. Fight Club. It's. And no, no two projects are the same. And what we do, getting, getting back to educated consumer.

Right, right.

As a developer, it's very hard to explain to your kids what your job is. I don't. They say, do you build the buildings? And I say, yeah, I build the building and say, well, are you, you're like on with the boots and the hat and the hammer. I was like, no, that's not. I sometimes wear boots and a hat, but I don't swing a hammer on the job site. I make sure that, that we can pay for it. And they say, oh, so you, so you pay the bills? I said, well, no, not exactly. I make sure we borrow the money and raise the equity and we have our own co investment capital to manage. And I don't design the buildings, I'm not the engineer, I don't market the buildings. But what I have to do, my team does as developers is we have to pull together 50 or 60 different disciplines between design and legal and regulatory and finance. We have to make sure that all of those different pieces get to the starting line on the same day and then work together to get to the finish line. And that means that every single day is a different challenge and you allocate your time based on wherever they need you the most that day. And that's what I love about it, is that it's never boring.

So we've now done over 200 episodes. I've interviewed, interviewed dozens of developers. But I think the way you just described the development process, you've not heard that before. And I think it's very helpful to understand, you know, all the different components that happens. And so if you're interfacing with 200 different groups on any given development, I've got to imagine the organizational skills required. I mean, how do you even go about keeping track of everything that's happening on the, you know, numerous projects that you have underway at a time?

You have to have great people. You can't, you can't, you can't keep track of it all. You have to have great people whose job is to keep track of it all. Like, that's the, that's the gig. I love, I love the variety. The thing, the thing that we bring to it, that that is the kind of the essence of what being the developer is, is we bring the vision. We're the ones with the idea of what is possible and what we want. The project to be. So we start with a piece of land that somebody has made available to us in some way. Sometimes it's a broker, sometimes it's some other relationship. We get referrals through contractors and subcontractors. We work with friends of friends. So you start with, here's a piece of land and you have to have an idea of what you want to do with it. Then you have to verify that that's legal with a couple of different kinds of attorneys. And then you have to make sure that your vision can actually be masked within the complex zoning envelope that you have. So you need an architect, but you're telling the architect what you want the outcome to be. And the architect is figuring out how to, how to fit it in, if it can fit in, what compromises, need and trade offs need to be made in order to make it fit. But all the way through, we manage the development of the vision. What's the unit mix going to be? What size apartments are we looking for? What amenities do we need in this particular micro market to compete? We have to bring in the experts who can tell us what can we rent those apartments for. And we need creative agencies to develop marketing strategies to reach the right customers through the right channels. But all the way through that process, we bring the vision because it's not just enough to coordinate and make sure that all those people are doing their jobs. It's making sure that everybody is putting their pieces in the right place to build the puzzle that we've imagined. And that's what makes it beautiful and fun and frustrating, difficult.

So when I, the first interview that I ever gave was with Bruce Ratner and kept trying to figure out, Bruce, what was the key to your success? You built all these buildings. How did you do it? He just kept coming back to, it's the people. It's the people. And I went back and I counted. I don't know why, but he said the word people or teams over 50 times in an hour long interview. Right? And Rick Clark was no different when I asked him, how did you end up growing the Brookfield business around the world? What I'm hearing from you also is it's so much about the people. Right?

Of course, of course it is. There's a, there's a simple explanation for that. Somebody once told me that real estate development is about, is about deals and dough, okay? It's about finding the right opportunity, the right piece of land, the right repositioning, and then figuring out how to pay for it. And that that is half true. The Missing piece is that in between there's a piece of land and here are the folks who are going to write the checks to make me make something better out of this land or out of this building or out of this portfolio. All everything in between is human capital. Now it's a tough, it's a tough business to come up in because there's so much leverage, particularly in New York. The check sizes are so big, the deals are so large that it doesn't take a ton of human capital to manage a giant project.

How many people do you have in your team?

So we have, we have about 20 professionals on the development side and we are running right now we have a pipeline close to $3 billion across the business. Some of those will take a while to get going. One of the challenges of managing the development business is that the lead time is very, very long. So the fastest anything can be from, from putting in an offer on a something to getting that building up and running, that could maybe be done in four or five years maybe, and that's quick. So we have to maintain a fairly robust backlog of business in order not to run dry at the end because these things take forever. When you fold in the affordable housing side, the requirements for public funding, the queue is very, very long. Whether it's city or state, the queue is very long to get those projects funded. So you have to have the stomach to sit with it for a while. It's one of the reasons why we are continuing to explore opportunities outside of the city to try to diversify the funding queue. Affordable housing always has a funding queue somewhere because you need state and local authorities wherever you're operating to allocate tax exempt bonds, low income housing tax credits, other, other sources of public funding. But it would be good to be able to be waiting on more than a couple of lines at once. It's one of the reasons we've got into the NYCHA preservation space a couple of years ago. One is because Jeff Levine actually grew up in the Linden Houses and we are just finishing a full gut rehab of the Linden Houses which is very cool. It's a great story.

Wow, that's full circle.

But the other reason that it's really interesting to us is we get to leverage a lot of our skill set. But it's a third funding pipeline. So there's city funding, there's state funding. The New York City Housing Authority is a state chartered public authority. It's neither city nor state. So it allows us to kind of be working our way through three lines instead of two. But it would be great to add a few more lines we can wait on because the more queues you're on, the faster you get to the front.

So, Jed, when you came to Douglaston, you said about seven years ago, after being at LeFrac and at LeFrac you were an SVP, had a real estate capital markets and acquisitions. But you said you hadn't done affordable there. Although LeFrac certainly owns, operates, you know, tens of thousands of units, not just here in New York, but also in New Jersey. So it's interesting that Jeff Levine and maybe talk a little bit about your path there, because you started as a COO for Douglas and now you're the CEO. But a lot of these things that you're doing now, did you end up learning on the job? Was this a little bit of a leap of faith for.

I think it gets back, it gets back to what I'd said before, that development is development. Right. And the process is similar. The vision, the managing the flow through all those different disciplines. There's a learning curve in learning new financing structures, but there are always new financing structures out there. It's, that's, that is, there is a piece of, there's a piece of the process that's kind of the same, right. You have to understand how to build a pro forma and how to manage cost and how to make sure that you're programmatically designing and delivering the building that, that optimizes all the various different constraints. All that's the same. What's a little bit different is the underwriting and the specific funding sources and their requirements are a little bit different. Public funding agencies funding affordable housing, their return comes through the provision of deeper and deeper affordability. Whereas in the private capital markets, their return comes from a return on equity. And those are measured a little bit differently. But the fundamental concepts are not, are not different enough. It's, it's, it's ultimately the complexity here is herding the cats. Not exactly what you need the cats to do, if that makes sense.

No, it makes a ton of sense. And I'm for those listening, maybe they've dealt, developed, they've done for profit, or should I say market rate housing, and they're interested in affordable. Getting into that space. I have to imagine it's probably tough to break into for, you know, a first time. You clearly have to have the connections, you have to be able to get, you know, the financing that, that's made available. I mean, how much of what you all have been able to do on the affordable side, you know, comes with those connections and understanding kind of these public private partnerships. Was it were you able to get entre in that because you were to demonstrate that you were a great builder and then you're just again as you said, you've applied the same principles to affordable. But I would have to imagine part of it is getting you know, the city, the state trust to execute on these large scale projects.

Well, Douglass trajectory actually went the other way. So Levine builders worked on a number of affordable, a number of affordable construction projects in the 70s 80s and Douglaston development really emerged as a developer in the affordable housing space first and then moved into taking those skills, moved into market rate. So it really we went in that direction long before my time. Okay, but to your point, how do you get into it? I think that the city has a real interest and the state has an interest in supporting emerging developers. So there are lots of public RFPs where you score extra points for partnering with emerging developers, whether those be women or minority owned businesses or smaller first time shops. So there are programs out there to encourage that. The hardest part, and I certainly can't say that I've personally cracked this nut, the hardest part of being a developer is financial institutions have to believe in your completion guarantee.

So that's where partnering with you. And it's interesting because in the book we talk about, because I believe two of the things that hold people back from investing in real estate. I mean one is lack of knowledge, experience. So if they're listening to the show or they're in school or they're maybe working for a big developer, I mean that's certainly you're well on your way. But lack of capital and experience, that track record, I mean that's a real thing. And so very early on in the book I talk about finding a great partner. So this is interesting hearing well there might be a benefit if an emerging developer said Jed, I've got this great opportunity but it's a little bit larger than something that I can do on my own. For you that might be an entree.

Into a deal that happens all the time. We have those conversations constantly. People who've got an opportunity and it's. And it's just too big for them to manage on their own. And usually too big to manage on their own is about the credibility to execute with the capital partners. I have all these, all these three legged stools. The other piece of development is it's the intersection of land and money and execution and, and if you don't own the land and you aren't the capital provider. If you're not the guy with the money, then you need to be the one who can do the execution or else you aren't in the deal. You can broker the deal, but you can't, but you're not on the inside taking real P and L risk unless you have one of those three pieces. And so I think the hardest part, if you are not the guy with the land or the guy with the money, is getting to the point where you have that credibility. And a big chunk of that is having the credibility with the capital markets where they're willing to advance the money. One thing that's somewhat mind boggling about development is at the end of the day, you're going to a construction lender for, for something, somewhere, somehow you're getting a construction loan and the construction lender is lending against two pieces of collateral, the land which you're, you're mortgaging to them day one, that is worth a fraction of the total project cost and certainly a fraction of the loan, the total loan that they're, that they're making. So they're, they're, they've got a piece of land as collateral that doesn't cover, that doesn't cover their, their loan. And then their second piece of collateral is your idea that you're going to build something. So they're lending against the combination of land. And I promise I'm going to build a thing, and once I build the thing, you'll have collateral and it'll cover your loan. But day one, day one, they're lending against your idea. So they really need to believe that when you promise you're going to deliver the idea that you will. And as you starting out, they're willing to believe that for very small things, if you want to build big things, you have to have the track record and you have to have the balance sheet. Nobody's taking my completion guarantee for a 400, 500, 600, 900 unit project. But you have to start somewhere.

I love how you're taking a very complex business and simplifying this. And I also, for those listening who are aspiring developers, you know, the three legs of the stool and saying, all right, well, unless if you were born with a massive trust fund or maybe you are coming from the construction side of the business and you actually, you have that expertise. But I think for most of you listening, it's probably having the land, the opportunity. And I know, Jeff, one thing that Douglas has been really great at over the decades as well is partnering with not for profits. And I think that's where we see a lot of opportunities where there's maybe there's land where you have a not for profit or in the case, I know you also just did a deal with the New York Botanical Gardens. So finding those opportunities where you have, whether it's again not for profit, a governmental organization that has that excess development potential. And if you're able to tee that up and kind of work on that, so maybe that's having that discussion with the church saying, hey, you've got development potential. Let me put together a plan where we can build something new and you can participate in it. Or maybe you get a brand new church out of it. I mean, is that, I would imagine that that's been some of the ways that you've approached these developments.

Absolutely. One of our favorite kinds of opportunities where you have a landlord, you have a landowner, and the city is full of different kinds of you. It's not just in the private sector, it's not just, it's not just not for profits or government. There are lots of different categories of folks in and around New York who own land, have owned it for a long time, have no basis in it. An outright sale is not that compelling to them because of the taxes. They understand that. I'll give you an example. Brooklyn is full of people who own warehouses because their grandfather was in some sort of business that needed a warehouse. And at some point in the 60s 70s it was cheaper to buy the warehouse than to rent it. So there are lots and lots of businesses in spots that 30 or 40 years ago were kind of undesirable. Manufacturing industrial locations that now have tremendous potential as residential projects. But they don't know how to do that. But what they have is land and it's got value. And in order to unlock it, somebody has to be able to develop buildable plans and be bankable with the capital markets to arrange financing and see it through. So we love partnering with folks like that and that can take a couple of different looks. Sometimes it makes sense for someone like that to tend to just put their land into a joint venture and we can move forward with them and construct and then they own an equity stake in something much more valuable than the raw land was if they sold it for cash, certainly on an after tax basis. Sometimes we've done a many deals on ground leases where an owner of a piece of property can turn it into a 99 year, very safe, very secure stream of cash flow without participating in the development risk, which is, which is Interesting particularly to not for profits because that predictable income stream for the long term is great for their, for their mission. On the government side, it happens again. It happens all the time usually in New York. If it's government owned land that will be, they'll put out an RFP. We respond to lots and lots and lots of RFPs. We, we try to win a few every once in a while and typically those will be for 100% affordable housing. They'll put the land in for a dollar. City, city will contribute the land for $1. And what they're getting in return is 100% of the units on site will be, will be affordable. And that's. We have a project right now in Hell's Kitchen that we're building as we speak about 160 units on an Amtrak overbuild. So we're decking over the Amtrak rail cut in Hell's kitchen just off 10th Avenue and building 100% affordable housing in a neighborhood that otherwise wouldn't see nearly as much because it's a high opportunity. Neighborhood rents are high in Chelsea, Hell's Kitchen, Upper west side area and left to mar. Left to itself. The market would deliver 25% affordability for 485x or 421a back in the day. But this is an opportunity for the city to get 100% affordable housing. So they, they throw in the land for free along with other subsidies and loan facilities to make it work.

And what's in it for you is that just the fees on the construction, the tax credits that you create from doing this, that you sell off.

So we sell off the tax credits to raise equity. We, there are, there are fees on construction and development baked into the city structures for sure. And then some, some of these projects have ongoing cash flow. Some of them, some of them don't. It really depends on the level of affordability and the specific programs. Some of the programs are designed for more ongoing cash flow than some, some of them have less. And a lot of that has to do with how they're financed and structured. But affordable. The big thing about transitioning into affordable housing from the market rate side is you do have to turn the thinking around a little bit because the profit is really made on creating the thing, not the ongoing cash flow. Whereas on the market rate side, we're not fee developers. We're not in it for the fees. We're in it to create value through long term cash flow and cash flow growth.

So let's go back because haven't talked a lot on this show about joint ventures or ground leases for that matter. So you've done a very good job of taking very complex transactions and simplifying them. So I think you already mentioned, you know, the idea, you know, the typical JV is here's my land. Instead of selling it to you, I'm contributing it. Right? So I would imagine you first have to agree on what is the value of the land, they're contributing it. That then becomes their percentage of the equity. Right? Because you're bringing to the table the additional equity to build the construction guarantees. So how does, how does that structure work? And I'm sure there's many different ways that you can go about it, but it just, in its simplest terms, what is a JV format that seems to work.

So in my, in my, my dream scenario, the simplest it could be is we don't have to agree on a land value. Okay.

Because how do I know what my stake is?

So at the end of the day, at the end of the day, the lender is going to tell us what they'll accept as a land value. Okay. And, and we're actually aligned, you and I. You were the landowner, I'm the developer, we're aligned.

This is for an affordable project, by the way.

Right. So no, I'm talking about market. Okay, Start with market rate. We're aligned. What we, we want the bank to accept the highest valuation we possibly can because the more the, the more land value we're putting into the deal, the more equity we're putting into the deal, the more we can, the more we can borrow or it reduces the cash equity that needs to be raised. So we're aligned 100% on pushing for the best land value get. Now I can tell you from, from our underwriting and our due diligence what we, what we think that number is. And then, then we're going to go out and push for more. But yeah, more or less, we have to have, we have to have some notion of what value is. I had a conversation yesterday with someone representing a couple of industrial owners in, in Brooklyn who are, who, same story. They're interested in developing their sites long term ownership, no development capability, need a development partner. And so we had this conversation. I said look back at the envelope. Based on what we know now, without any diligence, without really digging into it, I think your land is worth about a third of the, about a one third interest in the building ups that we build. 30, 35%. If we can push for higher leverage, if we can push for A higher land value. All of that value goes to the landowner because it's yours. This isn't a case where, where it needs a rezoning. That's a little bit different. But, but we, they own the land and so whatever land value we can, the highest land value we can get the lender to agree upon and we'll have, we'll have a notion of that. But then ultimately there's going to be an appraisal. We're going to try to push for the best appraisal we can get. As you would in any case. So the, but the simplest way is we say okay, your land is worth a third of the equity. It'll be verified by the lender and then we Douglaston. So you're going to put that in and you'll own a third of the deal. If you want to own less than a third of the deal then you can take some cash off the table at that value at our construction loan closing. That's fine. And, and what we'll do is we will, we'll design the building and we'll, we'll, we'll advance all the funds to get a building designed and permitted which is a few million dollars typically depending on the size of the building it costs us 3, 4, 5, 6 million dollars to advance the plans to the point where we can, we can be in a position to pull permits and to have a, to provide the guaranteed maximum price. So we Levine Builders needs to. Needs to the plans to be nearly done in order to provide that gmp. So what we say to our, our partners, our potential JV partners is we're, we're going to advance all the money to design design the building to advance the, the project to the point where it's ready for a construction loan. We'll provide the guaranteed maximum price. We'll provide the completion guarantee. We'll provide the payment perform performance bond if the lender requires one and we'll go out and source any institutional equity capital and the construction debt and we will put up whatever GP co investment capital is necessary. You just put your land in, we've de risked it for you. You get the benefit of our expertise and in 2, 3, 4 years you own 1/3 equity stake in a cash flowing asset. And we can show you that at a reasonable cap rate that equity stake is worth more than your land is worth today. And you won't have incurred capital gains or be stuck trying to find a 1031. That sounds pretty good.

Sign me up for that.

It's harder than you Think to get it done. But that's the simplest. That's the simplest. The simple. Now from there you get all sorts of complexity, right? Sometimes people need a little bit of money to buy out. A lot of these cases are generational ownership and somebody bought it a while ago. And by now there are 14 cousins in the mix, right? Some of them want to stay, some of them want to go. You get into more complicated dynamics and in some cases they don't want to take development risk and a ground lease makes more sense for them. And in which case we would kind of go through the same exercise. We would underwrite the, the project. We develop our pro forma and we'd say, okay, we have to meet a, you know, some basic minimum yield on cost to keep this financeable. If we run this deal with no land value, that's obviously going to, if we don't have to pay you for the land, that's a giant boost for our untrended yield, which means we can take kind of the difference between our underwritten yield and what we need to hit in order to get our capital. And we can pay that out to you as annual ground rent, which means they're not taking development risk. They don't have their, their position isn't tied up with, with our equity in the building. It generates, you know, a known and safe return because it's senior to everything.

Is it getting tougher, though, to build on these ground leases? Because the lenders, again, we could spend a whole hour on the topic talking about, you know, the new ground leases might not have these market resets where you don't know what the rent's going to be in the future. I mean, now they're a lot more predictable, you know, but you still, if your business plan is to go build a building and turn around and sell it, sell. Selling a building on a leasehold as opposed to the fee. I mean, that, that has implications as well.

So. It does. It does. And we have to figure a premium on the, the stabilized yield because it'll, it should trade at a. And they do building buildings on leaseholds, do trade at a modest cap rate, premium to fee.

And if I'm not mistaken, I think you all have also sold co ops off of a ground lease. If I'm not mistaken, you all built a project on 23rd Street. I remember that. That might have been before your time, but it was before my time.

Definitely, definitely. No, that was definitely condo. Okay, Definitely. Yeah. Co ops. Co ops on ground leases are really, really tough. Yeah, it doesn't really, it, it doesn't happen anymore. Right.

It'd have to be a co op because you're not even getting fee ownership. Yeah, we could spend a whole nother.

Session on this, but unless you're in Battery Park City. Right, which is state owned land, state law prohibits condos on ground leases. Yeah, they made an exception for themselves. But, but it's, it's really tough to do those, those condops on ground leases. I wouldn't even want to try.

Fair enough. So Jay, getting, with only a little bit of time left, getting back to the importance of the people and the expertise and we get, a lot of people are listening to the show and maybe they're in school, whether undergrads and masters, maybe, maybe it's a broker listening to this right now who wants to get into development and would love to work for a firm like yours. What do you look for when you hire someone? And how could someone best prepare themselves?

Well, I always, I always remind youngsters looking into, looking to break into the real estate business that real estate compensates worse than any other institutional asset class. They should know that before they get into this, into this gig. My, my private equity friends get 20% of the ups. My hedge fund friends get, get 2 and 20. Even if they don't realize their investments, they just mark to market at the end of the year and pay themselves a bonus and then set their new high water mark. We have to actually return our invest money with some minimum preferred return before the talent gets paid. Yeah, and everybody, everybody should know that going in. I didn't, I didn't really understand that when I signed up for this 20 something years ago. But it's, it's an important, it's an important thing to remember that, that, that unlike other institutional investment classes, real estate, real estate has this presumption that any trained monkey can make an 8% return. So all of the profits belong to the money and not to the talent until I've got all my money back plus whatever it is, 6, 7, 8, 9, 12% depending on the risk profile. So everybody should know that. That said, I love what I do and I wouldn't trade it for any of those other jobs. What do we look for in folks who want to be in the development business? I think first and foremost is flexibility of mind. You know, flexible thinking. Like I said before, we don't really do other than the vision, which we can teach you the vision. We don't do the nuts and bolts of any of the individual disciplines, but we have to be really smart really good consumers of those services. So I'm not a lawyer, but I have to be able to read what they produce and make sure that they got it right. I'm not an architect, not an engineer. I'm not a broker. I can't do any of those jobs. Legally, I am a broker, but set that aside. I can't do any of those jobs, but I have to be educated enough about their language and about their constraints and about their expertise to be able to be a smart customer. So that requires creative, flexible thinking. You have to be able to pivot from a spreadsheet to a floor plan to a blueprints to, to loan documents to conversations with, with, with regulators.

Does a master's degree help or is that a requirement or. It depends on what the role is.

It's not a requirement. It's not, it's not a requirement. You know, we, we do, we do meet a lot of, a lot of people who've done masters in real estate development. I, I didn't, I, I got an MBA from Columbia and I think that counts when I was, and I focused on real estate. But when I was at Columbia, the Master's in Real estate development program was run out of the architecture school, which it still is. And there was some sort of long running grudge and all of the real estate classes in the business school seemed to conf, seem to conflict with all of the real estate classes in the architecture school, so that you really had to pick and choose. So I didn't get to cross register nearly as much as I would have liked. But we have a bunch of people who've gone through the Ms. Red program at Columbia. I think, I think NYU has one as well.

Sure.

Yeah. And Fordham for sure. It helps. But School of Hard Knocks is good too. I think. I think that creative flexible thinking isn't taught. I think, I think what, what, what is taught in those programs is some of the organizational skills, the project management skills. That's, that's number two. Number one is, is you have to be, you have to be able to pivot from between very disparate disciplines and, and, and to do it quickly and kind of keep a lot of threads that move in and moving and pulling together into, into kind of one, one story and then, and then two is, is just organization, attention to detail because it's, there are so many moving parts and so many things that you have to keep together to get a project built. That, that, those are, those are kind of the two things. And then third is, is you have to have A sense of humor. Oh, yeah, because, because every day is a dumpster fire. Right. And you can't laugh about that.

Yeah.

It's not, it's just not going to work.

Yeah, no, I love that, that notion too, because I remember, you know, starting off in this business, there's just so many disappointments.

Right.

I sure. You know, we love the wins, we love talking about them. But like these deals go left, right, sideways. You know, there's so many times where it's like you lose more than you win.

For sure.

Yeah, for sure.

Because again, these projects are huge and they're very time consuming and they take forever. Right. So in the time that you can successfully develop one project, right. You've, you've competed for and lost 100 others. Right. And that's, but you have to, because if you're, if you're winning, I would say 90, 98% of the things that come in the door aren't good ideas on their face. Right. 98% of things don't survive the five minute smell test to say, could we, could we actually get this done? And our threshold for could we actually get this done is very simple. It's. Is this financeable? Right, right. That's it. Because we'll build anything that's financeable because we can build any kind of multi family in any neighborhood in the city. But it has to be financeable because Jeff, Jeff likes to say one of his, one of his favorite. I love this. He says that as a developer, he's Tinkerbell. He exists if the banks believe he exists. So that's all we're trying to. Our first screen is with a rough sense of what this is going to cost and what we can rent it for, what it's going to cost to operate. Is this financeable? And almost everything that we see, the answer is probably not. So of the, of the 1 or 2% of opportunities we see that are interesting enough to, to really dig in, I would say we, we probably end up making some kind of offer on, on a quarter of those. And you know, you, you win one time in 50, so you have to be able to, you have to be able to understand that, that, that like that disappointment. Can't take it personally, which is why you need a sense of humor. Wow.

Jedi, this was amazing. Thank you so much. You know, I love how you took a really complex business, you made it simple, you made it actionable. So I know the people listening are going to get a ton out of this. So just really appreciate your taking the time.

Fantastic. It's a pleasure.

Awesome. And thank you everybody for joining as always. And I don't know how you couldn't get so much out of this episode. Share this with a friend. There's got to be someone out there in your network who you know would also benefit from this. Just forward it. I do that all the time. I'm a huge consumer of podcasts and content too, and I always share information. So this is a great one. And as always, you can go to James. The site's not about me built the site for you. That's where you can find the show notes for this episode, figure out how to connect with Jed and all the great things that they're doing. And so until next week, thanks again for joining.

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