Insider's Edge to Real Estate Investing with Matthew Adell

Welcome everyone. Today we have the pleasure of having Matthew Adell with us who is founder and CEO of Adelco. I've had the pleasure of knowing Matthew for at least over 20 years and have had the chance to also hear him recently at some of the top industry events. And so I know we're going to have a really exciting conversation today. So Matthew, welcome.

Thank you for having me.

Wonderful. So now I know big news that I think hopefully will help announce you're going to have a new website that you're rolling out. So we'll make sure and link to that so people can see that. But for the benefit of our audience, why don't. If you could just start by giving us a little background on what Adelco is in the portfolio of companies.

Our core business is development, ground up and large scale conversions and adaptive reuses. We've led the market in any number of our projects where the market has seen the value of what we've done in developing in areas that were underserved by a particular type of product. And it is our mantra to continue to have that vision and continue to buy and develop. And this being an outstanding time to do just that.

Wonderful. So I know that the previous website said that Adelco has been in business for at least 25 years. I'm sensing it's probably a little bit longer than that. So I'm sure that that might be updated on the next version. But give us a sense of the scale of the portfolio, you know, over the years, what that, that looks like and what those typical projects might include.

Well, We've developed over 2 million square feet of property and created literally billions of dollars of value value over both our developments. And in particular, one of the initiatives I'm most proud of is the rezoning of 6th Avenue between 23rd and 31st street, which created 6 million developable square feet. And no matter how you run the number out in terms of what's the value of a finished product, but it's over $10 billion worth of value that we basically afforded the city to, to then tax and hopefully help city balance its budget. It was a long time in coming. We had to prove that this was an economically viable rezoning. I wrote the zoning at the time, which was a contextual zone zoning and that hadn't really been used much in the city before. So it's the X C64X that's been mapped now in many other areas like the Chelsea rezoning plan. And our 6th Avenue rezoning really kicked off Development in Chelsea all the way to the river, the upzoning of the avenues, the down zoning of mid blocks, the X zone, which was a contextual concept that was applied and it basically created this value in Nomad and both Flatiron as that conceptual circle came back around to the center of all of this activity, even today, which is the part of Chelsea that we resound.

This is a wonderful place to start. And this story and what Matthew is talking about, I actually cover in my book. So, you know, you want to go and read the whole story and look, some of you might be listening now saying, well, this sounds amazing, but I don't think I'm ever going to have the ability to rezone an entire neighborhood and create billions of dollars of value. And one of the things that I mention in the book is for those who are following along, I mean, there was a lot of beneficiaries in the process. Even if you weren't planning to build a 30, 40 story apartment building on the avenue, you might have been the owner in the path of progress. Or maybe it was someone who said, look, I see all these apartments are being built and I'd like to go in and buy some retail and benefit from it. So I think for all of you to understand this process, I know you're going to get a lot out of this discussion today. So Matthew, I have to ask, I mean this was very technical zoning. I mean, you said you literally wrote the code. I know you're a Wharton grad. Was that, did you study urban planning? Was there? I mean, how did you even start by learning the code, let alone drafting it?

Well, certainly it's a team effort, just like everything we do today. As a developer, my job involves interfacing with professionals at almost every level of the business that we work with, whether it be finance, construction, asset management, suppliers and so on. At the beginning of the development, it's very much about land use and architecture. I had Casi Scandillas and Sandy Lindenbaum, may they both rest in peace. Two of the most prolific and wonderful people in our business who've passed many years ago. And with their input and their encyclopedic knowledge of the code and architecture, we were able to craft a zoning that we ended up writing that the city adopted as a contextual zone that again had been used. And even to this day, contextual zones are really the way the city wants to go. They don't like these plaza based setbacks. They feel it's more human to kind of relate to your streetscape with this type of development presentation.

So, I mean, this was a very dramatic and much needed shift for New York City. And for those of you who don't know Manhattan and this sixth Avenue corridor in Chelsea, I mean, it is literally in the center of Manhattan. It is so accessible by transportation. And yet. And when I came to the city 25 plus years ago, it was a bunch of, you know, parking lots and flea markets up and down 6th Avenue, and you certainly remember that, and was largely a manufacturing district. So what gave you the conviction that because this is a really a radical, you know, change for the area to go from, you know, open parking lots to 30, 40 story plus buildings. I'm sure it was a delicate process, negotiation, you know, getting the community engagement. What was, what was, how did you know you could accomplish this? And what were the kind of the steps to have this ultimately come into reality?

Well, what's interesting about that question is it's just as relevant today as it is then. So this is not just a historical repetition or rendition of, you know, how 6th Avenue came to be. It's vision, it's planning ahead. What we do for a living is looking at something today and thinking, where will we be two, three, maybe four or five years out, depending on the complexity and the size of the project. To that extent, I don't always just see what's there. I see what I believe could be. And in Sixth Avenue, it was very obvious that there was nothing there. I had a friend back in the day and he knew I had a lot of property on 6th Avenue, and he gives me a call and he said, you know, Matt, I just drove up 6th Avenue and I know you have a lot of property there, but I didn't see anything. So it was that undeveloped and that kind of keyed into the reality that it was ripe for progress. And as you pointed out, it is literally the center of the city. I mean, it's almost the bullseye nucleus between 96th street and Wall street and river to river. So its centrality had a lot to do with its value. It was also not so much a challenge, but it needed an identity because it really wasn't identified as anything marketable. Clearly the flower market, clearly flea markets. But I decided to call it Chelsea. So I had an opportunity to rename the neighborhood. Back then. Maps were physical. I had to call folks like you and say, would you please update your map? Which was not an easy task because it wasn't an electronic transition. It was physical. But everybody did it because everybody like me wanted to stay in step with where the city was going, but the reason I say it's relevant, although today we see far less large sites available, and the process of assembling 20ft by 20ft and piecing together block fronts or critical mass is more challenging because the world is faster paced, money is more expensive, and it's very hard to do that in many cases and hold for many years. It still happens, but it's not as prevalent as it was then. However, if you take what we did then and you say, okay, I'm standing on XYZ corner now, where's the value? Where's it going? The city is attempting to enliven construction and conversion to create more housing, both market rate and affordable. So the idea that something like Midtown south, which is likely a rezoning, that's going to pass sometime this year, we'll see how it ends up. But if you believe it's going to pass, if you look in those neighborhoods and you say, what could this be? And you get ahead of the curve, that is how you make more money, you make a better investment because you have a lower basis and you're buying or building into a growth area.

So I really need to compliment you, as it's clear you're a lifelong learner. And just recently, now there's some new tax abatements that have been made available. And you said, james, I really want to study and learn these. So again, you've been doing this for decades, and yet you said, this is important to understand all the opportunities that are available out there. So I just wanted to mention that. But I want to go back to the vision. And I would think one of the most exciting things about being a developer, and again, Adelico does a lot more than just developing, and we'll get into that. But your vision, right? So, yes, you need great professionals, whether they're architects, land use council, and maybe they're telling you what can or can't be done and how to get things approved. But. But the vision, when you, when you see something, I mean, is it. I have to think it's. It's a creative process. I mean, were you. Did you have a vision for what 6th Avenue would come to be, or was it much more of a technical analysis, if that question makes sense.

It was vision. Yeah. This. There was very little there. There were flat lots, no real parking garages. They were utilized in a very underserved way in terms of what's the highest and best use. There'd been no light manufacturing in new starts in over 40 years. It was an M16 zone, which allows for commercial use other than light manufacturing, showroom and such, there was almost no new activity. It was an area that was just crying for life and it was residential life that it really wanted to be. Hence look at the avenue now. I mean the population just up and down that portion of 6th Avenue is larger than most small cities in the United States. So it clearly was viable. We had to convince the city that it was viable. But the proof is in the pudding.

So I'd like to talk about how you go about executing on a large scale project. So I believe two of the towers on 6th Avenue, the Aston, 266 units, the Capitol, 387 units. So again, for our listeners who might, you know, one day they, they might dream to build, you know, a 30 plus story tower of fully amenitized building, or could be building a 10 or 20 unit building. But the process of, I mean we've kind of talked about the approvals and getting the project designed. Okay, so now, now you have what is an as of right project. Where do you start going about capitalizing that and getting debt equity to buy into that?

There's many things at the same time, but clearly, you know, we're the engine, but the fuel is primarily equity and then debt. And I say that because equity is a more rare commodity than debt. I mean, markets move and at some points in time, you know, equity is flowing, at other points in time, debt is flowing. But at the end of the day, if you don't start with an economically viable plan, something that you can articulate to whomever that this will make money. This is a business. We don't do this for glory, we do this to make money. And if you can articulate it based on not just your vision, but your experience and your ability to complete the project as well as just start the project, you will attract equity and debt. I find it necessary to understand that good equity doesn't necessarily know everything about every business. So we're always looking for people that understand our market, our New York market. Sometimes we're didactic and trying to explain it to folks. I mean, back in the day it was unusual to be a institutional owner of rental property in Manhattan, or the boroughs for that matter. It was privately owned. And it changed. It changed slowly but surely because the institutional owner educated themselves as to our myriad of rent laws and the ins and outs and became comfortable with both the process and the risks as well as the benefits associated with it. And to that extent, I can recall years of explaining to any number of institutions. Why the rental market here was as de risked as any investment. It still is that way in my opinion, in real estate in the entire country. To me it's like buying treasury bills, but it's bricks. And when you have 400 residents paying rent all the time and the idea that you're going to have a disastrous issue on income is is very, very low because our non payment bad debt on a multifamily building is usually under 1% and if I were to apply 3% just as a factor, I'd be extremely safe. So when you think of the reliability of the income it de risks and the profit associated with it, I'll buy it lower than a higher risky price product, probably outperforms and in many cases, you know, asset value increase, which is often cap rate driven. But you can time it because you have a sustainable income for as long as you want, as long as you run the property well. And you can time your exit if that's what you want, or your refinancing to the right moment, that is lower interest rates. The multifamily side of the world can be extremely profitable, much more so than the going in numbers tend to indicate because it's very hard. And I find the valuing risk is a challenge. It's very subjective. How much less return am I willing to take because it's so de risked as opposed to the number that jumps off the page and how much riskier is it? There's an empirical side to it, but at the end of the day it's an experienced feeling that gives you confidence that you can make the money you want in something like multifamily.

I want to circle back to a question on that risk profile and how you were able to really quantify that. But just on the topic of raising equity, because in the show we've talked a lot about starting off with friends and family capital and yes, we've talked about raising institutional capital as well. And you certainly have plenty of institutional investors. But I believe you also have foreign investment, right? Family offices, multifamily offices. And so the question is, how do you go and find this equity that's out there, Especially if you're looking for global capital. One of the transactions, sales that we were happy to sell to you, the Hotel Wales on Madison Avenue, very significant property project. And, and if I'm not mistaken there, there was some, might have been some foreign investment in that. So how do you go about finding that capital?

Work hard, you have to cover the market, you have to stay up with you Know where money is flowing from and why the world does turn. I mean, we've gone through cycles in New York City where we've had money from Japan, China, the gcc, Middle East, Gulf region. And there are moments in time where that money for any number of reasons could be local issues, local tax code, just our robust market. But staying up with what could be the right source of capital is an ongoing job. You have to work at it. And of course, you have to present yourself and your projects in a way where it garners confidence and reliability and projects profit that's achievable.

And you have a lot going on here in New York. So I doubt you're flying around the world, you know, looking for, you know, for capital. But how do you, I mean, do you typically find this foreign capital? I would imagine there's intermediaries and then they're interested in New York and connections are made. Or have you found yourself over the years having to, you know, travel to go meet with potential partners?

All of the above. I mean, I spend a fair amount of time on an airplane. You have to visit, not just to introduce yourself to capital and attract capital, your projects, but, you know, you have to be investor focused and you have to stay in touch with your investors. You know, if you're a retailer, you stay in touch with your customers. It's important. You want continuity, you want good communication. That can be done in any number of ways, electronically, whether it's as old school as just a telephone call or new school is podcast. But at the end of the day, it's personal and you need to be present.

That makes a ton of sense. So talking about the decision and you do both to go ground up as opposed to a conversion. Right. Talking about trying to quantify, you know, the cost. And as far as understanding, you know, you're not just making predictions on what things are going to cost, but ultimately what they're going to sell for. So how would you characterize in general doing a ground up as opposed to a conversion?

They're very different businesses. They have the same characteristics and we have the same disciplines that we have to go through to go from start to finish. But the difference is dramatic in that ground up in effect is easier. You never know what's in the ground, no matter how many borings you do. You can have surprises, whether it be rock or water or something else. But then after that it's largely air. Besides stabilizing adjacent properties, conversions are a constant existing condition. Field exercise. For all the probing we do, there's always Things that come up in the field at some point that you have to reevaluate. So it's a much more difficult process. And you know, I would say that a company that only does ground up its learning curve to do conversions and vice versa, it turns out we do both and we've done a lot of both, and I want to continue to do that. But the fundamental decision comes down to the characteristics of the property that we're considering either demolishing or converting. And as I'm sure many have read or heard, because this topic is definitely a headline right now. Floor plates, ceiling heights. How do you create layouts within a certain envelope? To what extent is the envelope not attractive, let alone laid out in such a way where you can create the homes that the market wants? And that dictates to some extent, should we redistribute bulk from, let's say, the rear of a building to the top? That brings up, can you support it structurally? Or should we demolish? Or in some ways, should we raise floors within the building to create ceiling height? To the extent that you can. And at some point we make a decision that we're doing so much to make this building work, we should demolish it. Or at least that should be our business plan. In other cases, you keep it the Wales that you mentioned. Thank you very much. Very proud of that. In that we did a lot of what I just discussed. We raised floors there to create ceiling heights. Window placements are your constraint. Typically it's just a very high level engineering construction job to do that. Structural demolition is effectively the same as superstructure because you're demolishing something while you're supporting it and then you're installing all the new structure. It's very detailed, step by step process. But if you're careful with the right team, it works. So we were able to create some ceiling heights there that we couldn't otherwise. And there were other things we did there, such as fill in light wells to regain square footage that we could reuse. Because that building was unusually not overbuilt. Whereas many of the buildings we see today are in fact overbuilt. And part of that is that building was built in 1901. A lot of the buildings that we're looking at and I think the market is seeing in other parts of the city were probably built more in the 20s. And at that point, for whatever reason, zoning was more robust. And compared to today's zoning, they're often somewhat overbuilt. Usually that's a grandfathered condition. So you can take advantage of that. It's not like you have to lose square footage.

So the Hotel Wells project was a really interesting one in that you had a operating hotel, right, which had some residents who I believe lived there as well. And somehow you were able to, you know, make. I mean, maybe behind the scenes it wasn't smooth, but it was. It seemed very, you know, it all worked out as far as with making that conversion from a hotel to residential. I don't know if those tenants ultimately were relocated or if they stayed. But, you know, it would seem to me that if you're doing a conversion, sometimes it is contending with, you know, who's there and, you know, working through. So how. What advice would you give in. In that regard to deal with those kind of situations?

I start with respecting not just people, which I do, but you have to respect their rights. You can't go in deciding that what you want, you're going to get. You have to work with what someone has a right to do, which in some cases is not leave. And then this falls in the category of I can tell you how I walk, but you'll never walk like me, just like I'll never take steps like you. Our bodies are different, our cadence is different, and so on and so forth. So there's a bit of an art to establishing enough of a trusting relationship. And also an economic presentation where someone would consider doing something that they don't have to do, they have to decide to want to do it. Sometimes it's a question of money, always a question to that extent of some amount of money. But sometimes it's a question of what the relocation is and how fast is it. Is it in the same neighborhood? Because people get used to their own home. It's not always about offering something better, where you say to yourself, gee, it's so much better. Why wouldn't anybody take it? Well, there's a lot of reasons why, because sometimes people just don't want to, or they're just comfortable. It's work to move, even if you do everything for them. So you really have to be very sensitive to the human side and to the person you're speaking with or persons you're speaking with.

Well, I really appreciate your sharing that, and that's. I can see why it was such a smooth process there. That's definitely the right approach. Matthew, how much as a developer, do you need to be essentially forecasting what's going to take place in the future? So you're buying a site, right? And you have your underwriting, assuming what it's going to cost to build. And we're taping this show right now. We're in the middle of April 2025. So tariffs were introduced. They were paused for 90 days. Well, you know, maybe by the time you're listening to this, maybe it will be resolved, but we don't know. But you're bidding actively in the market, right? So how are you forecasting? Because imagine if you sign a contract today, you might not have a bid set of plans for what, six months or so when you would actually be taking a project out to bid. So how do you manage that risk and try to forecast what a project's ultimately going to cost?

Bear in mind what we do, and we're using this microcosm. It's a big microcosm of New York. There's other markets in the city that I'm somewhat active in as well, but this is our main activity. It's very different than a lot of businesses that are of the moment very affected by what's going on in the world. Tariffs in particular, we're speaking about. If you think of New York City as a too big to fail, you think of New York City as a destination forever. I believe in that. The city's always growing in its own way. It finds its way through its ups and downs. It's here to stay. And it's very dynamic to that extent. I know that if I build the right product for the market that I identify and capture that market correctly, then I know that I'll have, whether it be condominium buyers or multi residential rental tenants. So I'm not that concerned about the moment of tariffs right now as it relates to my business. Projecting what the rent or the sellout will be is an exercise that you have to be sober about. I do a lot of research on comps, but I know the market very, very well. So I think a lot of the times comps reinforce what I believe is the case anyway. But it's important to do your research because you learn something from it. Even if you think you know everything, reality is you don't. It's always something to learn when it comes to projecting the cost of the project or even the time frame. One could argue that today's tariffs are affecting the cost of materials to the extent that they're imported or for whatever reason they're constrained, even delivery constrained. But in the overall picture, as a rule, that is not necessarily going to change the magnitude or the metrics of penciling out a conversion or development being profitable and to some extent the flip side of this is all this unsettled, all these unsettled issues are such that they're likely, at least for a very short period of time, going to be less activity than more activity. So that offsets to some extent construction costs where companies are needing to be more active, notwithstanding that pricing might have gone up for some of their supply components and such. So I look at it seriously. I mean, when we went through Covid, it was a major issue. For a period of time we couldn't get things. I couldn't get refrigerators. For a year we scoured the country for refrigerators and showrooms that happened to be the spec that we wanted. And we would truck them to our site just to, you know, finish apartments. I mean, it was a challenging moment and, you know, it did increase costs. But at the end of the day, what we're dealing with today, when I do run those numbers out, I don't think they're going to change much because of today's tariffs. I think the fundamental way of approaching the development is similar. We have a long view. We build by countercyclically. I always want to develop my projects into the curve, not at the top of the curve and certainly not as the curve is coming down, because we have a gestation period between pre development and actual development and delivery of product that is a combination of all those time frames of no less than two years. It could be three to five years, depending on the complexity and size of the product. So the best way for us to develop is to buy low and sell high. And that means that you do so when the curve is down. This is a outstanding buy moment for what I do for a living in terms of New York and other markets in the country right now, given where prices are depressed.

And I want to come back to that because it's a really important point, but just on the theme of forecasting and getting comfortable with the demand for your future condos apartments. So you look at the existing comparables that are in the market, but I would imagine you're also tracking the future supply. And again, this isn't just for ground up development. Some of you listening, maybe you see these growth markets like Austin, Texas, for example. I mean, for a while the word was that there's tremendous demand for apartments in Austin. And then lo and behold, here we are five years after Covid and there's a 20% vacancy rate. I know some of you who are listening from Austin, you're gonna say, james, that's not fair. I know there's pockets in Austin that are performing very well. But clearly when you're delivering product to a market or just buy an existing multifamily to hold, you have to be cognizant also about future competition. So how are you trying to figure out if you're delivering a luxury condo on the Upper east side, that there's not, you know, five or 10 other projects that are going to directly compete with it in the future?

That's very good question. I mean, demand and supply go hand in hand, and they support or contradict each other. It's just market knowledge. I mean, we're always looking at what's available. So I believe I'm on the cutting edge of what sites or acquisitions are in the market. We cover the market as thoroughly as we can with many, many people like yourselves and young. So if I feel there's a tremendous amount of supply that is going to be coming into the market, I will be more concerned. Absorption is a critical decision in projecting your economic profitability on any project. Rental or condominium for that matter. Offices or. Well, it doesn't matter what it is. We don't sell 100 apartments every week. We could rent 100 apartments maybe every two weeks if the market's robust enough. So you have to really plan out your absorption schedule, because time is probably the biggest enemy of any project in terms of delaying it to be presented to the market. But more so on condominiums, because the rule for a condominium project is get in and out as quickly as possible. Rental projects have a long life because you have sustainable income, so you have a little bit more flexibility to catch back up if something delays a project. Covid was the perfect example of delays. Covid, post Covid, supply chain and such. So that plays into the supply side. But for example, I mean, I believe rental housing in the city is so undersupplied, both market and affordable housing, that even with the new programs that I hope create much more supply on both those categories, I'm leaving aside super luxury for the moment. I don't believe there'll be an oversupply. However, if you open up against two other projects that are a couple of blocks away, that would give your project some pause. So you really have to be specific to the corner you're standing on. But overall, I don't see the rental housing market at a macro level being oversupplied. I think condominiums are more susceptible to oversupply in certain sub markets. And bear in mind, even though to some extent, the renter might more easily go to different neighborhoods Condominium buyers a little bit more particular to the zip code. They want to live in uptown, downtown, east, west, and the submarket in particular. So if you're opening up against two or three projects as a condominium in your sub market, again, that could give your economics pause. But the macro side is I don't think we're going to have a prolific oversupply of condominiums. But for everybody out there, it's all about your corner of the world. It's a submarket specific. Real estate is a two feet on the ground business. It's never changed. And it's not about the generality of Manhattan or Brooklyn or the boroughs. It's very specific to exactly where you're investing.

I fully agree with that. And that's a lot of great insight and thinking about whether you're developing a project, converting existing, really understanding not just the local comparables on the market, but again, having the knowledge of that future supply. So, Matthew, now I'd like to go back to what you were saying about buying into the curve. So again, trying to buy at a point in the market, right, where ideally you're getting in at a lower basis. That usually means maybe there's more turbulence, maybe there's uncertainty in the market, right? So maybe we could even be talking about kind of the Warren Buffett stock style of investing, right? So even if you have the conviction to jump in at that time, how are you convincing your equity? And you said from the beginning of the show that that's one of the most important, you know, the critical piece to the equation. But even in some cases with challenges with capital flows on the debt side as well. So how, when you feel there's a time to strike, how are you able to get others to join in when capital flows across the board may be severely impaired?

One just has to cover the market of equity that's interested in what you're doing because it could be great equity, but not necessarily focused on, say, an adaptive reuse conversion in Manhattan. It might be equity that's more focused on a value add proposition. And once you can identify that, that capital and the same capital in another market moment could very well be interested in what they're not interested in today, because that comes back to capital reallocating geographically, product type exposure in certain areas and so on. Once you identify what capital is interested in what you're presenting, it's about your experience, about your ability to perform. It's reputational. We all live with our reputations and it's important to preserve those and to Continue to build that asset, because reputation is very much a key asset. And, you know, you hope you convince folks to make the plunge, so to speak. Because when markets are down, as they are today in real estate, obviously stressed by a prolonged period of high interest rates, with a lack of certainty of them coming down quickly, and a lot that has clearly stressed markets. So it is a great opportunity, but it's also generally a stressful business environment for the moment. And that is the exact opposite of what one wants, because this is really the time to buy. But capital smart and sees value and has made money before, not necessarily just with me, but in markets where they've done this and they'll be comfortable enough to look at good projects and understand the metrics we often get in early in markets. A lot of what I've built has been a stepping stone for others to realize that markets are underserved. For example, a beautiful boutique building I built on 79th street between Madison and 5th Avenue is a sliver building. Those are very challenging, by the way, but you can make them work. There hadn't been a new construction on between Madison and 5th, between 62nd or 63rd and 96th street in over 25 years. Brand new construction, not renovation. So we built that. And on the heels of that, the market understood that this market was underserved. And you've now seen quite a lot of activity up and down Madison Avenue. I punctuated that with 92nd street in the Wales. But there's all kinds of new construction now on Madison, and it. And it gravitated to the east down 79th Street. And in many ways, that building that we built was the precursor to the market understanding that this was an underserved market that had high demand and proved out to be correct.

So I have to ask, what was the width end of that building and what was the height? And I'm sure there was some, certainly some significant engineering that needed to take place to accomplish that.

Right? Sliver buildings are complicated, a little less so now, because in many cases new zoning prevents them, and in other cases, they've been given a little bit more flexibility. But it was 27ft, okay? The sliver building allows you, at least at that time in that area, to build up to the highest point of the adjacent tangential building. But you really have to match it. And sometimes if there are setbacks, you have to kind of follow the setback, not, not inch by inch, but in terms of overall height and their metrics that suggest how large or small your footprint can be as you go higher So a little, a little complicated, but not difficult to navigate once. Once you know the rules.

So what was that, 10, 15 stories or 15 stories?

Fifteen stories.

Right. And did you need landmarks approval? I think on Wales. Okay, so that one was not.

Wales was not a landmark building. But the historic district of Madison Avenue is 79th street as it was, just the way the lines were drawn was not a landmark district. And certainly the building we bought, which was a four story showroom mercantile building, was not a landmark.

I'm sure you still look to try to have the building fit into the, you know, the fabric of the. The neighborhood. So I mean, any. What's typically your process for choosing the right architect, the right vision for the development?

I think it's important to take into consideration that the building fits into the neighborhood. But I really think the main consideration is what the market wants. Stylistically, it's not always a glass box, and that neighborhood didn't want a glass box. And if you look at what's been built successfully up and down Madison, as I say further east on 79th, there really aren't any glass boxes because people want something that is more in step with what that neighborhood is, and that's why they want to be in that neighborhood. Also, glass boxes don't afford you a lot of wall space. And they're, you know, from an interior design standpoint, wall space, you know, gives you an opportunity to hang mirrors and art and such, and glass boxes don't. Now, there are other parts of the city and the world where glass box is exactly what you want because that's what the market wants. So my decision starts with who is my buyer or my tenant? What do they want? And that threads its way through, you know, what we actually develop, the finishes, the type of stone, the type of flooring. I mean, internally, I've used this expression for many, many years. I know what buyers and renters want. It's everything. The real question is what they'll pay for, right? And then our skill set is how do we allocate money to what they'll pay for so that we can create and deliver the highest level product without spending as much maybe as somebody else who is just spending a lot of money on say, a particular finish, whereas I can develop that same finish being much more budget conscious with very similar materials. That sometimes is a function of design as opposed to just name brand spend money. It almost comes back to a jewelry analogy where stones sell for X, they're a commodity, but once you have a designed piece of jewelry, it sells for X. Plus the quality of design and the presentation and how the market likes it. We're very much about that.

Wonderful. That is a fantastic way to explain the development, aesthetic and design process. So, Matthew, as we start to wind down so much of your story, whether it was when to actually commit to this massive rezoning and development, whether the time to strike, as you said, buying into the curve. So for our listeners, how do they. Because by definition, it would sound like to me that you're a contrarian as far as when a lot of investors, if it's a challenging time in the market, by definition, that means that a lot of them are sitting on the sidelines waiting. So that begs the question, what gives you the conviction? Or how do you know that it is the right time to jump in as opposed to the proverbial catch the falling knife? Because what I would imagine you don't want to do is try to buy when you think you're getting the benefit of a bargain, and then the market continues to drop. So how do you know when the time is to strike?

You don't know. I always say I have a crystal ball, but it's cloudy. And to that extent it's just, it's judgment. One doesn't want to go in too early in a perfect world, nor too late. So it's not as contrarian as it is countercyclical, because the cyclical side means that this pendulum, this curve is moving. And if I feel it's moving in the upward direction, I feel as if I'm not getting in too early. If I feel it's flat, we're still going down. I have to think about it. It still may be the right time. An example, I bought an office building ahead of the curve on 25th street at Park Avenue south that we converted into beautiful condimentary residence. I was very much ahead of this trend that we're now in now, which is an office to resi conversion, whether it be rental or condominium. But I felt at the time that I was early in that market moment, but I didn't feel that the city was going to lose its inertia, its gravitas. And I made the plunge, if you will. I made that deal and very successful. We're in the market now selling very active interest because I did get in before the market really turned up with all this activity to your point, before supply, I'm not really competing with any new supply. There will be more supply going forward. So, you know, that's a very good example of, you know, how I judge the timing, Sixth Avenue was a bit different. Sixth Avenue took a very long time to rezone. Besides assembling these pieces, multiple block fronts, piece by piece. When we first started, and I say we, because my father started this process and really was the original energy that put it on at least a path, rocky and always changing direction for many, many years. But it was a path to complete this tremendous job. We asked the city to rezone, give a variance for our property. It wasn't altruistic. We weren't trying to rezone the entire city. We just wanted to make some money. And the city said no. But they were interested in creating what became, as we talked before, contextual zone. And it took a very long time to get that passed. We didn't have as much opposition as I like to say. We had a lot of competing opinions, but no one was actually fundamentally against it as much as it encompassed such a large swath of land. Even the environmental impact study, because of the density and the length of the avenue and the 100 or 200ft off the avenue that the zoning was contemplating, was a massive radius to do an environmental impact study, which in of itself is a very in depth, detailed process. And we paid for everything out of pocket. The city didn't contribute it. It is, to my knowledge, certainly was at the time. I think it still is the largest privately led rezoning ever in Manhattan. And I do believe that includes the boroughs as well. We went through as we are today. There's always political moments. And in a city like this, one has to assess the political environment too. I often look at that as a subset. It drives my investment decision less than you might think, in the sense that I really think the economics and the vision and the timing has more to do with the success of the projects. But when I went through the rezoning, for those who are old enough to recall, the city used to be run by a Board of Estimate and a mayor. So you effectively were proposing changes such as rezoning. Is this at the higher level of government? And their approval process dictated success or failure. In the mid-1990s, the Board of Estimate was basically overturned by court decision. It was decided that the city would be run by the equivalent of a Congress, and that is our City Council. So we effectively had to start over with really a grassroots approach to garnering support for what became the Adele rezoning. And in concert with that, the mayor's office would approve. But it really was community board process, whereas before it started with Board of estimate and the mayor. So it was an interesting process. It elongated the process. So I would say if it wasn't for the fact that we were very proud, prudent to always keep our properties, albeit with cancellation and demolition clauses, fully occupied, so we had a sustainable income to weather the timeframe, we wouldn't be able to get to the finish line. But fortunately we had that vision as well and we were able to.

Well, it sounds like conviction sometimes happens at a specific moment in time, but it also takes the, you know, the patience and the flexibility to figure out and obviously as things change as well, as you mentioned. So this has been tremendous. Thank you so much. And it's a closing question for those listening, whether they're in school now or maybe they've been investing with existing product and they want to try their hand, they want to get into development. What would you say to that person? Is it the kind of thing where go work with a big developer to actually see the whole process and kind of learn on the job, so to speak? Or is it the kind of thing, if you said, well, you know, before, obviously you go build 100 unit building, maybe start with a 10 unit building, what would you say to that person who aspires to be a developer as well? How would you say they start?

To be a developer, you need to understand the whole range of activity. It starts with identifying location, it starts with having a sense of what you want to do with that physical property, how long it's going to take, its engineering, its architecture, its finance, debt and equity. It's a tremendous amount of marketing and understanding of who your customer is and how you relate to your customer. So if you think about it, the only way to get all of that experience in a short period of time is to work for a developer where you can see the different aspects of the development as opposed to being one department. I think for most though, getting involved with a company even such as yours, because you see so many deals and although one could be an amazing broker and never really gravitate to the development side of the world, but companies like yours, or consulting companies, to the extent that you're seeing all these type of deals and you, you have a sense of how they make money because, because your presentations are trying to convince a buyer that this is worth buying is another interesting way to kind of understand how to be a developer because you do see the money coming in, you understand how it's financed and so on. So that would be another more accessible way for people to not just get into the business generally, unless they want to be a broker. But also to get a sense of what goes into the development activities other than working for a developer per se.

Well again this was wonderful and just so grateful for your sharing your story and just incredible advice and takeaways. So I want to thank you all for joining and as always you can find the show notes on this@james nelson.com I built this show for you. That's also how you can find out how to connect with Matthew and his new website that he'll be rolling out. So you'll have that. And you know I've been saying this lately, but I think the best thing that you can do, and I do this all the time, is.

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Some incredible wisdom here and some advice. Share this with a friend who you think would benefit from this. So I do this all the time. I'll forward a podcast episode. It's a great way to spread the word and what we're looking to do here. So we greatly appreciate that. And until next week, thank you again for joining.