Renewals with Brian Steinwurtzel

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

This podcast is for educational purposes only and should not be relied upon for investment decisions. The opinions expressed are those of the guests and not their companies. Listeners should not act upon the information without first seeking appropriate advice from an accountant, lawyer or other professional.

Welcome to episode number 181 of the Insider's Edge to Real Estate Investing. This is your host, James Nelson. Wow. I think I hesitated a little bit on that. You would think by now I know the name of the show because it's also the name of my book. So yes, the Insider's Edge to Real Estate Investing. And why don't I throw the subtitle in while we're at it? It's how you're going to gain the advantage to outperform the market. That's what we're talking about in the show. That is why I love real estate investing because you can gain the advantage and today's guest has just been doing that for quite some time in his career. Brian Steinwerzel is a great and I am such an admirer of what he's done and how he has taken GFP Real Estate to the next level. Recently heard him speak at the Young Men's and Women's Real Estate Association. He talked about the largest office to residential conversion that is going on right now in the country at 25 Broad Street. But you're gonna hear a lot more than just that. You're gonna hear about the value of listening to tenants and working with not for profits. Brian Steinwertzel is the co CEO and principal of GFP Real Estate, a vertically integrated owner, operator, property manager and developer of commercial real estate in the New York Tri State region. Helmed by three generations of family members over six decades, GFP's portfolio includes some of New York City's most iconic real estate assets including the Flatiron Building and the Film Center. If I'm not mistaken, I think it adds up to over 8 million square feet. And if you did not hear my interview with Jeff Goral, which I entitled the Value of a Handshake, Jeff is a legendary deal maker, so Brian certainly learned from the best. You're going to want to go back and listen to that show. But today you're going to be hearing about how to to build relationships to secure long term leases along with insight on converting office space to residential. And Brian mentions that volunteering and contributing to improve the neighborhood can also increase the value of the real estate in those locations. So as always you can go to james nelson.com I built that site for you. In addition to the white papers, you can sign up for the monthly newsletter, but you also get the podcast Show Notes. That's where you can find Brian's contact information. You can connect with him on LinkedIn. You can also find ways to connect with me as well. So we're gonna have a brief word from our sponsor and we'll get right into that interview with Brian Steinwerzel.

A Different Approach to Putting our Clients first Avis and Young's Tri State Investment Sales Group sells multifamily office, retail, development and specialty sales throughout the New York metro area. As experienced thought leaders in their industry, our 35 member group is available to help you make informed investment decisions by advising you on your current holdings or identifying new opportunities in the marketplace. Our one unified team is built on an industry unique platform which promotes unparalleled collaboration and teamwork. We share core values of hard work, integrity and expertise. We put our clients first providing tailor made strategies to achieve superior results. Please Visit us at aytristateinvestmentsales.com and follow us on Twitter, LinkedIn and Instagram amesnelsonnyc to learn more.

All right, welcome everyone. Thrilled to have with us today my friend Brian Steinwerzel who is co CEO and principal of GFP Real Estate. Brian, welcome.

Thanks for having me.

Thanks so much for coming on the show. We've known each other a long time and we were just speaking before how helpful your presentation was to YMW rea, an organization that I've been involved with on Office to Resi Conversions. So I know we're gonna get a little bit into that today. I know you are in the midst of the largest residential conversion right now in the US So that that's pretty impressive amongst other things. But for our audience, why don't you just quick give them an overview on gfp, the company as it is today holdings, just so they can get a sense.

Sure, yeah, my pleasure. Thanks for having me. So GFP is a family business. It's the girl family. My grandfather was Aaron Goral. He had three kids, my mom Barbara, his other daughter Jane and then Jeff Corral. Jeff is our patriarch, our chairman and you know, one of the most active people in the, in the industry. GFP owns roughly 13 million square feet of office. We run another 5 or 6 million for other partners of ours. We're extremely active in the small and medium sized business market. And then like you said, we have a development arm, which is really my primary responsibility that is agnostic towards use. So we've built things like New York City Health and Hospitals headquarters. We did David Geffen hall at Lincoln Center. We have this office residential conversion project we're working on. We built dorm for the new school, a regular school for an organization called FedCap. A lot of different types of projects.

Awesome. And for our listeners who have not heard my interview with Jeff Goral, you should go back and give it a listen. I believe the title of the show was the Value of a Handshake. And Jeff tells this incredible story about how he shook hands very early on when he was a buyer. Even though a higher offer came along, the seller upheld that deal. And so he's always moving forward, operated with that mentality. Brian, I know that out of school, if I'm not mistaken, I think you grew up in Maryland and maybe real estate was not immediately on the radar. So maybe talk a little bit for our audience about starting off in another field and then the decision to ultimately get into real estate.

Yeah, so I grew up in dc. I was like a Gen X, if you will, child of the late 80s, early 90s. Real estate was not a good place to be at that time. Doesn't feel that dissimilar to what's happening today. And you know, technology was really a big thing. And so I spent a lot of my early part of my career, I guess, listening to family battles over real estate and saying I don't want to do that. And I was very much more into technology. I went to college, I studied engineering and finance. I ended up working for PricewaterhouseCoopers in their tech consulting group for two years out of school. And then I ended up working for a fintech company in New York City after that. And I was actually having a great time with technology and finance until 9 11. Unfortunately, the startup I was working for was invested. Primary investor was Goldman Sachs. They pulled our financing and you know, like a lot of us were trying to figure out what to do. And I ended up going to business school. While I was in business school, I needed some money so I asked my uncle for a job and he kindly gave me a job as asset manager of a building in Times Square, which we've owned since the early 1980s. With the Benenson family. And I sort of fell in love with the, with the bricks and then fell in love with the industry. And I ended up studying real estate at Columbia. And when I got done with Columbia, I went back to my uncle and said, hey, I think I want to do this full time. He said, well, I think we could use you. What do you want to get paid? I told him what I wanted to get paid, what other graduates were getting paid. And he told me, we don't pay people that much money. So we came to a different kind of arrangement which was much more incentive based. And that was sort of the beginning of the story, the real estate story.

Love it. So with your background in technology and I don't know how much you think about it today, and as opposed maybe some of our listeners, many are in college and they're thinking, do they jump into real estate, do they jump into tech? And maybe it doesn't have to be a binary decision. I mean, it seems those worlds are certainly coming together. And so how much do you think about the role of technology in real estate today, particularly AI, which seems to be on the top of everyone's mind?

It feels like it's in its infancy, really. I think it's good to have that background regardless. It's just the way that we live and work and have our lives today. So I think you have to understand it. I think my background really gave me the understanding of how the software products are put together, how they're built. It's clearly been 20 years since I did that, but the framework for how they create these things is similar. And so it helps me when someone's pitching a different type of product or when we have a platform that we're considering. It sort of helps to understand, well, this is how the architecture is structured and where the benefits or pitfalls might, might lie. But yeah, I think you have to understand the technology, believe it or not, even as a quote unquote old line real estate company, you know, we have a significant amount of technology not only in the buildings, but just how we do our reporting and we could not run the buildings without it.

Yeah, it's really interesting to have that perspective. I think just for everyone listening, to be open to it. I mean, again, I've been listening to countless podcasts, reading articles. I took a course at mit. I didn't actually go there in person, online. Hopefully it was mit. They said it was on AI, but it really is fascinating to think what's out there and the possibilities. So getting into the business and kind of making that jump, you know, going from tech to really asset management, the really hands on part of the business. What was it that attracted you or did you enjoy most about the job?

A lot of different things. First job I had was primarily on leasing, as a leasing agent of a building and as an asset manager. So my job was to deal with the tenants, to learn a little about their business, see how we could partner with them. The success of our business is really built on renewals. We want to not only have a tenant that comes into our portfolio, but we want to help their business continue to grow and be successful so that when their lease is up, they decide to stay with us. Pre pandemic, our renewal rate was in the 90% range, which is really extraordinary. And like I said, that's one of the keys to success for us. So I did a lot of that work. I understood a lot more about just these individual people's lives and their businesses. What made them choose us, what made them stay with us. And then the second part on the asset management side was seeing what a building could be. These buildings have had a lot of different lives. The average age of a building in our portfolio is probably around 100 years old now. What it was built for originally is probably not what it's being used for today. And so a big part of the role was, was trying to make sure these assets remain best in class. I think we've done a good job as a company, as a family, of keeping our buildings to be the best choice amongst our peers. And so at least in that initial asset, and certainly in all the other ones I've worked on, a big part of the job is making sure we stay at the forefront of what these buildings can be.

So I want to go back to what you were saying about partnering with your tenants. Most would think, okay, well, there's that contractual relationship, they're paying you rent. But there is that inherent friction, right, where they're trying to get the best opportunity. Especially in a market like this, they might be out looking for other options. So I really, if you could dig a little bit deeper into the relationships and, and what does that mean? And maybe at this point you could talk a little bit about the work that you do with not for Profits also, because if I'm not mistaken, you are probably the largest owner here in New York with not for profit tenants. I know that's really part of your mission. But. But talk about how you really get to know and partner with these.

So the way that we've structured our Business is that each building has an asset manager and a property manager. So the asset manager's job is primarily revenue focused, but their job is really to be the best customer service representative for these tenants. So each of these tenants, in order to be successful, they need them and their individual employees to be happy. Whatever that means is gonna be different to each of them. Most of these tenants biggest point of negotiation isn't about rent. It's really about the space that they're in. It's about the feeling that their employees have when they get to the building. It's about how long their commute is. It's about how they're treated when there is a problem. And there always will be a problem, unfortunately. So as long as we're responding to that, as long as we're understanding that, as long as we're catering to it, I think we're going to be successful. So, for example, our asset management property management team is holding a tenant's hand from the time that they show up for the first space tour, hopefully for the rest of the life of the business. And what does that mean? It means that we're acting. A lot of times we're actually the real estate department for these companies. These businesses average roughly 5,000 square feet. They have usually a principal or two or three, and then they're employees. So they don't have a lot of middle management that gets to handle things like fit outs or insurance issues or electric bills and understanding them or things along those lines.

I also want to talk a little bit about from your role as asset manager, at what point did you start thinking about, okay, I've got visions on how to reposition these properties. And again, without a real estate background, architecture, how did you kind of learn the possibilities? And then at what point did you start gravitating to a new role within the company?

Well, I was very fortunate that I got to watch my uncle Jeff and my cousin Eric, who had already been in the process of transforming a lot of our existing manufacturing buildings to office. I got to watch firsthand a significant number of successful projects and see, you know, what made them successful. One thing I did learn that I try to do to this day is I want everyone in the room to be smarter than me, to be more experienced than me, and to basically be people that all I have to do is sit in the room and agree with what they're saying. And I still want to be in the room so that in case they say something or go in a direction that I don't agree with, that we can pivot a little bit. But what has made us successful is by surrounding ourselves with really talented employees, really talented consultants, and with giving them a lot of leeway to make mistakes, to take risk and to try to use their imagination to sort of create what people are going to want versus what they want today.

Now that makes a ton of sense. And I know right up in the front of my book I talk about the importance of having the right team of specialists. This is a business about the people. So it does beg the question, how do you find the right people? People? And if they're experts at something you don't know, how do you know that in fact they are the expert?

I don't know if you really know until you're, you're, you've done a deal or you're, you've got a few deals with people, whether they're the, the right person. We've been very fortunate with our team. You know, pretty much everyone that I've worked with at GFP has really stayed with gfp. Rarely does anyone ever leave unless they're retiring or some. They're moving to a different state. Maybe they get just a dream job that we can't quite match. But we've been very fortunate with the team. But a lot of it comes down to meeting people through other projects and then when they are looking for a change in career, getting approached by them very often is how they end up with us and then us seeing what they can bring and then changing the company to basically accommodate those talents.

And can you talk a little bit about the longevity that you're having there with your employees? How do you keep people around for that long?

I, I mean, I think a lot of it, it probably started with my grandfather. It certainly has been passed through. Jeff, Eric and I tried very hard to accomplish this, but it's, it's really just being nice. It's listening to people, it's trying to understand why they're happy or upset and to make changes if, if they're needed. It's just being consistent with them is telling them what we are planning to do and then actually following through and when things are difficult, being honest that they are and what we, what we see, what we're going to do to help them through it and, and when they're good, we're going to reward them and, and help them participate, you know, with us in that reward.

So you see a lot of promotion from within as well?

We try. I mean, people, if you're, look, if you're going to be with us for that long of a period of time, you're not going to be in that same job. You're probably going to have many, wear many different hats and, and hopefully grow. You know, I think what, what ends up happening with a lot, let's say our asset managers, property managers, even people on our development team is they reach a level where they're, they have a lot of autonomy to really run either portions of our portfolio or our projects, you know, with, with us still, of course, being part of it and being a. More of a resource for them, but they're almost running their own, like individual companies.

So after asset management, did you go to the acquisition side or how did, how did your role evolve to where it is today?

It's, it's a good. I, you know, so once, once you sort of see within your existing portfolio how we've improved buildings and been able to increase the profitability by that improvement, you know, you want to try to do it again. And I was fortunate that the family gave me leeway and opportunity, just like we try to give our employees to try that out on several projects. And you know, with each project, the level of complication increased and the level of success fortunately increased with it. That being said, part of our business, you sort of want to make your own name and you want to continue to grow the portfolio. And so I was fortunate enough to do a deal in 2007, which was not the best timing, but we, I've been trying to find buildings to buy in, in Manhattan and just the level of pricing had just gone up and up and up. At that time in the market was right before the great financial crisis. And this is the time where, you know, there was these no DOC loans and, you know, everyone could borrow anything they wanted. And we were disciplined enough not to really buy anything during that period of time. But it was, it was frustrating. I did find one building in Connecticut that was mostly leased by the state and by Yale University. The person who owned it was a very entrepreneurial guy, but had run into some legal troubles and had to sell it. And so we were, I was fortunate to be able to buy it, get the backing of the family, and we were able to do one of our first institutional deals in a long time. We bought in Reef, which is the real estate arm for Deutsche bank, to do that deal. And I learned, I learned a lot from that, that transaction.

So up to this point, the family had been pretty much exclusively office owners here in New York. So how did you get up to speed on the Connecticut market? How did you get institutional equity up to speed that you had the knowledge and the expertise to execute on that?

Well, at the time we were part of Newmark, so we owned Newmark. We had a large Connecticut office. We were, you know, the, the Newmark Connecticut team was extremely experienced and knew, knew the market. Well. New Haven was, it's an interesting market because even though you would think that there's a lot of parking in New Haven, there's actually not. And this asset happened to have over 1000 car parking like lot right in front of the building. And so we, we knew that by explaining to a tenant that if you could move to our building versus one that was downtown, you'd in effect be giving each employee a raise. And depending on how much you know where they were in the stack, that raise could be as much as 5%. So if you could just move one building within a mile away and give everyone a 5% raise just by doing it, and you take no money out of your pocket, it was a pretty compelling thing to do. Plus, the other side of it is, and we continue to try to do this is we're well capitalized. So in that project we put up all the money for the TI's and improvements for those tenants. So all they had to do was sign, sign the lease. So they put up no money, got brand new space, gave all their employees a raise and their quality of life was significantly better.

So maybe talk a little bit about the brokerage business and then the principal business, which at this point, if I'm not mistaken, is separately owned, separate. Well, Newmark is publicly traded, so but maybe talk about how the brokerage and the principal business grew alongside each other. The relationship between them was there kind of a wall in between them when it came to finding service providers, maybe just because I'm sure a lot of our listeners, maybe they are coming from the brokerage world, investing world, and how you can make that work.

So I can give you my take on it, but I was very young when I worked for Newmark. There's a lot of other people who can give you a better answer. My take on it was the brokers are some of the lifeblood of the real estate business. As an office landlord, you need them to transact. They are your salespeople. I think the same way we think about our employees, we certainly as owners thought about the brokers and trying to, you know, reward them, help them make it easy to make deals. And you know, Jeff Corral has, I think, been one of those people his entire career. I think that it's interesting. I think it was almost harder for us as a family to do transactions within Newmark because most of the Newmark brokers probably didn't want to think that they were currying favor. Right. So they're the third party clients. They wanted to almost treat better than us. Treat better is the wrong way to say it. But. But they would almost like try to bring deals to those groups before us because they wanted to make sure that there wasn't a perceived conflict. You know, now look, we always made it easy to make deals. So we did tons of work within, you know, within the, the firm. I don't know if it was the, the healthiest of relationships as things got more sophisticated.

Appreciate you sharing that. Maybe talk about your first major investment outside the office arena and how are you able to get the family comfortable with going into a different or maybe development.

So the family's done, they had done a number of other types of projects over time. So I'm not. What I did was not the first. My uncle who you interviewed has done these casino projects. We own like four different projects of that nature. In those projects he's built hotels and a small mall. You know, we certainly own a lot of other residential buildings, but not, not of scale or size. For me, when we started the development side of the business, it was more about the talent that we brought in and being able to demonstrate that we were capable of doing these projects. So for example, one of them is where we built a dorm for the new school. That was a transaction where we basically had to buy a building on spec and bring capital in to build it. And so we, we convinced the family that it was worthwhile doing because we had the team to do it. And also the relationships back to the new school and the developer that ended up building it for us.

And then talk about the decision to raise outside capital. So for I would imagine for the first couple decades it was the definition of friends and family. Right. So the idea then to go to outside capital and then also the different timelines that comes with. So with the family have properties that you've owned for decades, whereas if you have an institutional partner, oftentimes they're looking for a capital event within a fine timeline.

Yeah, I mean, look, my grandfather was a depression era kid. He worked his way up. He had some help from his uncles and some of his clients. Eventually. I mean his game was to a large extent syndicating deals and trying to net lease properties versus buy them, which almost has its own implied financing to it. Jeff, I Think sort of narrowed our investors to this closer knit friends and family group. And when Eric and I started to acquire deals, we did a lot of smaller deals. And one of the deals we bought from you where we wanted to prove to that friends and family group that they could trust us as the next generation to do, you know, eventually do larger deals. And so we did, I think, four smaller deals. Smaller deals, meaning we're acquiring a building for somewhere between 10 and $20 million, probably putting in 5 to $10 million in some sort of renovate renovation, leasing it up and then putting stabilized financing and having a cash flow. So I think we spent a lot of time thinking about how to prove that they could trust us not only for these deals but for the bigger ones to come.

And what would you say your overarching investment thesis is and what do you really look for in a great opportunity?

We're really value driven, so we're trying to find assets that are inexpensive where there's not a lot of competition at the time of acquisition. So we're driving price. But we have a vision, we know what it's going to be. And usually the vision entails turning it into something else where there's significant demand so that we know once that renovation is complete, there are a lot of customers that will want that product. It's a risk at all times. Like for example, you mentioned this conversion project. We know that we have, you know, a robust residential demand for great apartments. You know, the one that we're going to build is significantly amenitized with over 100,000 square feet of amenities. So it's a risk to buy the asset and what it looks like. But we have a team that we know can deliver on it. And we believe that once we're finished, there will be significant amount of customers that will want to rent it.

And I definitely want to get more into that project. I have a couple of questions on that, but I just want to dig a little bit deeper on something that you said, which is you want to buy assets where there's not a lot of competition. Do you mean by that you're looking for off market deals that no one else knows about or are you looking the profile of deal that you're looking for doesn't appeal to the average investor or both.

It's. It's a combination of a lot of different things and it could be different at different times, but generally it's something that's probably out of favor right now. Like the larger the deal you're looking at, the less potential buyers There are so that we're sort of putting it through like a, you know, like a sieve, if you will. And each one we're eliminating more and more competition until we're finding assets where maybe it's us and one other us and two others, where were the potential buyers. But you know, today people are very risk averse. The institutional equity is mostly on the sidelines outside of very high end projects. And you know, there's very little lending market as well. So that already cuts down a significant amount of our competition. And then if you're adding development risk to it, you're eliminating a huge other portion of it. So what's left are projects where if someone has to sell, we were able to drive a very good bargain, what we think is a very good bargain, and then hopefully execute on that renovation and then hopefully arrive at a time where the capital markets are better and it gets repriced in a different way.

I know two of the assets that we sold, you both had long term leases. You could kind of put them into the covered land, play bucket. So how much are you thinking about the future potential of an asset? In one of the cases you bought an actual noodle factory where the lease I think had 13 years left the term, but the rent was only a quarter of market. So yeah, it's clearly a waiting game to get there. But are you also thinking about what does that neighborhood look like in 10 years?

Sure, it's interesting. So the noodle factory, that lease actually did come up eventually and we ended up renewing the tenant and we're really happy with them there. That company provides like the noodles and dumplings for like most of the east coast out of that building, which is really quite extraordinary, the operation they have going on there. Yeah, at the time we bought it, Bushwick was an up and coming neighborhood. There was a ton of new potential projects. Not many of them had really gotten off the ground. I think eventually Netflix ended up moving. Just a block or two away, a large area was rezoned for residential and Brooklyn has become just more and more vibrant. So it didn't seem like that risky of a bet to us. We knew it was a coupon clipper for a while, but we also like the tenant. And the amount of equipment and infrastructure that they had invested seemed to made it unlikely that they would want to leave, especially if we treated them well. And that's sort of what came to fruition. But we also knew that if they didn't stay that the neighborhood would hopefully have improved, which it did. And there'd be other alternative uses which had a lot of demand for them. The other one you sold us was one in Long Island City. It was right at the corner 44th Drive and 11th, 11th street, which is like sort of two of the main arteries in Long Island City. I mean it's, it's, there's an unbelievable amount of foot traffic and street traffic right there. You know, it seemed that that neighborhood was definitely going to be better when that lease came due. The pandemic had a unfortunate effect on the master tenants business. But we were able to move them to a different building and subsequently we built a school on that property for a not for profit. And they do, they built a trade school. So good endings to both those, those ones. But, but I think we felt comfortable because we knew the neighborhoods were improving.

I'm sure there's a lot of people listening right now thinking about, okay, what's the next best neighborhood? Where, how do I find in five years, 10 years the neighborhood that's going to pop? So is it just a gut feeling? Are you getting really into the demographics and you're studying trends? I mean, how much of this is just your gut and knowing what's going on and actually following trends?

It's both. I joke around so with my uncle. So we have very sophisticated models that do include an economic analysis of the surrounding area. And they're as sophisticated as probably any because a lot of our, especially today, a lot of our equity and certainly our debt is from institutions which require that level of analysis at the same time, every deal that we do. Then I walk my uncle through, he takes out a pad and paper with a pen and he just writes down like on a back, basically back of an envelope analysis. And they usually come out to about the same, same answer. So we still do all of it, but it really is a gut instinct and it's a lot of years of experience that sort of go into that end decision.

So let's talk about office to resi conversions. You know, on one hand, let's take New York. There's at this point, call it 20% availability of office space, so called 100 million square feet available. Meanwhile, we have our mayor, the real estate board in New York saying that we need 530,000 new housing units to keep up to supply. So it would seem very obvious that you take all this defunct office and you convert it to residential. But as you have told us, it is certainly a lot easier said than done. So maybe talk a little bit about the complexity and thinking about what makes for a Good conversion.

It's a really good question. It does feel like all the ingredients are there to have successful projects. Again, for me, the key to our success is by having very good partners, very good consultants on, on 25 water, which, which is not our first office residential project, but it's. It is my first office residential project, but we partnered with, with Nathan Berman, who's one of the smartest, if not the smartest and most experienced person in converting offices. We also are using Cetra Ruddy, who have done just probably dozens of projects. So we're starting with probably like the platinum team, if you will, to get it done. To me, there's three keys to a successful office residential project. One is to know that it's as of right. So interestingly enough, as we know from a lot of what the mayor's office has been talking about and a lot of others have been talking about, is that a significant swath of New York City, especially Manhattan, is actually not zoned for residential. So even if you had a great candidate, you would not be able to convert it. If it is zoned, it is likely that it is stuck at this 12 FAR cap. So then only a portion of the building would actually be able to be converted. Having multiple uses in a building can be done. It just makes it even more complex and difficult. So anyway, having it as of right is sort of one, you know, sort of one criteria. Second criteria for us is that we want it to be vacant or at least a path to vacancy. So if you have a project like let's say our portfolio, where our portfolio is probably 90% leased, you know, it's very difficult to convert a building where there's tons of tenants around you. And it's unlikely you would want to because if you have paying customers in your space, why would you get rid of them? So that's the second one. And then the third one is just is making it have the right basis and economic sense. So at 25 water, there's a significant amount of work it requires. In a new window wall. We are carving two light walls into the building. We're building ten stories on top. You know, the price that you're going to pay for a renovation of that magnitude is going to be lower than you would for a building that just needs to replace the windows, you know, demo the floors and build out a residential, residential fit out. So that sort of seesaw about price, you know, versus renovation costs is another very important factor.

How did you. And maybe it was the back of the envelope or maybe it was the Modeling. But it would seem to me, and this was an incredibly technical conversion. So this was the former AIG headquarters. It was basically.

This one was. Was JP Morgan and their predecessors. The AIG one that you refer to is actually one in which it's not zoned entirely as of. Right. So that. That building was more. Nathan Berman. You can ask Nathan.

Yeah, got it. Okay. But. But your project, I mean, again, you knew that this was going to be a pretty massive renovation, and your solution, interestingly, was to have two interior courtyards, which I thought was just so fascinating. But did you know that going into it, when you bid, how you were going to do this, or were you just buying this price per pound and saying, hey, even if we have to cut off the back half of the building, we can still make it work? How much of a leap of faith was that?

Every time you buy a building, it's a leap of faith. I'm sure when you invest in a company or you're investing in buying your home, doing anything where you're buying something, you're taking a leap of faith. And if you're going to buy a deal in New York City, you have to pay more than anyone else, which is what it is. There's very few. Like, off market doesn't really exist. It just means it's not broadly marketed, maybe. But there's certainly a very robust and vibrant and efficient market here in New York City. So when we're going to pay more than anyone else, we better have a vision and be pretty confident in it. So in this instance, this asset had been on and off the market for a number of years. I think this was the third time we had taken a look at it. We had developed a vision for it over time. It was very different from the first iteration to the one that we're doing now.

Meaning you spent a lot of time and money on diligence when you don't have the deal locked up. So maybe if we were in another city, you could tie something up with diligence and really study it. But here you're doing a lot of this work on spec.

Yeah. I mean, we have a very robust team that has a lot of experience, and we don't fully underwrite every deal, but the ones where, again, we think they meet the three for conversion, if they met all three criteria, if we think that there will be limited competition to buy it, then we will invest a lot of resources to do it. So this asset we had done, I think this is our third, really, our third go at trying to buy it and I think our vision had refined to the one that we're doing. We of course have made it even better since acquiring it. But you have to be pretty confident in what we're going to do before you buy it.

I guess lessons learned about, I mean, having the right team, but kind of the approach and the vision. So I know, for example, in that project you had more amenities, space than I've ever seen before. So maybe part of this was kind of identifying who your target tenant was, what was the product needed? Like how did you actually figure out the unit mix and what it wanted? And definitely point out, because my question was how much demand is there going to be for the interior courtyard units? And you say, well, those are the first ones that'll rent. So maybe talk out kind of how you thought about who were the tenants for this and how to position the building for it.

Sure. So we're partners with, with the Moynian group on the 17 battery complex, which is really three buildings that have mostly been converted to residential over the last 25 years. So we, we have some firsthand experience watching our partner do that and being along for the ride. When we own Newmark, we own a company called Newmark Construction, which is Michael, really Michael Siciliani's company and his former partner Larry Budabin. And they did most of the conversions there. They do most of the conversions for Nathan Berman as well. There's been a lot of firsthand experience that we've had with these partners and contractors to do this kind of work. As far as the unit mix, we spent a lot of time with the folks at Compass, with our partner Nathan, who owns a lot of these assets and just studying the market, which units are the most successful, why are they the most successful? And then trying to create a floor plan that has units that cater to that where you're, you're stacking the deck in your favor. But by stacking the deck in our favor, what we're really doing is giving the market what they want. And so most of the tenants down there, in our opinion, are looking for a very high quality asset on a least expensive price per month that they can pay. So if you can deliver a customer studio apartment that is 380 square feet instead of 420 square feet, they're probably willing to pay the exact same amount per month for the 380 square foot unit instead of the 420 square foot unit. So if you can create a 380 square foot unit instead, you're going to create more units overall and Therefore get more money overall while delivering what that customer wants.

And how much do you study the competition and pipeline? Because we might have people listening and they might be doing how many units is 25 water again?

So it's over 1300.

They might not be playing for a 1300 unit project, but maybe they're doing 10 or 20. And how much should they be thinking about what is the competitive product look like? You don't want to over improve, right? Over deliver. So how much do you think about the competitive landscape?

You know, a lot. I feel like our market is very collegial, actually. People are willing to share a lot of their experience. I mean, at the end of the day, I think you sort of get to the conclusion whether you're helpful or not to others. So we choose to be helpful. It doesn't mean we're handing them our playbook, but we're. If a friend calls and is asking about our experience, like with certain contractors or certain design teams or certain types of units that we built, I think we'll give them feedback and they do the same for us. So at the end of the day, we're trying to build a better community. If we build a better product, we get a better community, the neighborhood gets better, the rents go up anyway, the tenants are happier. You know, it really lifts everyone. So I don't think it's a zero sum game ever. But yeah, we're paying attention to our competitors at the same time, you know, we're trying to help them be successful too.

So talk a little bit more about that openness and maybe it's just your general style. And whenever we've worked on things together, it's just, it just feels really easy because we can have a conversation. There's no pretense. And I think for our listeners outside New York, you think of these New York developers as like sharp elbows and trying to get the every last penny. Is that just kind of a mindset? Is that the way you were taught in the business?

I think the way I've been taught for sure, by the family. I think we've always had that mindset. We're always part of the community. You mentioned earlier, we're very much a big part of the not for profit community. So we not only do we donate a lot of money, we donate a lot of space, but we also volunteer our time. Each of us is members of boards of not for Profits and probably multiple not for Profits. So we're, we're used to seeing how, you know, their businesses run and how they really have to work together with other organizations to really improve the neighborhood, improve the city, approve our world. So we try to keep the same mindset. Like I said, I do believe that as these neighborhoods get better, and we've seen this, you know, at least my entire life, and probably my grandfather's and I believe my uncles, that as these neighborhoods improve, our real estate improves. So having one great building and a bunch of junky ones around us won't really help us at all. But having, you know, a great neighborhood overall will help all of us. So I. I don't think it's that complicated, to be honest, you know, and I don't think it's a zero sum game.

A lot of the work you do is with partners. Talk about finding the right partner in the first place. And then what are ways that you work with your partners to make sure that they're successful and long term?

Sure. I think we're very honest and open. We expect the same back from them. We've been fortunate. I think almost every partner that I've come across has been. Has been that way. I mean, a lot of it is, like, I joke around my. My oldest. My oldest daughter, when she was a baby, my wife and her would sometimes get into these battles with. And I called her like. She was like our Chinese finger puppet, which is that the finger puppet where each person puts their finger into the thing, and if you pull really hard, you're both stuck. Whereas if you both give a little bit, then you get out of the trap. And, you know, it's sort of been a metaphor for me my whole life. Like, I mean, not my whole life, but certainly watching her do that and realizing that if I'm giving something, if I'm taking a risk, if I'm leaning in, I almost always. The person on the other side leans in as well. Whereas if I pull really hard or I try to negotiate very hard, they just pull back harder, and it doesn't help anyone.

So how do you find that partner in the first place? So because. And how do your partners usually reach out to them and invite them into the deal, vice versa, or. Can happen both ways.

I think the relationships that, you know, that Eric and Jeff, my Aunt Jane, have developed over a lot of time, you know, have been great. They've just been great partners. So we've been lucky to have them to start with. But with each person, we're probably trying out a little bit, you know, like a little bit, and eventually more and more, you know, even with institutional investors, I think they're. They're probably doing somewhat of the same where they're trying to, like, lean in a little bit and test us out and see if it works. And if we lean back in, then, you know, you sort of continue the conversation. If you don't, the conversation usually ends.

So with only a couple minutes left, the name of the show, the Insider's Edge to Real Estate Investing. What would that mean to you? And what would you say your insider's edge is?

You know, I think our. I think our edge, and you've heard us talking about it, is just the relationships that we've developed over a very long period of time and the trust that we've built with others and our ability to, you know, work collaboratively. It's not that complicated, honestly. And for me, again, that each employee that we have is a key to our success, that I want them to be smarter than me, more experienced than me, and I want to be able to listen to them. And I think the reason why I've been successful is because they've made me successful, not me making them successful. And so as long as I think we keep that in mind, I think we'll continue to be successful and we'll. We'll ride out the storm. And this is probably the most difficult market. This is the most difficult market I've ever seen. And it feels a lot like it rivals what I saw in my childhood when I said I didn't. Didn't want to work in the business.

Yeah. Hopefully we're headed in the right direction now and the worst is behind us. So, Brian, with that, what would your advice be to, you know, whether the college student, maybe someone listening to this right now, they haven't jumped into real estate yet, but they're interested. Where would you tell someone to start off today?

So everyone that comes to me and asks me about, like, what do I do? How do I start? Where should I go? Number one.

Now you can tell them to listen to this podcast episode.

Sure, sure. This is like the Everything I Need to Know in Life I Learned in Kindergarten podcast. But the what I tell them is like, try to meet as many people as you can. Write down who they are so you remember to reach out to them regularly. Just to tell them how you're doing. Ask them how they're doing eventually, especially if you're choosing people in the industry you want to work in, you'll hopefully develop a relationship with them and they will be successful because people do grow and become successful over time. And you'll have those relationships when. And they will have opportunities and those opportunities may find you as well. I believe in getting educated to go into college. I definitely believe in graduate school. I think there's a good opportunity once you've worked for a while to take a small break, go back to the academics and understanding of like the fundamentals of the business, but also gives you a chance to sort of reset yourself and decide whether you want to do that or do something completely different. And then afterwards, you know, just trying to give back. I think my board experience has led to a tremendous amount of opportunities. My not for profit board experience has led to a tremendous amount of opportunities. And I would volunteer often and with whatever free time that you do have outside of having a great social life and general life. And I think if you do all of those things and you keep in touch with all those people, that success will really find you. The one other thing is, whenever there's an opportunity that you feel like you, you're interested in, you want to do it is I would lean in and try. You know, very, very often for me, I was in my uncle's office just asking what he was working on, what I could do, what extra work I could, I could get to. And. And a lot of the opportunities that eventually found me were because I was asking over and over for that opportunity.

It's great advice. Brian. This was awesome. Thank you so much for sharing your story. I know our listeners are going to get a tremendous amount from this. They want to connect with you or find out more about your company. What's the best way to do that?

Sure. I think my email address is on our website, gfpre.com and reach out.

Great. All right, well, thank you again for joining us. Appreciate it.

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 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.