Sourcing With David Shorenstein

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This is Real Estate Investing Live from New York with James Nelson, the principal and head of Avis and Young's Tri State Investment Sales Group. In this program you'll learn about the world of commercial real estate and find.

Out why it's one of the largest.

Investment opportunities in New York and around the world. Now here is your host, James Nelson. Welcome to episode number 111. This is James Nelson, your host of Real Estate Investing Live from New York. I am the principal and head of Tri State Investment Sales at Avison Young. Thank you, thank you, thank you as always for downloading this podcast, for sharing it with your friends. We have well surpassed the 250,000 download total and so that's really thanks to you and your loyalty and it's been a lot of fun. I've also learned a ton myself as we've, we've gone along. So for today's show we've got another incredible guest with us. If you didn't hear last week's show with Robert Ravana, you're going to definitely want to go back and give that a listen. But for today we've got David Shorenstein who is the co founder of Hildreth Real Estate Advisors. David has over 15 years of real estate experience. Previously he had co founded Silver Shore Properties with a portfolio that he amassed of 250 properties. Before that he was a broker as well. So he's got that great perspective. And many of our listeners I know are brokers themselves and you might be thinking about how to get into real estate investing and I know you're going to learn a ton from this episode. I named it Sourcing because I've met a lot of investors over the years and I got to say David is a machine. The way that he is able to find incredible opportunities, he really has this down to a science certainly. And I'm sure a lot of this comes from his broker days of going out and canvassing and reaching out direct. And David is able to find find many opportunities directly through owners. So you're going to want to listen to learn about how to go about that, ranging from not only reaching out and making calls, but also direct letter writing campaigns. So I know you're going to get a ton out of this episode. So we're going to get to this interview in just a minute. Before we do this, I'd just like to remind you if you have not already, please make sure and subscribe and leave your comments to the show. That's what spreads the word and helps others find the show. And if you haven't, also please connect with me on James Nelson NYC. On Instagram and LinkedIn we put out a lot of useful content to help you become the most successful investor possible. And last but not least, make sure and check out james nelson.com I built this site for you to give you the inside edge to real estate investing. Not only can you find this podcast as well as all the others with past show notes, but you can find an exclusive video series that you can sign up for as well as some key terms that you might want to see and learn about some of the white papers that I've written and so would really appreciate if you checked out that as well and join my mailing list there. So with that we're going to have a brief word from our sponsor and we'll get into that interview with David Shorenstein.

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

And now it's my pleasure to introduce my good friend David Shorenstein who is co founder of Hildreth and since 2018 Hildreth has acquired acquired 40 properties, at least 40 properties in the New York metro area with a value over 150 million. As part of his New York City Fund and as well as his Opportunity Zone Fund, David brings over 15 years of real estate experience to his position at HREA. Previously he co founded Silver Shore Properties in 2010 and successfully assembled and exited a New York City real estate portfolio with a value in in excess of $300 million for over 250 properties. Silver Shore's portfolio consisted of properties throughout Manhattan, Brooklyn and Queens with a focus on acquiring and improving multifamily industrial, retail and mixed use properties. David has a ton of recognition. He has been awarded as a broker in the past as well a Commercial Broker of the Year and as an investor a Real Estate rising star under 34 and part of the Real Deal's top honors as well. So, David, welcome. Thanks so much for coming on the show today.

Thank you for having me.

So, David, I've got to ask. I mean, I know you started early on as a broker. Was real estate in the family before? Was this something that you had already always thought about doing?

No, there was no real estate in my immediate family. I took a couple, one real estate finance course in at NYU undergraduate. That's where I graduated from. And you know, it was either try to go into the finance world or the sales world. And real estate just, it just that class really hit home. It stuck with me. It was something I liked. And you know, I really, I taught myself the business. You know, towards the end of college, you know, really the company you worked at, Massey Nacal, really, really turned my mind on to real estate. And that's how I really learned it was looking at your setups at the Massey NACL setups. And you know, fast forward. Like one day I had the idea. I said, you know, Massey Nackel is like the greatest real estate company. You know, I don't think they wanted to hire me, but I said, does anyone.

Nothing personal. It was our loss. We clearly made a big mistake.

The Manhattan territories were full. Maybe it would have been Brooklyn or Queens.

Okay.

Which I didn't even know what Brooklyn or Queens really were. I grew up in Manhattan, but. But I was like, did anyone ever tried the purchasing approach to what Massey Nakal does? And that's really how, you know, I got it on buildings. We talk about that later.

But weren't you a broker at Marcus and Millichap as well? Did I have that wrong? Were you ever a broker before or was that okay, that's my thought. So you graduate from NYU? What year was that?

2003. I graduated. I got a job through a family friend working at a large office. Landlord making $25,000 a year was my salary. And then I was haggling with them over how much my commissions would be to lease their. Their office space. I call it Class D office space because these buildings were at the time. Now the area is great. You know, Garment center, you know, Garment center wasn't really what it is today in 2003. So I would get, you know, 5 or 10% of an office lease and then my salary was $25,000. And I would have to walk like eight blocks making me wear a suit to go show their office space and find tenants for their dilapidated office space. So after about a month of being There and studying, you know, knowing about Massunacle, Best and Associates in Eastern, I said, you know, I think more money is to be made in selling buildings than like leasing office space. So there was a guy there, he was probably about 80 years old, and I would go into his office, talk to him about selling buildings, and then I would actually take like the Massey Nacal setups, put my own name on it. I didn't know if this was allowed or not. And I would try to sell them, these buildings to friends or send them anywhere. And once the principles of the business got caught wind that I was trying to broker buildings, and I know what I was doing, they said, we don't want any brokers here. And they fired me after a month. So there goes my $25,000 salary. I'm sharing. I'm living in the Windsor Court with two other guys. I don't know how I'm going to pay my rent. So then I looked on Hot Jobs and I started working at City Habitats Commercial. They started a new division and I met a guy who was running the division there. You know, he really took me under his wing. And within from being there for like six, seven months, I would just, you know, he gave me the blue book and I just started calling and I put a deal together, I Never forget, on 7th Street, a building you actually just sold again. 3060 7th Street. I sold that building. I sold the building in Washington Heights. I sold the building on 63 Spring Street. And then I sold 25 East 22nd, which was like a mansion. So I was put on a couple of deals of leads that came through City Habitats. They were like the top company at the time. And then fast forward, City Habitats got sold to Corcoran and they closed that division. So here we go again. I just taught myself the business. I made a nice amount of money in these four deals. I'm like 24, 25 years old. And then I guess he was my boss at the time, became my business partner. And then we moved to Marcus Millichev. So Marcus Millichap worked there for about three and a half years. Learned also the right way to do the business. How to canvas, how to do mail, how to cold call, you know, putting up numbers. The more numbers you put up, the better you are at getting deals, learning how to value buildings the right way, you know, using like their appraisal process. And then, I mean, that was really my brokerage and I was selling all types of buildings, office buildings. We sold an $82 million office walk ups in the village Townhouses, you name it, we were there.

Okay, so what years were these? And then when did you start thinking about becoming a principal? Was there some overlap where you were buying properties? You were still doing some brokerage talk about the transition there?

Sure. This was like 2006, 2007. So my business partner at the time, he was about 10 years older than me. And I said to him, we should really start buying buildings. I'm 25, 26 years old, and we're making our clients tons of money. Sometimes we're flipping contracts for our clients. And I said to him, let's use some of your family's connections to buy some buildings. So we went out and we bought six buildings in the Lower east side, 2006, 2007, with most of his family's money. Some of my own money that I had at the time that I made from brokerage and really then taught myself about operating these buildings. And I did this while I was working at Marcus Millichev. And the manager at the time was, was okay with it. I don't know how, how they look at these things now, but was working on getting rents, buying out rent stabilized tenants, renovating apartments, releasing retail. So I really taught myself, myself that side of the business, visiting the buildings every week. So was doing the brokerage and then was doing operating these six buildings at the same time. And then we all know what happened. Like around oh7. Around oh7, the market completely crashed. And here we go again. My partner at the time wanted to leave the brokerage business and also make his career. Only those six buildings. And then so we parted ways. We did a buyout agreement at that time in 07. And that's really when I started Silver Shore was 07, 08 with another person that was at Marcus that they actually fired him for, you know, trying to buy buildings when he was there in a unique way he was doing it. So he was out of Marcus. Then we started silver shore around 08. And the premise was really canvassing using the Marcus Millichap or Massie Nakal model to find these sellers. That's really what was our niche, was finding the types of sellers you want to buy from long term owners.

So talk about. Because we have a lot of listeners to the show who are brokers and it is maybe it's worth even discussing because there is a delicate balance of if you want to be a broker and be an investor. Okay. So for myself personally, I usually only invest as a limited partner. And as practice, I do not invest in deals that I broker because for Me, that would be a complete conflict where, you know, if you're trying to represent a seller and get them the highest price and all of a sudden, you know, a group that you're involved with comes in and buys it, you can clearly see why that wouldn't work. If you want to buy, that being said from another broker who's listening to property, then clearly that seller has representation. And I'm not doing a disservice there. But the, you know, the key with these things are disclosure. So. But yeah, I mean, it is very difficult, I would imagine, to be an active buyer and a broker.

So.

So clearly you got to the point where you realized, you know, you were at a fork in the road and you had to make that jump. So was that for you, was that kind of daunting to, you know, give up those lucrative brokerage commissions and go, you know, all in on investing?

Oh, it was, it was very scary. I mean, I, you know, then I took the brokerage license and put it under. I was able to be my own broker, so to speak. So I did have those opportunities and I was a one man show, you know, I could potentially broker a deal here or there. There were probably a few of those situations, but it was very daunting. I was, you know, when the market crashed and you leave your successful brokerage and you're starting something new and you go into a closet from, you know, you have your beautiful office and people around you, it's very daunting doing the real, doing the uncomfortable as they call it. But, you know, it ended up being a great decision.

So talk about the education that you received while being a broker. And I want to talk, I want to get to sourcing and you, you know, we've had a lot of people on this show and I've got to say, I know our listeners are going to get a ton out from, you know, from how you source your opportunities. But before we get to that, I want to talk about actually, you know, the real estate knowledge, learning how to value deals, how to underwrite, you know, because there's such thing as a broker setup, right, where the expenses are probably, you know, pretty minimal and then there's the real cost to operating, building. So did you feel that your education as a broker, understanding how to value property, you know, was that helpful for you as you start bidding on properties or did you have to, once you went full time, did you really have to learn how to underwrite deals as an operator? Talk about how being a broker helped prepare you for this.

I mean, I think that was huge. Cause when you're a broker, especially at like a Marcus and those types of places, all you're doing is those appraisals or owner opinions of value. I mean all day long. So you're valuing development site after development site after office building after how to turn over rent regulated units. At the time, I mean that was really everything. So when the way I was able to buy so many buildings and make offers on things quickly is really how to value things. And knowing your market, obviously, I mean that's probably the most important is like studying the market. I constantly am studying to this day of trades and who's buying and what they're buying, where they're buying, price per foot. But those days of a broker, it was everything of learning how to, you know, the appraisal process and you know, how to talk to people and cap rates and the difference between, you know, one building next to each other could be $3 million more and it could be the same square footage. Why is that? Just those little things. Invaluable experience.

So talk about how you found some of your first deals or maybe even deals today. I mean, I know you know, we've done a ton of business together over the years, but I know you also source a lot of incredible off market deals. And in many cases that's directly from the seller, which is more rare than most people would think. I mean, even when we talk about an off market transaction, that usually will involve a broker on one side, whether you know, it's, it's someone who gets a rent roll from a seller and comes to a buyer like yourself. But if I'm not mistaken, you sourced and done a lot of deals where there was no broker, where you just went straight to the owner and transacted. So for some of those first few deals, were you generating your own opportunities? Were you reaching directly out to the sellers or were you relying on the other brokers? Early on, talk about that.

The first few deals, whether we flip them or bought them or we, we focused on distress. It was, you know, 2007, 2008, 2009, there was distress like tax lien distress, water lien distress, some mortgage distress. And we paired that with like looking at those lists at the time. The city used to publish those lists and they were easily accessible with like long term ownership. So you kind of, we would start making lists of people who to, who to target. Who do we think were the most ready sellers? And that was really the basis of how the whole business was built. And what I still do today is long term owners only own one or two buildings. Deed transfers, tax liens, certain areas, certain property types, the ones that are most likely to sell over a certain period of time. And then you just keep, you keep after those people, just like a broker would, same type of thing. And a lot of brokers are going for the bigger properties. These are sub, you know, $25 million properties. They kind of sometimes fly under the radar screen, so maybe not as cold as much. So those are really the principles.

Why don't you talk a little bit about flipping? Because, and I don't even know if we've talked about this on the show before, but you know, for those who are looking to get started, and it can be a pretty high risk proposition, especially depending on what kind of contract you're signing. But, you know, why don't you tell people how you approach contract flips, how that works and what are the pros and cons there?

Sure. I mean, first thing, when we started, I said I had to find the best attorney in the business that knew how to do it. And I found one because I knew, you know, he was just the master of the contract flip. And I'm still, I'm working on one with him right now.

I'm assuming that's psy, right?

Yeah, it's. I. So, you know, it's. You got to find yourself a great attorney that knows how to do it. But look, it's. You got to go hard on these buildings in Manhattan. You know, you could easily lose your deposit. Usually, like when you go into these things, you don't necessarily think you're going to flip it. You have to be prepared to close. That's why a lot of people, I guess, just don't do this business. They don't want to risk their last dollar. They don't want to risk losing their deposit.

So what are the mechanics of this? So you have a contract to purchase a property, you've got a hard deposit and you find another buyer who's basically willing to buy the contract from you. Right. So they're going to step into your shoes and close. So maybe you could explain to the audience what are the mechanics of that because, you know, is the seller even aware that that's happening? I would imagine there's got to be certain contract language in that, you know, to allow for that. So, so how does that happen mechanically?

Sometimes, you know, if you don't have the contract language, you have to work around it. You know, that's really where the attorney comes in. But you know, the goal is to not. We've had it. Where the seller did find out and sometimes threatens not to close. And then you got to. You got to deal with it. You know, are you going to pay him more? Are you going to. What are you going to do to make him comfortable? You know, you're sitting in two different rooms. What's happening here? One guy's closing with the bank, you're running back and forth between the rooms.

I mean, I gotta imagine you've got some stories where a seller realizes what's going on at the table, where, wait a second, I thought David was buying from me, but then here's this whole other group in another room, and clearly they come to the realization that they've left real money on the table. So I gotta imagine you got some stories where you've got a seller who wasn't even though you were doing everything above board. And as per the contract. Right. You know, they contracted to sell to you at a purchase, you know, a certain price, and, you know, you were able to, you know, take the risk and find someone to pay more. But. But still, I'm sure you've had some sellers who weren't too thrilled about that when that happened.

Yeah, I mean, look, it works best in a rising market. You know, when we've been in the market, we've been in the last few years, I don't know, I haven't heard of too many flips happening. I certainly haven't done any. I've closed on everything because I thought this is a, you know, this is a great time to be buying, especially in New York City, which I bough bunch of buildings, you know, I couldn't have. Couldn't have flipped any of those even if I wanted to. In the last few years, you know, vacant retail, vacant apartments, no one knew what was going to happen.

And then you don't have the ability to value add either. So if, you know, you're going in, doing renovations, and the game plan is, I'm going to improve the property and sell it to, you know, a core buyer, a buyer who wants the property delivered, you know, on a silver platter, cash flowing, you know, those are the real opportunities. And there's also, I mean, everyone should be consulting with their accountants, but there's tax benefits as well. So if you do a flip, you know, that's going to be ordinary income, as far as I know. And if you hold a property long term, that's capital gains that you can 1031 exchange. So, you know, but again, I just want to Bring up the flipping. Just, you know, certainly for some out there who are looking to get into the business. And what I would say is, unless if you can take down the purchase, do not do it. Unless, you know, if you're outside New York and we get a lot of listeners from all over the country, if you can tie up a property with due diligence where you don't have to commit, you go see if there's someone else out there, it can be still a high risk proposition. But you just, to your point, you don't want to get stuck where you have to close and you don't have the money to do it. So. All right, so let's see, you had a couple early flips, but then you start building this incredible portfolio in Brooklyn, if I'm not mistaken, is where you ended up picking up a lot of these assets. So I'd love if you could tell our audience about how you went about sourcing a lot of these opportunities, because you built out a whole team to do this.

So the way, it really started with that tax lien distress list, and through that came the first couple of buildings we closed on. We bought a building in Jamaica, Queens, which we paid cash for. It was $90,000 building, was probably the smallest building in New York City. And then we hired your firm, Massie Nackles, sold it like six months later for double, you know, so we made some money on that. And then, and then through that, we found a building in Bed Stuy where, you know, I didn't even know what Bed stuy was in 2010, 2011. I just, I never had been there, I don't think, in my entire life. And it was a corner building, and we bought it for $290,000. And we took out a hard money loan at 12% because that was the only loan we could get. It was vacant. Didn't really know what I was doing. And then just operated that building and seven years.

Not to stop you, but how did you know that there was real value there? Because, and again, if you're buying this from the bank, it's as is where is. I mean, who knows? I mean, I'm sure the building had tons of violations. How did you know that you were actually getting good value there? You said you hadn't even, you didn't even know the area. But certainly, I mean, you had to be researching comps or you had to know intuitively that there was value there.

And it was also something I could afford, you know, at the time. Like it was $290,000 building. I was like, if I'm going to do it, like I'm going to own this building with $100,000. Like it was like I said, like I always say, I bought what I could afford. I bought the Jamaica Queens building. I bought this building and then I. We found a building in Manhattan on fifth street which was a four unit. It was full of tenants that had no leases. Same thing, didn't know what we were doing. But I got like a 90% hard money loan on that and I had nothing to lose. So, you know, a lot of people are just afraid, but like at the time maybe I had like 500 grand in my bank account or maybe 700,000 in my bank account and I'm signing a loan guarantee for like a million one. And I didn't really have a plan. I knew it was going to fix up the apartments if I could get tenants out. So that was the first time I ever raised.

How did you do that? Did you end up having to buy the tenants out?

Yeah, a couple of them. Yes, a couple. I mean, there was no rent regulation in the building. And I guess at that time maybe like you could actually evict someone, you know, if you really maybe would have taken eight months to really get someone out, which would have been phenomenal. So I remember that was the first time I ever raised money from anyone. So I had a friend from high school who worked at a hedge fund and another guy who I knew through someone else that worked at Goldman Sachs and I raised like $250,000 from them and then we put in the other 250 to capitalize the building.

Do you remember what kind of deal you cut with them? What was the arrangement?

So this was something, I mean, I taught this all to myself. I put them basically on a fixed return. So it was like a mezzanine loan, I guess. I created my own mezzanine loan that was. I created my own mezzanine loan but they didn't have any like rights.

Okay, but if you could, I mean if you could borrow 90% of the purchase from a hard money lender at. Was this cheaper capital in a way or were you just trying to build an investor base? How did you decide that you want to raise money as opposed to.

I was trying to build an investor base and I also wanted them to make money, obviously. And I knew it was a very, very good deal. The seller was 90 years old, he was a painter in Massachusetts, and I would talk to him on the phone. This was really sourced organically, called off I think a postcard. And just stayed in touch with him for six months. And you know, then he would have. It was like his third wife really pushed him into just dumping the building. You know, she would call, get on the phone and start screaming at him. And then you have to talk to her separately. And then you talk to him. And I mean, I just never met the guy. Bought the building.

And this came off a postcard. So what did you. So you just blanketed the East Village with postcards or. No.

Yeah, at the. Because we started when we were doing our databasing. You know, East Village long term ownership, East Village. That was probably one of the first databases after.

And what did the postcard say?

We want to buy your building. You know, call us, we'll close quickly. You know, typical. Like a mass. Like, like a massy knackle postcard or a Marcus postcard. But, but so at this point, you.

You'd close two properties, one for 90 grand, one for 250. And then you're blanketing the east vil. You know, we're ready to buy. I love it. All right, so you obviously put together a nice portfolio. Maybe these earlier sales, you improve them, you resell them. Are you 1031 exchanging into other properties or how are you starting to build a portfolio?

So that building on fifth street really catapulted us to the next level because was able to get out. Buy out the tenants or get rid of the tenants, renovated it. I taught myself how to renovate this thing. Cheap renovation. It's probably like a $50,000 renovation just to fix it up nice. We sold it for 3.2 million. We paid like 1.2. And that was in a period of eight months. So I thought like I just made like a million bucks. I'm so happy. But I took that money and did a 1031, ended up buying. We bought six buildings with the money that we made from that one building. So we really leveraged that one building into another six building.

And how do you buy. What was the total purchase price for the six buildings?

Oh, I don't even remember. I mean, I mean, if you had.

3 million to place, I mean, it probably couldn't have.

I mean, we might have bought. We might have bought like $18 million worth of stuff.

Wow, okay. So you levered that up even.

Yeah, really leverage, really leveraged it. You know, just highly leveraged it. A couple buildings in Manhattan. And then it was also a building in Washington Heights that we bought like a 10 unit, like for 700 gr. I mean, this Was, you know, this was like the best time to buy in history. And at that time, like, you know, we were on some other deals, like $13 million deals, $10 million deals where you know, we would call up anyone to invest with us. No one would give us money. You know, there were buildings that, that, that we had contracts for that we built relationships with sellers, you know, go out to New Jersey and meet with them in the mall and meet their kids and you know, sitting guys offices. He says, I really want you to have this building. But we couldn't come up with $13 million. And the same 13 million dollar building five years later would sell for like 70 million.

So why was it just lack of experience or why.

No track record? You know, you're young and it was a scary time. A lot of people didn't want to invest in anything. It was, it was, it was the down market. You know, a lot of people just, you know, get scared in the down markets. They don't want to, they don't want to invest. So. So, you know, we missed out on some of those opportunities. But you know, we bought the six buildings and then we keep doing that over and over and over again. You know, we'd buy a cheap building, maybe vacate it, then sell it and then go buy another handful of buildings.

And at this point were you building out your team? I mean, were you self managing? So you know, who's running these buildings? Who's overseeing these renovations? I mean once you have a dozen or so buildings, it was you and a partner. But were you starting to build out a team at this point?

Brought in a guy to manage everything, got him some help underneath him, and then was really one of the guys who helped find that first $290,000 building was an intern of ours. So we were always hiring NYU interns. And through hiring NYU intern, found my best, you know, acquisitions guy. This guy probably was, he was responsible probably like 60 or 70 of the buildings over the years.

Wow. And were you paying basically him commission in house or was he in salary or did he get a commission in house?

And, and we could afford to pay him like $300 a week. That's what I paid him. That's all we could afford. There was, there was no, there was no real money coming in door because we kept rolling it over and over, right? Whatever money would come in from a flip, we'd have to invest that in the, in the, in the mail because the mail was not cheap. You know, mail is very, A lot of people say, oh, I want to do mail. I want to do mail. But mail is expensive. Mail costs.

And it wasn't just the postcards, because I remember I came to your office. I mean, this probably has to be 10 years ago, and there was, like, I don't know, probably a dozen interns. Right. Handwriting letters. Right. So I guess by then you'd graduated from the postcards. Right. I guess the personal touch yielded a better result.

Well, you mix it in. You know, it's like every month we would try to do something else. One month we do the handwritten letters. One month we would do the typed letters signed with my name on it. And this was going to me and my partners at the time, our cell phones. Like, that's the other thing. Like, our cell phones, when you send out 30, 40, 50, 60, 70,000 letters at a time, your phone does not stop ringing. Like, and your wife or whoever has to be okay with that because your phone's gonna be ringing Saturday night, Sunday nights. Like, it doesn't stop.

Hold it. 30, 40, 50,000 letters. I mean, somehow in my mind, I thought you were doing, like, a couple hundred at a time or a thousand.

No.

So thousands of letters. Okay, so you have all these calls coming in, your phone's blowing up. How do you actually prioritize these? How do you organize these? Like, I mean, what you're really doing is building this funnel, right? So how did you know what was actionable? Yeah, how did you get kind of a quick gut on what you wanted to follow up with and to make sure that you were going to. That nothing was going to fall through the cracks?

Yeah, that was probably the hardest thing. I would just sit there, always have something to write with, and then I'd pass a lot of the stuff off to, you know, that guy who was responsible for most of the acquisitions. You know, we had a couple of really, really good guys that we could pass some good ones off to. But, like, I would deal with, you know, I remember a guy called me from a block number, and I was on the other line, and it was a building in Brooklyn Heights, and they were in the Philippines. They called me from the Philippines, and they said, you know, we were coming to New York. We want to sell this building next week. And it was like 1.2 for a building in Brooklyn Heights. I'm like, this is incredible. You know, so if you don't answer.

I mean, so you're not doing, like, full blown, you know, Argus 10 year cash flow analysis. I mean, at some point, you were probably looking at so much stuff that you Just knew intuitively that this Brooklyn Heights deal was good. I mean, you're telling me you still didn't have a system like for underwriting comps? Like how did you know what constituted.

A good deal, the type of seller? But I mean, we did do underwriting and put these things in spreadsheets when it necessitated it, especially turnover models and rent regulation. But if someone says, I have a building in Brooklyn Heights and I want around 1,2 million for it, and you know, the square footage, it's like you don't really need to know much else.

So at this point, were you starting to be. I mean, because by the time you sold your portfolio in Brooklyn, right, I mean, you had amassed, you know, over what, over a hundred properties that you still had held onto. Right. So at this point, kind of the flipping, you were building a very large portfolio. So was that, did you end up, did it make more sense? Just were you thinking, I'm going to build this portfolio and I'm going to sell it as a giant package and I'm going to make more money by doing that?

Well, that was always the plan. I mean, we sold the package in 2015. It was like 14 buildings to related and the goal was always to build these packages and then sell them. So we really then after we sold that, we 1031 a lot of it into another like 40 properties, turned like 14 properties into 40 and then ended up being like the height of the market. And then the laws started changing. But after that we hired another broker to sell, I don't know, 70% of it. The market was just frozen. You know, there wasn't that much activity in 2016, 17. And it really took years to unload everything. It really took. Couldn't just do it in one package. So as we know, the height of the market was the end of 2015.

So you ended up selling the Silver Shore portfolio. Maybe talk about why you founded Hildreth and talk about, I know you've got a fund now for New York City as well as for Opportunity Zone. So kind of what prompted the creation of this new firm and what is the investment philosophy today?

Sure. So as the world in New York City was changing, especially with rent regulation, and that's really. Those were the buildings that I was buying. Were the smaller rent regulated or larger rent regulated buildings. That business really ended in 2016, 17, you know, you couldn't do that business anymore. So really I said, okay, I gotta find something else to do. So I really then started teaching myself workforce retail buildings. I bought a handful of Those by myself through some 1031s and they actually cash flowed as opposed to buying anything in Brooklyn. Never, never had any cash flow. You only made money when you sold it. So these buildings that I owned by myself, it was nice to see the money coming in every month. And I said, what if I could build a real business around that? So bought, got a new business partner who shared the same philosophy, came from the hedge fund world, family office world, and also his father was a big time attorney. So really put an infrastructure in place to go out and start a New York City fund, which we did in 2019, raised over $20 million, bought almost $60 million worth of properties in the best time, in my opinion was like 2019, 2020 to buy in New York City. So we put that together, deployed all that capital and also this opportunity zone legislation that came about. We started an opportunity zone fund and became the largest owner in downtown Riverhead, which is going through a major transformation right now. So I really had to pivot well, like I've always done, whether it's from brokerage to buying or buying different types of buildings, or pivoted to workforce retail, opportunity zones and focusing on free market buildings in Manhattan specifically. And it's. We've been doing very, very well.

So let's talk a little bit about workforce retail because I don't know if we've talked about that on the show before. So I mean to me that would mean that it's not credit tenants. These aren't triple nets. I mean these are probably more service oriented. So are these kind of like the mom and pop retailers, the laundromat, the local bodega. I mean what are the types of tenants and maybe explain kind of what the numbers look like for those and what the approach is.

Sure. So the way I look at that, I, for one of the first things I look at is the tenant mix. Things that are not affected by the Internet. Like you said, laundromats, pizza, bagel delis, Chinese food. You know, now, now there's a lot of smoke shops, beer shops. You might have two, you might have two or three delis in an eight unit strip center. So that's the first thing I look at things that are service oriented businesses.

How do you know if they're doing good business, they're going to pay rent? I mean, how do you get a handle on that?

So you try to get the seller's bank account records. You know, most of them will give it. If they don't give it to you, there might be something happening so usually try to get the bank accounts. Look, obviously there's risk in anything. Like I'm buying one right now out in Long island, the guy gave me absolutely nothing. But the price for foot is low. I've been there. I see the tenancy mix. I know what they're paying. They're paying 35% less than what the market is. So. And then I looked for is there rent growth? And I look at the comps. Is there going to be rent growth over time and is the price per foot at market a little bit below market seller profile? Then you do the environmental testing. I backed out of a bunch of these things because sometimes the environmental reports come back poorly.

Is this a cash flow play? I mean again, you said a multifamily. You're only making money on the trade. So I mean, is this kind of a longer term approach where you're putting longer term debt on and just holding for cash flow?

Yeah, usually. Look, if you're, if you're trying to buy these 678 caps, that's where I like to be. You know, six caps will have more upside than the eight cap. But I bought a bunch of them at eight, nine caps going in just for the sellers that I deal with. They just don't want to deal with it anymore or they're going through family dispute or it's an estate sale. But you know, and then I was borrowing on these things at anywhere from three. Now it's at 4%. So you're positive leverage day one. I mean, and you know, if everyone pays, you're making, you're making good cash flow.

Okay. And then talk to us about the opportunity zone. So you know the federal program and if I'm not mistaken, just extended. There's been some changes. But, but how are you approaching those deals and maybe talk a little bit about how that works.

Sure. So the way I learned about Riverhead was I bought two buildings there by myself as cash flow plays. Strict cash flow plays had nothing to do with opportunity zones making money every month those workforce tenants. So it was really, I learned about it doing workforce retail. And then I found a building on the main street in downtown. And I said it was a mixed use building. I was like $475,000 in 2019. And then I syndicated that deal with some investors from a hedge fund and renovated the property. And that building was our first opportunity Zone fund was a single building, a $475,000 building. And that really opened up our eyes. And then we started canvassing every building on the main street and ended up acquiring like another 14 buildings almost one by one by one by one. And one of those buildings, I can end up building almost 200 apartments on it. And we're in pre development right now. I paid like 2.2 million. The land could be worth 8 million right now.

But the opportunity zones, if I'm not mistaken, there's a timeframe where you have to not only acquire but then also improve the project. So the fear I've heard about development in the suburbs is always that it takes a lot of time to get it entitled. So how are you able to deliver on those timetables to make sure and qualify for the opportunity? Opportunity zone, sure.

So. Well, the one, the first one that we did, we started renovating right away. So that was our first opportunity zone fund. And then the second fund is comprised of three different development sites. So we're able to play almost one off of each other. Three different development plans. The, the large developments, we're gonna, we're gonna hit all of our targets. You know, that was definitely some concern.

From, from, and with the land. I know it's, I mean if you build a new building, you're, you're instantly going to qualify. But for the existing buildings, my understanding is that you have to spend at least what you paid for the value of the property to make sure that you're improving. Yeah.

Yes. And that's what we did on the first one. We didn't just renovate the apartments. We're moving in a restaurant and that it was quite expensive, a 4,000 square foot restaurant. So. But you know, you got to have great tax counsel. You know, it's got to be set up perfectly. And you said it. So it's hard for, to qualify. A lot of people didn't, didn't invest because of that. But the people that did are seeing what's going on in downtown Riverhead. There's hundreds of units being built. We're not the only developer down there. RXR just won an RFP right down the street at the train station. They're going to be building 250 apartments. Riverhead is happening.

Great to hear. So David, what advice would you give to our listeners, aspiring investors who are looking to get in the game? I mean, maybe it's even going back to our earlier conversation about the brokers out there. I mean, how would you advise someone gets into this?

Well, I think it starts with your first deal. You're talking about how someone gets involved, investing in their first deal.

That's right.

Yeah. I think Look, I would say get involved in someone else's deal first to learn. Learn what they're going through. Learn the pitfalls, Become an LP before you want to be a GP and take other people's money and become that fiduciary and sign on a bank loan and, you know, risk a lot more than you probably have. You know, get involved in someone else's deal. If you're a successful broker, there's nothing wrong. I think a lot of brokers invest with us because they know these are great deals. And you might even have the opportunity to sell the building for that GP one day.

And what value, you know, again, if someone's starting off, what value do they bring to the table? So, you know, let's say someone has a great opportunity and they don't have the money to take it down on their own. You know, is that. Is that enough to start a conversation? Right. And what would you advise that person does with that deal if they don't have the money to close it?

Sure. I mean, look, this comes up all the time. Like, we don't have all the money in the world. We partner with people all the time. People that bring the money, people that bring the construction experience. Sign on that completion guarantee, really bring it to someone you can trust first and foremost. Someone that you have known for a long time, or ask around, can I deal with that person? Is he a fair person? And then just partner up, just work with good people. And that's what we do right now. That's the principles that Hildreth is founded on. Working with good partners, bringing in experts on every single deal. Don't do everything yourself. I don't pretend like I'm going to be building these hundreds of units in Riverhead. We've got a lot of partners. It's a lot of people involved. I'm not going at it alone.

That's great to hear. David, you've had incredible success over the years. I mean, you amassed this unbelievable portfolio. You're at it again. In closing, what would you say are your keys to success?

Look, you got to really love this, this business at. Sometimes it's. It's. It's awful. But, you know, right now I'm just loving it. I enjoy it. You got to work 12, 14, 16 hours a day, weekends, whatever, whatever it takes. You know, it's really like, you can't teach that hard work. It's. It's like ingrained in you. You know, you got to have, like, you got to build that team. You know, right now we have A great team. I got Yair for Long Island. He's incredible. Ethan in Manhattan, you know, incredible. Like young, motivated guys. Really, really, really, really help. A great partner. Jason, Max. It's just I'm very, very lucky to, you know, build a great team, have the same sort of vision, but you really got to surround yourself with like minded people, hungry people. It's really the work ethic and the tenacity, learning how to follow up, you know, just being an animal, you know, just annoying people. Annoying, annoying, annoying. Just keep annoying people. It's those nudgey, annoying people that just, that just get somewhere in this business. It's just the way it is.

You know, it's very true that, you know, and even as being a broker, it's all about follow through, right. And staying on these situations. Right. So. But David, I would add one more thing, I mean, I think, and maybe talk a little bit about risk and your risk tolerance because I'm sure, you know, even those early stories where you're saying, you know, I'm putting it all on the line, you know, talk about that. Because I mean, I'm sure that, you know, it's, you know, even as you put together and do larger deals, you know, how do you kind of calculate risk in your mind? How did you even, you know, for those first few deals? I mean, I don't think it was like throwing caution to the wind, but like does that, is that just part of your DNA that, that you just, you just know that somehow you're going to figure it out.

I mean, I was confident in my ability of knowing that the properties had value. That's, that's always been the case, even to this day. Like, you know, right now you have to, everything is risk right now because no one knows where this market's going to. You know, there's so much uncertainty out there. Like every loan that you get is recourse. And I don't think most people will sign recourse, so that might preclude them from doing anything. Recourse, I think is really just a way for the bank to keep you in check. Not saying like you're gonna have to write them this massive check at the end of the day because the building is gonna go to zero. But you have to be on your toes and operate these buildings and you know, you have to think about these buildings like day and night. You have to hand holding them, watching them and make sure nothing slips to the cracks, watch the violations, watch the collections. But about the risk, I mean, you know, it's like you got to take, you got to take massive risk to get into this, whether it's the contract deposit, going hard, who the seller is signing, recourse. I think there's tremendous risk, but there's tremendous reward. If you are confident in the assets.

That you're working with, well, that's awesome and a great way.

That's what I try to stick to, being comfortable with what you're buying and who you're buying from.

Well, there's no doubt that you know what you're doing and you've had an incredible successful career even at an early age. And so can't wait to hear about what's in store for you for the future. So, David, thank you so much for joining us today. Really appreciate it.

Thanks so much.

This is your host, James Nelson, Real Estate Investing live from New York. Thank you as always for joining and if you have not already, please subscribe and leave your comments. It helps others find this show. Also, while you're at it, connect with me at James Nelson NYC on LinkedIn as well as on Instagram. And finally but not least, please check out james nelson.com if you have not already. I built this site for you to give you the inside edge to real estate investing. Wishing you all the best for success until next week. Thank you.

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To Real Estate Investing live from New York. Please join your host, James Nelson for another program next Tuesday at 7pm in New York, 4pm Pacific Time on the Voice America Business Channel. All shows are rebroadcast on Wednesday, Wednesday mornings at 7:00am Eastern Time and 4:00am Pacific Time, as well as always on Demand. We'll talk again next week.