Imagining the Possibilities with Will Ingraham

Welcome. This is the Insider's Edge to Real Estate Investing with James Nelson, the principal and head of Avis & Young's Tri State investment Sales Group. In this program you'll learn game changing strategies to outperform the market. James will teach you how to source, execute and capitalize on the best real estate opportunities in New York and around the world. Now here's your host.

Welcome everyone to episode 141 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 at Avison Young. Thank you as always for joining for tuning in. Actually wait, you don't really tune into a podcast. I guess you just download it but still took you some time. So I appreciate that. For those of you who have not.

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And your ratings are always hugely appreciated because that's what helps others find this show. Last but not least, if you have not gone to jamesnelson.com that's where you can find show notes for this podcast, but also the opportunity to pre order my book gives you links either to Amazon, Barnes and Nobles, wherever you like to get your books, but there's also an opportunity to do a bulk order. I would be happy to speak to your company if you'd like me to talk about all the secrets in this book. Lessons, Insider tips the whole point of the book as well as the show is to give you the insider's edge to real estate investing so you can gain the advantage to outperform the market. Today's show is no exception. On today's show I'm speaking with Will Ingraham, a partner at GDC Properties. Back in my Massey Nacal days, we sold Will's company a loft conversion in Brooklyn. I have stayed in touch and have guest lectured for him at Fordham University where he teaches a class on affordable housing. I love how Will is a big picture thinker. When I asked if his knowledge base was his insider's edge, he said it was actually quite the opposite. He said as a generalist, his value is knowing who to bring into complex situations, whether for entitling land or figuring out how to capitalize affordable development. Will recounts his early days as a house painter in Manhattan when he stumbled across a development opportunity. As he had followed real estate from an early age, he was able to assemble the site and essentially flip the contract to score a big profit, launching him into the real estate business. He then went on to building spec homes in Milford, New York where he ultimately met Martin Ginsberg a founder of GDC Properties. They were not only the largest developers in Westchester, but went on to amass a 3 million square foot portfolio of shopping centers nationwide as well as developing hotel projects. Will's past roles at the company included being President cio. He's been responsible for developing, implementing the company's strategic vision, overseeing acquisitions dispositions and leading new development activity. Will is a Managing member also in the Peregrine Opportunity Zone Fund. He holds a Master of Science degree in Real Estate Development from Columbia's School of Architecture, Planning and Preservation. So I know you're going to get a ton out of this episode, especially the students out there listening. Will's advice is to learn a hard skill so so you can add value. He is also a big believer in being a problem solver. So with that we're going to have a brief word from our sponsor and we'll get right into that interview with Will Ingraham.

A Different Approach to Putting Our Clients First Avis and Young's Tri State Investment Sales Group sells multifamily office, retail, development, housing and specialty sales throughout the New York metro area. As experienced thought leaders in our industry, our 35 member group is available to help you make informed investment decisions by advising you on your current holdings or identifying new opportunities in the marketplace. Our one unified team is built on an industry unique platform which promotes unparalleled collaboration and teamwork. We share core values of hard work, integrity and expertise. We 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.

For today's Investor Spotlight. I'm thrilled to have with us Will Ingraham who is partner at GDC Properties and he is also a managing member in the Peregrine Opportunity Zone Fund. And last but certainly not least, he is a professor at Fordham's Graduate Program on Affordable Housing where we have spent time together. He was kind enough to recently ask me to guest lecture. So Will, thank you so much for joining us today and sharing your story.

You're welcome James. I'm happy to be here.

Wonderful. So why don't you tell us a little bit about how you got started off in the the business. Maybe. Was it in the family or what kind of. Tell us a little bit about your your story.

Well, it's a funny story. I I've always been interested in real estate. As a a teen I remember reading the real estate section of the newspaper The New York Times. And my parents would get it growing up in Oyster Bay. And I would read about zoning and things. Even though I had no business. There's nobody in my family was in business. My parents were kind of artistic types.

And.

I. So I've always had an interest in it and it's. I don't know why and perhaps there are a lot of people who feel like I do that our field draws people from so many different disciplines and areas. After college, where I majored in literature and philosophy, I was largely unemployable and I always got to work painting houses. I started a house painting business and we would paint townhouses on the Upper east side of New York. And you know, things got. As the business grew, I hired a crew of subcontractors to work for me who would, would paint houses and we would go just knocking on doors on the Upper east side looking at townhouses that needed painting. And we got pretty good at it. I tried to get a fellow who owned a building on a taxpayer, a commercial building on Lexington Avenue in 93rd street to see if his building needed painting. He said, no, I just. We're selling it to a developer and it's going to be torn down. And this is a building that probably had 100ft on Lexington Avenue, but only 23, 25ft on the side street which was 93rd Street. And having read in the newspapers about zoning and things, I knew about this new sliver law they'd introduced. And it occurred to me that he couldn't build a much higher building if he had the, the townhouse next door, like one townhouse in 1 93rd street and I happen to know the owner. We were working, we were painting his house and I also knew an owner up on 95th Street. So what we did is we worked out a deal where we went to contract to buy the fellow. Actually, we, we went. The fellow 95th street was selling a much nicer house. And we got the fellow on from 93rd street to agree to, to move into that house and take it over. And we took over his house for basically a market price, basically got somebody to move out of his house and created a much bigger development site. So we did this assembly. I was maybe 25 years old and made a good deal of money. And the fellow who owned the building on 93rd street, his partner had just passed away. So he and I became partners and I found myself with an office on Madison Avenue and I made a nice little, little bit of money for a 25 year old and he And I went on to buy a couple buildings in New York. We bought land in upstate in New York and Millbrook and we built houses there. And, and that's, that's how I got started.

Wow. I, I'm still, you know, the fact that as a teen you were reading the New York Times and interested on zoning and developments, I mean, what was it about it that attracted you to that? What was so interesting to you about that area?

That's a good question. I guess early on I recognized that it was so much of our business was just about possibilities and looking at the resources and what's going on on the ground and trying to imagine something that might be there. And that was always attractive to me.

And I love how you had the, the sense to speak to that developer and, and talk to him about expanding. I mean, amazing that here you are a house painter and you're, you're teaching him about zoning, so.

That's right. He hadn't, it hadn't occurred to him or he probably thought that it was just too far fetched an idea to get somebody to move out of a house. He was living, this guy was living there. He's a big, I think he was a partner at McKinsey and, and you know, his wife was a big shot at Citibank and you know, it's just too much to think to get these people to move. But it just so happened that I knew another family with a nicer house up the street and who did want to move, who were leaving. So we managed to orchestrate the whole thing and that's how I really got started.

So at this point, I guess after you made your, I guess it was what equated to like a finders fee or something, you know.

Oh, no, no, we had them, we put them all under contract and so we actually flipped contracts and it wasn't a finder's fee at all. No, no, we actually, we actually offered the fellow. So we basically ended up buying the house on 93rd street for effectively the same price that the house on 95th street was selling for, if you follow what I'm saying. And, but we had them all under contract and so no, we didn't get finders fee at all. We, we ended up going to the closing table and getting paid the excess value that we created.

Wow, that's unbelievable. I mean that is a very complex transaction. I mean certainly for a first deal. So, so remind me, so how did you, so you, in essence, you partnered with the developer and you said, look.

This is what I do the owner of 93rd Street. No, he was selling his building to a developer. The fellow owned the taxpayer. And so the developer, we just. He. We just went to the developer and said, how much more would you pay? You know, your building, you're going to be able to build another, you know, twice as many square feet. If you own this, it's one more building. And we kind of figured out what that was worth to him. And he kind of shrugged his shoulders and said, sure.

So who was the we. So who. Who. Who brought the. I mean, there's a fellow here painting houses. And. And what's this? I was wondering who actually put up the money for the deposit for the. The townhouse. Maybe you could. You remember. It was. No, it all came together.

We did it with no money down. That was one of these. We didn't have to put up any money at all because the fellow from. From 93rd street, he really wanted the house on 95, a much better house. It was just really good luck, you know, being in the right place at the right time. And so we met, we explained the whole situation. We told everybody what we were doing, just didn't tell them what all the numbers were, which is really none of their business. You know, the fellow from 93rd street was happy to move into 95th Street. The fellow from 95th street was happy to sell his house, I guess, without a broker, and he got his full asking price. And, you know, the developer who is buying the combined assemblage was happy to, you know, have a bigger project and it would be more efficient for him to build a bigger building. So it was a winner for everybody. Wow. Yeah. And I didn't really. I really didn't have any money. I had a good lawyer. One of my parents recommended a really good lawyer to me, a guy named Andy Herz. He may still be in business, but he helped. He helped me. Us pull this whole thing together.

So from there, you said, suddenly you had this office on Madison Avenue. You're buying property, you're developing up in Milford. So how did you learn the business? You said you were an English major. And so how are you? Were you just kind of figuring this out as you went along?

Yes, that's true. And there's a lot I needed to learn. And I realized, you know, I knew superficially, you know, a lot of. I knew a lot of what I didn't know. And eventually, in 1987, we were building houses in Millbrook. We bought a farm. We were subdividing Millbra, and Millbrook was a Was a hot area. It's a hot area now. But then it was nearly a lot of people were moving to Wall Streeters were moving to as an alternative to the Hamptons. And then the stock market crashed in 1987 and we were kind of flat footed and we were able to sell a couple of our land holdings, thankfully. And I went back to graduate school and I went to Columbia's real estate program. I had a wife and two kids at that time and it was hard. I was still working full time building houses, but I went through the real estate program at Columbia and filled in a lot of the gaps, a lot of things that I didn't know about. So that was really great for me.

So talk about, because on this show we haven't talked a lot about specking single family homes. I don't know if that's still something that you did later in your career. That was kind of a certain time. But I mean what you hear about especially in the suburbs is always all the challenges with entitlement. I mean, did you just buy this land? Did you know that you could divide it up into single family home sites and then what was involved to actually get it, you know, permitted and get all the utilities there and then ultimately build it? I mean, obviously this is a very special.

This is, this is on a dirt road in Millbrook. The first piece we bought was 37 acres, I think. And we divided into three lots through four lots. Three or four lots, four lots. And so they were almost 10 acre lots. And the, you know, the utilities was just, you know, bringing, I think mostly was overhead, you know, utilities up the long driveways, dirt driveways, dirt road, dirt driveways. Everybody wanted to live on a dirt road. And we were building, I think these were like six $700,000 houses back in 1986. You know, that's pretty expensive houses, especially, you know, an hour and a half from New York City.

So.

And you know, it was all on well and septic. So pretty straightforward.

Did you have investors when you went to go do that or were you borrowing money from the bank?

I mean, we did have an investor at one point. Yeah, yeah, we had one investor and, and the rest, the rest of was the money that we had made, you know, doing this assemblage and some other thing. We sold some buildings and at one point we bought a building in, in Washington Heights on 157th street and St. Nicholas Avenue. And it was a terrible mistake at this time, you were probably too young to remember this, but there was a time when people Would buy buildings and mortgages were easily assumable and people would just put, and, and lenders would let you put second and third mortgages behind you. So you would buy an old apartment building someplace in Harlem as the markets got hot or cool or whatever, and you buy an old, it would have four mortgages on it. So someone would buy the building, put a $50,000 fourth mortgage on it and then just flip it to somebody else. And so we bought a building with, you know, multiple mortgages on it. And, and that turned out to be a bad idea. So we ended up just selling it with that. I don't know if we tacked a mortgage onto it ourselves. And then we bought another building on 100th Street, a little bit better neighborhood. And we made money by getting conventional bank financing and we, we paid off all the, you know, second, third and fourth mortgages at a discount. We, we offered these people cash money for their mortgage and they were just delighted to have it, you know. So we paid off a lot of the, the, these secondary lenders at, you know, 50 cents on the dollar. And so that was a business plan for a while. But like so many business plans, they don't last. You can't keep doing them over and over again.

Well, we might be seeing this, you know, opportunity again where although it is, you know, so much more challenging today to get, you know, most conventional lenders do not want another lender recording behind them because they don't want the property to get over leveraged. Although, you know, you do, you know, sometimes you have financing come in in the form of pref. On the equity side.

Sure. Right.

Well, interesting. So at this point, so what was the, you know, what brought you back to New York? I mean you were going to school at Columbia, but what attracted you to Harlem? Did you just, did you see an.

Opportunity was before Columbia. And you know, so after I got went to Columbia, I did my, my thesis, my master's thesis on affordable housing. And the low income housing tax credit had just, you know, come into being in the 1986 tax act. So I think I was in Columbia 1990. And this was a time when nobody really knew what to do with a low income housing tax credit and they were readily available. So I tied up a piece of land with the developers. There was a recession at the time. And he let me have a three or six month free look on his property because he wasn't doing anything else with it. And I went and applied for tax credits and grants and things and I put together a whole package of, of financing. And I got, I was 30 years old and I got a $7 million worth of, you know, 9% low income housing tax credits, which was today would be unthinkable, you know, because they're in such short supply. But back then the market hadn't matured for them. And so I was able to do that, put together a deal, and then I shopped it around to try to get a partner to help me build it and finance it, and ended up with the Ginsburgs. Martin Ginsberg responded to an ad I put in the newspaper and I'd been with, so I stayed with him and his brother Sam for the next 30 years.

So, and I definitely want to get to that, but, but I want to talk about these low income tax credits. So first of all, you know, if you were 30 years old, had no experience doing this, how are you able to, you know, able to convince the government that you could do this? You said you had a bunch of grants, so maybe just kind of talk to us about how you went about, first of all, learning the business. I mean, I, obviously you had, you know, you had studied affordable.

I had some great teachers, right? I had this guy Chuck Lathen at Columbia who was, you know, you know, turns out he was a really a superstar and in public finance and things like this. And my thesis advisor was Phil Aarons, if you know, from Millennial Millennium Development. A lot of these was a recession, so a lot of these big developers had nothing to do and they would go teach us at Columbia. So Phil Aaron, who was amazing, so he was my thesis advisor and then Chuck Lehman also. So I had really remarkable teachers who taught me about this stuff. And so I was able to speak intelligently on my, my applications for the credits and make a credible case for myself.

And even without experience, though, what are the questions on the application? Wasn't, you know, show us where you've done this before or no?

Well, I listen, I had real estate experience, I built houses before and I, you know, I made money in the real estate business and I always look, look at it and say, you know, what is, what do they have to lose from, from doing this? You know, what is, what's the worst that's going to happen for them? And I put together a very credible package also. I mean, I think very professional. So I believe it's always important to project a professional, you know, any, anything that you send out to anybody else. I always tell those people, you know, people who work for us, anything that leaves the office, you got a double Check. You got a triple check. And it's got a little crisp and professional. So when people receive it, they say, they don't say, oh, it's another application. They say, well, who are these people? Who is this group? You know? And so I think we put together a credible package. And I talked to the people and they had no takers for this money at that point. There was nobody. They didn't have a lot of choices and they took a chance on me and it ended up the project didn't get built. We decided this was a time when the 60% of median income rents at that point were significantly higher than the market. This project was in Poughkeepsie, New York. And we decided that in the market was soft. And we decided it really wouldn't be the right thing to drop these apartments into. Well, this is with Martin Ginsburg. So suddenly I got teamed up with Martin Ginsburg, that was the biggest developer in Westchester county at that time, probably. And he just didn't think it was the right thing to do. But then I started. Just started, you know, ended up getting a job with him.

So you had, you had the $7 million lined up though, Was that so?

Well, yeah, but of course you discount it and whatever. So I had. Yes, I had that. And I also had a $600,000 home grant that they were basically. That's a ground through the county. They were pushing me to take the $600,000. And here I am, you know, without a whole lot of money myself. And I'm having to say, no, I can't. We're not. We don't have. The real problem with that project was we didn't have the. The right solution on the, on the sewer. We couldn't get the. We. It didn't have public sewer and we had to put an on site sewer treatment plant, which are notoriously difficult. And so we got hung up on this. And you know, in real estate, you know, you can kill a real estate deal with the passage of time. And that is kind of what happened. You know, one, it's very hard to hold all the pieces together for a long time. And as we started going down the road, I think. I think this is what happened. Trying to get the sewer treatment plant figured out. You know, the other pieces started to unravel and the land seller was starting to get different ideas, and I couldn't hold that together. And maybe my construction lender was. Was not, you know, so we just didn't. It didn't hold together.

So making the move to work with Martin Ginsburg, you know, again, a legend, you know, like you said, one of the most active developers in Westchester was, was the attraction just to continue to learn. Did you kind of view this as an opportunity to do more business or what, what arrangement was.

Yeah. Martin and his brother Sam were the smartest, hardest working people I'd ever met. So I was really impressed. You know, and they were both architects and then you know that's, that's a skill I didn't have. And they're focused on design and they, they really were interested in building very high quality stuff. And so that was a great experience for me to be in an environment like that with a, you know, with a lot of talent and a lot of, you know, success. And they had a good following. They were, they were selling townhomes at that point. So I was, I was going around buying sites for townhomes and getting them approved in, in Westchester. And I all then I would end up going around the country picking up apartment complexes. This is during the RTC days, the early RTC days.

So it sounds like you were kind of their, their head of acquisitions. That's what you.

Yeah, I became the chief investment officer and, and then, and we, we, when I joined the company had some really crummy old apartment buildings and we realized that we could buy brand new apartment buildings. This was a time when the whole market was characterized by the stress and so people don't realize that it's also, you don't just have to buy. One segment of the market is distressed. It characterizes the whole market. It brings values down everywhere. So we were able to buy, we realized class A apartment buildings which were more consistent with the types of things we were building. We bought them from related group. We, you know, we ended up having good relationship with a related group of Florida and some and others other, you know, merchant developers in the, in the Sunbelt. And we were able to buy them at what turned out to be favorable prices. And what we realized, you were able to get much better debt terms even from Freddie Mac and Fannie Mae than you were on the lower quality properties. And you got a free ride on the capital. And that's one thing people really don't understand. The capital is the big lie of the apartment business. If you have a 10 year old building and people tell you that you're going to spend $250 a unit on capital, that's a lie. And so we would buy a brand new building and you basically get a 10 year free ride on capital. And we ended up getting Very good cash flow out of these.

And was Ginsburg. And this was before they launched GDC or what was that?

No, no, it was a gdc. There was gdc. And then Sam and Ginsburg, Martin's brother, split off and I went with him and we focused on income producing properties while Martin focused on for sale properties.

Got it. Okay. And what kind of portfolio did you all end up?

Yeah, well, we had a portfolio at one point. We had, you know, we had 5,000 apartments. And then in the run up to the housing crisis, we had. We had. And we had really good quality apartments. So in 2006, 2007, people were approaching us to buy our apartments, to convert them to condos because they were in hot markets and they were very high quality apartments. And we realized, we did some numbers and realized people were offering us 3% cap rates, which at that time was very low. And we did some numbers and we realized that in order to ever get this money back, you know, we would have to show, you know, 8% rent growth every year for the next five years, you know, in order to not. Not to justify selling right now. We realized it didn't make sense not to sell me. So we sold all of our apartments for, you know, in some cases, double what they cost us. And we swapped into shopping centers, which it looked like a great idea in 2007. And we bought, you know, we bought a. We were partners with two public REITs. We were partners with Weingarten and with Acadia. We bought a regional shopping center. With Acadia, we bought five shopping centers in Colorado with. With Winegard.

And so on one hand, it sounds like you. I mean, you definitely. Oh, six, zero, seven. That was like a peak, peak time in the market. Like you said, you sold in many cases for double what you paid. But then you bought into these shopping centers. Did you know, how did those end up?

Well, the plan was to sell the shopping centers out over time. And some, some we did, some we did well, we got stuck with a couple of them. But, you know, all in all, it was a good. It was a good move. So the other plan was to temporarily swap to a 1031 exchange into shopping centers. We had like 3 million square feet of shopping centers at that time. And, and just to sell them out and go back into apartments as conditions warranted on some of them, we waited too long.

So, you know, 5,000 units, 3 million square feet of shopping centers. I mean, this probably was a result of many, many transactions. So what was, you know, as CIO and is out there you know, keeping tabs on all this. You know, how are you able to help scale that business?

Well, the business scaled itself. You know, you. When you sell things for a lot more than you, you pay for them. You know, the business grows. And we, and we basically didn't use outside investors. And so we, we basically kept our own money and we did, you know, mostly 1031 exchanges. So as we, we made good investments, as we sold, you know, things with profits, the business grew itself. And we really didn't need a lot. We know we picked up, we had some acquisitions people and we, we expanded our property management operation. But also we partnered with big companies could help us. So we partnered with two public REITs. We partnered with a group called Retail Planning in Atlanta who managed all of our shopping centers. We had like 9 or 11. 11 shopping centers in Atlanta at one point.

So it's interesting that you all decided to partner with other groups as opposed to bringing on outside capital. You know, I would say the majority of people we've had on this show bring on outside capital. So maybe talk a little bit about why. I mean, maybe the answer was as easy as you just didn't need it. You were able to continue to leverage the existing portfolio, like you said, 1031, into other options. But I'm sure at some point, you know, you had part, you know, limited partners equity knocking down your door, asking to do deals with you, and instead you chose to, you know, partner with some REITs. So can you talk a little bit about.

Well, yeah, and the partner. Yeah, and the partnerships with REITs. They weren't our equity partners. We were, you know, co. Co. Gps, if you will. And it was really. We talked many times about bringing it outside capital, and we just never found the right deal. And, you know, part of it is I wasn't. I probably would have done it if it was just me, but it was a family business and they like to have, you know, certain do things their way, and they like to. And I, I have to tell you, some of the things that we build, you know, when, when Sam Ginsburg was. Was in charge of, he would tend to overbuild everything, build everything nicer than it had to be just because he liked to. And it turns out we got paid off when we sold them. People would be taken by the properties. When we went to sell them. We sold the property we built in Mirasol. Mirasol was called in Celebration Florida for almost three times what it cost us to build. Someone just walked onto it and fell in love with it. So there was that. And it would be hard, it would be hard to talk an equity partner. You know, it's hard to show that on a spreadsheet, you know, because assumptions you'd have to make would seem ridiculous. But time and time again, I've seen, you know, the Ginsburgs do very well by what would be some, many would consider over designing and over building properties.

So maybe you could talk a little bit about developing in the suburbs as well. Because, you know, I, I've, the majority of my experience has been in the city. You know, here in New York we have right zoning, but I would imagine if you were involved in any of the developments in Westchester, a lot of that is not entitled and it's, it's a process. So I'm sure having that track record and that experience is very helpful. But, you know, how do you even underwrite a project like that when you don't know at the end of the day what you're going to get? Unless if, you know, maybe you were able to tie up properties at the time that were contingent on getting various approvals.

Right. Well, we learned early on from, from much experience, just for the audience's sake, people may not know this, but outside of New York City, you don't, you don't, you have, you have zoning. You can have a property that zone for apartments at 20 units to the acre, but that doesn't mean you're going to get it approved for that. You have to go through the, you know, the state environmental quality review process, seeker process, and the, anybody who opposes your project can use that process to slow you down. And as I mentioned earlier, time is the enemy of any real estate project. And you can, they can just delay you for year after year after year, and it becomes almost impossible to hold the various pieces of a project together. So we've done, we did. When I first joined GDC in 1992, they had this big, this big model of an apartment building in Yonkers called River Club. And I asked, well, what's going on with River Club? And they said, oh, you know, we, we finally got it approved, but the market collapsed, you know, after it took us three, four years to get it approved. And this is Yonkers, New York. This is not like, you know, downtown Scarsdale. This is nothing against Yonkers, but it's not like Yonkers couldn't use some high quality housing, you know, and, and so then I, you know, I got involved, said, well, we can't stand for that. And they own this land and they've Been carrying land for years at that point. And so we went and got it approved again for 600 apartments. It was a great site right on the river, right on a train station. And sure enough, you know, three or four years went by, we get the thing approved and the market changed again completely. And it was no longer appropriate. Nobody wanted apartments. Everybody wanted condos. And so we started again, we redesigned it for condos. And then, you know, I think Martin Ginsberg finally, after I went. Went off to be with Sam, Martin finally built and he built a beautiful project called River Tides that anybody can go look at, you know, typical Martin Ginsberg style. And he finally got it built. But I think it was 30 years. Wow. That he's been carried the landing it.

At the right basis and I would assume cash.

And I don't know. I suspect if you run the internal rate of return on that investment. You know, I don't. I don't know how well, you know, he really did right. But so. But part of the answer is it's. It's really hard. And we decided not to. After these kinds of experiences, we decided not to buy land unless we had it approved. So we would tie stuff up and say when it's, you know, we're buying a. Subject to approval. But we did, you know, a project in Peacekill, it took us years and we ended up. We built. We were going to do it as an apartment, so we ended up flipping it to condos. And it was just really painful. I just. Just decided I didn't really have the. The bandwidth for this anymore up here. Even though you can do very well once you finally do get something approved because there is such a shortage of supply, once you get it approved, you can do very well. It just takes an awful lot of time and it's terribly frustrating.

So I guess now talking about New York City and. And yes, we do have as of Right. But that doesn't necessarily mean that these, these projects are slam dunks. Maybe you could talk a little bit about 200 Water street in Brooklyn, which the firm Massie and Aklawar I started off on. We sold. Sold that to you years back. So maybe I think be interesting to you know, for our audience to hear about what excited you about that building, kind of the business plan there. And then ultimately I know that required some pretty creative tenant negotiations to eventually be able to get possession.

Well, 220 Water street was an old industrial building in Dumbo. It was, I want to say 150000 square feet. Maybe 200000 square feet gross. And it had seven loft tenants, maybe more. Maybe it had seven protected loft tenants and maybe another group of tenants who were living there semi legally who had agreed, who signed, who supposedly signed away their, their protection under the loft law. And so we got it and we. And it. And it wasn't. I don't know. And we had to get a reason it had to get rezoned. And then the financial crisis happened. It was one of these things. We had to carry this building a terrible long amount of time. But we managed to succeed with that project by using low income housing. Sorry. By losing historic tax credits and by using Brownsfield tax credits. And so and, and we ended up having to pay the, the tenants a terribly high amount of money to get them to move out. But all in all ended up fine. It ended up a beautiful project and a lot of trouble. I'm not sure I would take that risk again with, with loft tenants just because you, you really have no power. You know, all you can do is kind of offer them more and more money, but there's no guarantee that they're going to accept. So.

Yeah, no, that's a, it's a good point. If you're buying something and the success to it involves tenants cooperation, that, that's, that's definitely, you know, can be beyond your control. But, but I'm glad that it did ultimately work out and I know it's a beautiful project. How about the, the Granite Point? Right. I'm sorry, Grant Point was I think was the lender recently in your Long Island City.

Sure.

Townhouse development. Maybe you could talk about. About that.

The Long Island City townhouse project. So we built 75 townhomes on a site zone for 150,000 square feet. So there are these. And the reason we did townhomes is because at that time we bought the property. The 421A tax abatement had expired and so we had to come up with. But the zoning for the site was an FAR of 3. So it was not very intensively zoned. We needed to come up with something where that would pencil out. And the only thing we could come up with was to do class one two family houses. We actually looked at do three family houses would have worked too, but it became so complicated to bring the stairs all the way up to the, to the roof. There's some other things. So we ended up building stacked townhomes. Two family houses were basically a townhome on top of a duplex on top of a duplex. But the, the lower Duplex actually had a full basement and the upper duplex had a penthouse. So they're really a triplex on top of a triplex. And we're renting them out now for really high rents. And but so we had to subdivide the, the property into 30, I want to say 38 lots and each, each with its own utility connection, with its own gas line, its own electric line, which is a lot of trouble. It'll rip up the street 38 times. And this is because New York City's tax system is so, so, you know, complicated. And so it, you know, and we talked about this in our class, James, about how, how messed up the tax system is. So, but we, but the tax effective tax rate on a two family house on a class one property is 20% what it is on a regular apartment building. So unless you have a 421A, there's, it just doesn't make sense to build the regular apartment building. So we had to go through all of this gymnastics to, you know, the subdivision and all of this trouble just to get a workable, you know, tax bill at the end of the day now.

Very smart. When looking at these opportunities, you have to obviously think about what is the best development, what type of unit, as you said in Yonkers, was it rental, was a condo, you know, here, what's the right, right, you know, style development. But also you've got to be able to make the numbers work. And so also thinking about, you know, the tax implications. So really smart how you were able to position that. So maybe now you could talk a little bit about your Opportunity Zone funds. Maybe, you know, and I remember when this came out and I really, I mean the program in many ways, you know, initially sounded too good to be true where, you know, if you can invest in a project in an Opportunity Zone long term for 10 years, any profit was tax free. And yet I think it did prove to be pretty complicated as far as the timing and getting everything lined up. But, but it seems like you have been able to succeed in doing, in doing this. So maybe.

Well, let's not get, let's not get ahead of ourselves. I haven't invested any of the money yet. I set up the opportunity. I said I had some gain and I put it aside in an Opportunity Zone fund and I'm looking for the opportun and I'm thinking about doing something in the affordable housing space. But you know, I'm waiting for the, the market has been in kind of turmoil and waiting for the right opportunity to Present itself. So as, and as, of course, as one waits, the, the, the benefits of the tax deferral diminish. Right. Because the, the tax deferral, I guess it's only until 2026 and the long term benefit of the no tax on the whatever gains that still remains. But I don't think a lot of these Opportunity Zone funds have actually been put out. A lot of their money. I mean, I hear people talking about it, but have you seen any data on it?

Well, we had. Well, so, yes, there were a lot of funds who announced and took commitments. But to your point, it's been very difficult to deploy because of the timing and try to get everybody on board within the tax year and executing in the time frame to make it sense to make it work. Bridge Investment Group has been successful in finding these opportunities, deploying, raising capital. We had David Coelho interviewed him better about a year or so ago, so you can look for that episode. But you know, they had a pipeline of these developments anyways in a lot of these cities and they happen to be designated in opportunity zones. And so, you know, for them they already had this, this deal flow. So I guess for you there was a gain. You decided to put it into an opportunity fund, to put it there to make it available and ready when you do find something. So that's, that's right.

Okay. And so. Right. So we, so I understand also from talking to brokers and maybe you can confirm if this is true that land zoned opportunity, you know, in an opportunity, in an opportunity zone is not necessarily selling at a premium, which suggests that the adoption of the program is not as widespread as one would hope.

Yeah, I mean, what I had always heard was that the deal still has to stand on its own. And the Opportunity Zone program, what that did was it brought more capital to the table, so it almost becomes a way to raise money for a deal. But no, it's not like originally when they came out with the program, we started taking on all these opportunities on listings, thinking that they were going to sell for double, triple market. That's right, the case which, which is probably a good thing. I mean, you never want a deal, you never want to do something just for the tax benefits. So. Well, maybe you could talk a little bit more about your interest in affordable housing. And you're, you're now teaching a course at Fordham. You know, what is it about affordable housing? You know, obviously there's an incredible need for it. So is it more your interest in providing this, making housing more affordable? Is it just an Interesting end of the business where you think that if you specialize, you can really differentiate yourself. What is it about that segment of the market that's interesting to you?

One of the things I always look for in business, and this kind of was what led us to our decision making in when we sold our portfolio to condo converters or apartment portfolio, is if something can't go on forever, it won't. That's a basic tenet that I look for. And our housing situation in this country can't go on like this. Something has to give. Either they have to start, you know, liberalizing zoning to create a lot of people to create more, more housing, or the government has to step up and, and make, you know, take steps to make housing more affordable to people. We have, you know, tens of thousands of people living on the streets of our, of our major cities. We have, you know, something like 60% of people who make $30,000 a year or, you know, pay more than 50% of their income for shelter. The statistics are troubling and they're not getting better. So I was just attracted to this because it is a problem that needs solving. And I think anytime there's such a great problem like this, there's got to be a corresponding opportunity. And for me, I'm not sure I'm going to end up doing it as a business opportunity, but even just to study it and to, to, to, to learn and teach, to teach about it and help contribute to the solution. So I, I do think it's a great thing for young people starting out in the business. I was encouraged by my professors, by Phil Ahrens and, and others to, to go into this business. It's just a great way for young people to start out and learn the real estate business. You usually don't need a lot of capital. And, and so it's one of the things I'm doing is encouraging young people to get involved in this part of the business.

How much of that business is. Relies on the cooperation of the public sector. Because again, this kind of goes back to your comment earlier. Whether it was on Water street and there for that to work, you really needed the tenants to cooperate. But again, for these developments, whether it's, it's getting low income tax credits, whether it's, you know, a return of the 421A, you know, how do you go about this? If you are reliant on the public sector, coming forth with programs that work?

Sure. Well, in New York City, you do need to rely on the public, on the public sector. If you want. However, there are, as of right, programs. If we do get a tax abatement program back again, you know, it may be possible to build market rate housing and include 30% affordable units and, and you may be able to get the numbers to pencil out. And that's a way to, I think that's a really smart way to create affordable housing that the city has done. The affordable New York program, I think needs to be tweaked. Some of the criticisms of it are fair, but at the same time, so many of the problems with it are just that it's impossible to come up with a sweeping law that applies to every location and every building type in the city. So some buildings get over subsidized, others get under subsidized, and the under subsidized ones don't get built. So that's just the nature of the way the, you know, of public sector funding for, for housing. Housing works. But the public sector does clearly need to get involved, especially in a location like New York where the, the real estate tax structure is unworkable. Right.

And I would imagine, you know, a lot of these projects, again, are fee based. And then you're not doing these projects unless, and even going back to that deal in Poughkeepsie, you found an owner who was willing to give you time to find out if you could line up.

Right.

That, that subsidy. So, you know, I guess at least in that regard, you know, that is de. Risking the situation where you're not going to do the deal unless if the subsidy comes along. But then again, if you're waiting for a program, you might be waiting a while. But no, it is. You know, everybody agrees that there's an affordability crisis in this country. And you know, I think it's a really interesting discussion on, you know, what needs to happen with that public private partnership to, to incentivize development. So, so I had the chance and really appreciate the opportunity to guest lecture your class twice. Maybe, you know, talk about that opportunity to engage with students and, you know, hear from them, get their ideas, maybe, you know, shape people for the future. I mean, I, I know you said that a big part of your career path was based on some of those professors who. Right. You know, set you on your way. So is this kind of you're giving back or what?

Sure it is.

What is it about teaching that that, that you love?

Yeah. Well, the academic environment is different from the professional working environment and you deal with things conceptually that you really can't spend time on in your normal Course of business, right? And so you kind of step back and you. And you look down at things from a 30,000ft or whatever you want to use as a metaphor, and you look at the big picture. And it's helpful to kind of think about things differently. And it's refreshing. And I think it's necessary for anybody who's been in business for a while to take a step back. And so just the academic approach is refreshing for me and to look at things differently and certainly to share ideas with young students and to introduce them to. One of the things we cover in this class is the history of public housing and affordable housing in New York City. All the different things that people have tried. And so it's good to get their perspective, to see what they're thinking and what their view is of the needs of the community, because they have a different. I live in a little, slightly different world than they do. And so that. That's helpful. And I do hope to steer them and help some of them will go towards a career where they, where they are, you know, developing housing, and they can learn very useful skills in the affordable housing business. And you can, if you go to work for, for the city unit for, for a while, you can learn about aspects of the business and you can make yourself a very valuable resource to other companies when you get out. And so I would. I encourage people to, to work for the, for the government. I have a sister who is a longtime federal employee, and she would never work. She said she'll never work for the private sector. And so there are a lot of people who find this to be a very rewarding career, much as we complain about the public sector in our, in our side. So.

Well, I. We've had a couple people on this show from the public sector, or some who started the public sector, like Marianne Gilmartin and then went to the private sector, but also Rachel Loeb, who is the interim head of edc. And, you know, the pros that they said of working in the public sector is getting that frontline experience where if you're working for a private developer, you might not, you know, see the front line, or maybe you're kind of siloed doing one thing, whereas, you know, you just get incredible experience, you know, from the public side. And so. And for some, again, they make that transition so. Well, this is fantastic. So will what. You know, first of all, I'd say the name of this podcast and my upcoming book is the Insider's Edge to Real Estate Investing. When I say that to you, what what does that mean to you? You know, do you believe you have the inside edge to real estate investing? So what, what would that be?

Well, first of all, I did get to read your book and I thought, as I told you before, I thought it was a, I thought it was a great book that I wish I'd had when I was starting out in the business because it does deals with a lot of the nuts and bolts and the, the, you know, kind of anecdotal things that, you know, communicate the, the way things actually get done in the business as opposed to kind of the technical, financial engineering and things like this that, that are important. But the, the softer, you know, anecdotal piece of it is very important as well. So what do I think? Do I have an insider's edge on real estate? I hope so. I hope so. After all these years. I sure hope I have, I have some kind of an edge. But you know, there are so many different facets to this business. I there. I'm sure there's a lot of stuff about this business I don't know still and different, different areas of the business and I'm still look, still learning and I would encourage anybody in this field and we never stop learning.

Would you say your knowledge and your experience, again, some of the things you've done are very specific. So would you say that really maybe understanding the inner workings of low income tax credits or understanding how the Opportunity Zone program works. I mean, would that be kind of one of your key success is really getting under the hood and understanding how these things work?

Honestly, probably not, because there are a lot of people who are much smarter and better at this stuff than I am and, and they're available, they're out there for hire and they do this stuff day in and day out. So you know, get a good attorney or you know, the accountants who work on a lot of these programs, you know, just having enough of an overview to know how the, how the, how you, how it might, the programs might work. And then you get with a professional, somebody who really understands the program and to see if it can actually make something work out of it. So I would say that from my point of view, being a generalist and being able to look at, take a big view and seeing, trying to identify dislocations and opportunities and then bringing people who are specialists in to apply their skills is probably more what I do.

Well, I really like that answer because if you spend all your time figuring out how to these programs and you know, you wouldn't have any time to actually go out and do deals, you know, but. But you know enough to understand, you know, the conversation and know the right people to go to. So, Will, what advice would you give to aspiring investors? And many of them might be in your class right now at Fordham, so maybe that's a great place to start, is to get a master's degree. But, you know, what would you say to one of those students right now who are looking to get into investing? Where. Where would you tell them to start and the best way to get on their. Their career path?

Well, what I tell people, and sometimes I. I had a young, Young fellow come. Come meet with me. He just got out of college, and he's looking for. And I steered him to hpd, actually, he took a job with Avison Young. I just had lunch with him, and. And I think he knows you. We'll. We'll talk about this later, but I. I suggested again that he start when the affordable housing side, because I think it. I reiterate and say it's a great way to learn, to learn the business. Now, I've been in, really, mostly in the housing side, so we did hotels, we did some. Some retail, but mostly my career is focused on apartments. And I think that, you know, working for a city agency, even though I've never done it, seems like a great way to learn and. And to get big responsibility early on in your career. Am I answering your question?

No, that's. Yeah, no, that.

That's.

That's great, too. You know, we have a lot of people talk about, you know, going into the private sector. So again, someone, you know, who's in the private sector right now, telling, you know, some of our listeners, younger listeners out there, maybe in school, to think about the public sector.

Right.

I think it's really validating.

Right. And if you can scare up money and buy a building and fix it up, that's a great thing to do. And I'd also say learn a skill. Like, if you can be a builder or if you can be a property manager or if you can be a good broker, a good leasing broker, investment sales broker. And if you can have, you know, one of those skills to bring to the table, you can be an architect. Now, you see, I'm sure you run this in the business all the time. There's different people who come into it from different angles. Some people are attorneys, and they come and they look at the business from a legal perspective, and some people are accountants, and they. And they look at it from that perspective. So that's one piece of advice is if you can, you know, make yourself valuable by having one of those skills, having a specific skill set and then you bring it and apply it, you know, more broadly to, to a specific real estate opportunity, that's a good way to go about it.

Well, that's fantastic and will thank you so much. And this has really been a pleasure. And again, just having been able to sit in on your classes as well, I mean, it's really amazing what you're doing to give back to students and for the veterans, the people out there listening to our show have been doing this for a while. If you have not guest lectured, if you haven't taught, it's a great way to, you know, let students out there know about our industry and, and ways to get involved. So just really appreciate your coming on and joining us for this conversation and for, for everything you're doing.

Oh, well, you're very welcome, James. Thank you.

Perfect. This is your host, James Nelson. Thanks again for joining this week. And if you have not already, please go to james nelson.com where you can find the show notes for this episode as well as white papers that I've written as well as video series and also the ability to pre order my book, which is out in January with McGraw Hill if you've not already. So thank you again as always, until next week.

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