Sustainability with Laura Rapaport

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

Welcome everyone to episode number 162 of the Insider's Edge to Real Estate Investing. This is your host, James Nelson and today's guest, Laura Rapoport was. The introduction was made courtesy of my friend Michelle Klieger who is co chair of the Girl Gang organization with Gabby Simon. And so for you female listeners out there, this is a great organization. If you're interested in having a community of women in real estate giving great networking opportunities as well as information insight, it's actually a great reminder for us all to get involved and real estate is very much an in person business and so think about the organizations that you're a part of. For me here in New York, that means being an active member of the Real Estate Board in New York as well as the Young Men's and Women's Real Estate association nationally or even globally. ICSE for retail, Urban Land Institute, some incredible programming. I had the chance to go to their annual conference up in Toronto a couple months ago. So great idea to reconnect and see people and have an opportunity to learn as well. So now Laura's story is about her journey and as founder and CEO of Northbridge, her company now offers financing to serve at the intersection of real estate, technology and sustainability. She offers one stop shopping for clients nationwide, covering all asset classes, providing support for both their built environment and a greener future. When she started out, Laura initially took on an internship in real estate. Prior to her freshman year of college, she graduated from UPenn and began her career at Lehman Brothers in their global real estate group in London. Later served as a director in New York at Tishman Spire. A lot of talent coming out of both of those shops. She received her MBA from Wharton, went on to become a marketing director at L and L Holdings and owner operator. We had Rob Lapidus on the show months back. If you didn't hear that interview, that's a great one to listen to. Again, she was a key member of the leadership there and was very involved in the development of 425 Park Avenue. So today her company Northbridge specializes in sustainable real estate solutions. By providing financing through cpace, which is program we haven't talked about on this show yet. That stands for Commercial Property Assessed Clean Energy and it's a flexible form of ESG financing which allows borrowers to access low cost, long term fixed rate pre payable funding in exchange for making sustainable improvements to the building. And CPACE can be used for a variety of functions including large scale renovations, new construction, acquisition financing, refinancing and rescue capital. Based on her experience and background, founding Northbridge, she says plays to her strengths of being entrepreneurial but having an institutional expertise and understanding to translate and bring everything together. So I know you're going to get a ton out of this episode. As always you can check out the show notes@jamesnelson.com where there's a ton of helpful content for you as well. There you can also find Laura's contact information and how to link in and find her company's website. So we're going to have a brief word from our sponsor and we'll get right into that interview with Laura Rapoport.

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Hi everyone, very excited to have with us today Laura Rapaport who is founder and CEO of Northbridge. So we're going to be talking a lot of things today including cpace, which is new to the show. So really excited to have this conversation and great to have you here with us in the studio slash my office and thank you, thank you. So Laura, let's start with your story. Maybe talk a little bit about how you got into the business. And I know early on was it Lehman Brothers and their global real estate group? Is that where it all actually started?

Before that? So I wanted to be a doctor because I wanted to help people and a wonderful man named Earl Altman.

Oh wow.

Well, invited me to be an intern with him. And so the summer before my freshman year of college I got my Real estate license. It was an unpaid internship. They gave me two weeks of work and in the morning I finished and they said, what are we going to do with you? And I said, all right, if you get your real estate license and you close the deal, we'll pay you. So that sounds fantastic. So I got my license and I closed the deal. Tiny lease in Queens, but it was the lease and signed and I was kind of going to the races. And then I spent the next two, two years, two summers sitting at Tara Stacob's coffee table, learning from the best and then went to Lehman Brothers in New York. I got an offer and I actually transferred. I was their first analyst in London. So I did securitization number two in Europe through seven. And the industry at the time in Europe was very nascent. No one knew what CMBS was. And I actually think there's a lot of parallels to where CMBS was in the early 2000s and where CBS. It had been around but the size and scale hadn't yet been realized, certainly in Europe. And people said, can I sell my asset? What is this? And then suddenly it took off from there. I went to Tishman's Buyer in New York. I worked on acquisitions and development for New York. I worked on building Dolphin center, among other projects and then went to business school. I went after Wharton. I spent nine years at Eleanor Holding Company working directly for David and Robert. And I did everything from residential development to running Capital raising building 425 park, multiple capitalizations and design and special projects and then left to partner with a classmate from business school. And we bought a portfolio of 770 units of workforce housing off market, not New York, off market, truly off market in greater Rochester. And we closed on that March 31 of 20, which was unbelievable. It's since been a home run, definitely a scary month leading up to that. But in the process, you know, really saw this opportunity at the intersection of real estate and sustainability. A lot of what I had learned from being a developer working on 425 park, you know, first, well, certified office building building, a number of lead projects. And I realized people institutional real estate didn't really understand the opportunities in the sustainability space. And by the same token, people in sustainability didn't really understand how to speak institutional real estate and how to kind of bridge that gap. And we came across some cpace deals and the rest is history now. So we are a women owned lender and servicer. We are focused. We are in 20, we're in every major state nationally and we are focused on institutional lenders, borrowers of pace, so call it the north of the large Pace space, north of $10 million of pace and more. The bigger, the better. The largest deal in Florida at the end of last year. Wow. Working on some market transactions now. And I think there's a lot of opportunity and there's a lot of potential for the space and people, truly. First of all, most conversations start with, I'm sorry, what is cpace? And that's okay because it's new and it's not really active in New York at the moment yet. And so there's a lot of education, but people don't know that they can qualify for it. And it's both a type of financing that's really interesting for making buildings more efficient. But where we stand In July of 23, it's an incredibly efficient capital markets tool.

So can't wait to dig into this. But we have to go back in time here, because for those of you who are tuning in, who are maybe not, do people still tune into podcasts? I don't know. You download podcasts. For those of you who are listening, wherever you are, if you're. If you're not in New York, you might not know some of these names that Laura just mentioned, but you're talking about the legends in the industry. And so I have to ask, and maybe we don't have to go one by one, but, you know, starting with Greg and Earl, who are such incredible people, have to ask, I mean, what were the key lessons that you learned starting off? And was it just luck that you found your way there? You said it was an internship and you happen to do a deal, but you talk about how that helped you get your career off the ground, and what were some of those skills that really have carried on with you throughout your career?

That's a great question. So I think you make your own look, sometimes. Sometimes the door is open, but you have to walk through it. It's funny, I was actually talking about this lesson to one of my colleagues the other day, something like that Earl taught me, which is it's not about doing one deal, it's about doing five. Treating people with respect, doing it the right way, you know, thinking about what's the most important thing in terms of the end goal. It's about really having that relationship and having that repeat business. And I was using as an example for a deal we were working on saying, listen, this is the right thing to do for the borrower. This is the right thing to do for the deal. I care about the relationship. I want to make sure that this is done correctly. And I'm going to go to the nth degree to make sure everyone's taken care of. And I learned this. I think what was interesting is learning from both of them, just seeing the, you know, and I think, frankly, everyone I've had the fortune to work with, starting with them, is, you know, a certain level of expertise, attention to detail care, institutional rigor that you make sure everything's done correctly, you treat people correctly, you think through things not only in one dimension, but multi dimension and being creative. I mean, they're incredibly creative guys. And I've been really fortunate to work for some of the best, have incredible mentors, both men and women, who have really kind of instilled that in me. You know, keep asking questions, look at it from different perspectives, don't take no for an answer. And, you know, and also part of it is making your own block.

I love that. And one of the themes that we just keep hearing the show and is front and center with the book is that this is a business about the people and relationships and, you know, Earl, Greg, all of those names. Tara, they've built their entire careers on those relationships and doing the right thing and really the expertise as well. So maybe talk a little bit about Tara, one of the top office leasing brokers here in the city and what she's been able to do downtown, all over. What were kind of the takeaways from that experience?

I, for two summers, sat at her coffee table, was part of every meeting but one. At the time we shared a computer. So I'm now dating myself.

But I was right there with you.

Exactly. You know, look, by the way, a lot goes, you know, it goes very far when you have a yellow pad of paper and a pencil and you really have to, you know, write down people's numbers and call them back. There was no email, there was no texting. You had. It's, I think it's, you know, really the foundation of real estate. It's about the relationships and it's about building them. And I think one of the things I learned from about talking Tara is she's unbelievably bright and unbelievably hardworking, and she also, to her credit, has really forged a path that she made her lock and she, she opened the doors and she walked through them and she's really created a path for others. So one thing that she instilled in me is really mentorship and paying it forward. And she's been incredibly Kind to me throughout my career and not only as a friend, but a mentor, just really how to teach, how to treat people, what to do. Always. Again, again. I think the guiding light between all these people I've worked for is, you know, always do the right thing by others. But, you know, it's that tenacity, the hard working, the thinking outside the box and just frankly the respect that her clients that she worked hard to keep, create, cultivate for all these years, who continued to follow her. And she executes, and she executes exceptionally well, you know, and I think that seeing it firsthand and the only meeting I wasn't part of was somebody on her team and it was a personal thing that they felt uncomfortable because otherwise she would say, listen, can we have Laura come? And that's how, you know, I really learned, not only from them, but from, you know, at Tishman's fire and at L and L and being part of these conversations and seeing how when things are difficult, how do you handle that situation? What do you do? What are people saying, what are they trying to say and what is the right outcome there? And I feel grateful because I think that's something that's lost in the zoom world. Not being able to listen to calls. You can't bring somebody into a teams or a Zoom and say, shh, listen. The number of times that I'd be in David or Rob's office and I was listening, and it was not only the listening to the back and forth, but it's also the post mortem of this is what they were. This is why I said what I said, this is why we didn't say this, this is why we should do this. And you know, I've tried to carry that through to my team and really instill with them. We're in the office hybrid and I think it's important because I can say to my guys, listen, this is why I'm doing this. And I think it's that continual teaching that I've benefited from. I mean, I've been very fortunate. Some of the best in the business of what to do and what not to do and how to carry that through and how to teach others, you know, what's the right way.

Could not agree more about. This is such an in person business. And the learning happens by listening, observing and so, I mean, sure, having the zoom option now, we can reach a lot more people, we can keep things going, but a lot of the learning and I think the relationships are no doubt still formed in person.

Yeah. And I think another person who's been an incredible mentor, mentor of mine. I feel just so fortunate to be in her orbit as Marianne Ty. She's somebody truly, I mean, just, you know, a force and the best possible kind and just one of the kindest people I know. And somebody who doesn't have to spend the time to mentor others, but does. Yeah, who can spend her time actively doing a million other things and actually has cultivated a group of women that she shows up for, she helps. She's there as a. A listening ear and a mentor and advice, but also somebody who is, like, led by example. And so I feel, you know, fortunate for the people who I've worked directly for. I actually got to know Marianne by working with her on 425 park at the Citadel Deal. And actually we've had her as part of our Design competition for 425Park. So, you know, working with people in different capacities, whether on the same side of the table, the other side, collecting mentors of different backgrounds and experiences, I think is also part of, you know, how I have, you know, come there. I tell my kids, you know, not no one, no one person built the building. And I think the same thing with, you know, in our industry. It's not about any one person being on their own. It's actually a collaborative industry, for better or for worse. Either it works for you or it doesn't. But, you know, a reputation takes forever to build and can be done in second. And I think that's something that if I think about all the different people I've had the fortune of working with or working for, that that's kind of an important constant for all of them.

Could not agree more. So for those of you who are just joining us now on IG Live, I'm here with Laura Rapoport, who is founder and CEO of Northbridge. She is already telling us she's got incredible experience, and we're going to be talking about how she built her career over the years, some of these incredible relationships that she has forged, and now what she is doing in the cpace space. So I do want to get back to having worked myself at Cushman with Tara and having spent time with Marianne and could not agree with you more about their paying it forward and being so giving at the time. One thing that also strikes me is their expertise and their knowledge, and so talk about how important that is to. I mean, they must really study the market. But also, you know, this is a business about information. And I would think that what they know in there and part of that's experience, of course, but talk about that.

Yeah, I'd say a couple things. One, not only do they spend the time, but they give opportunities. And I think that's something that I personally benefited from many times over. For both of them, it's not about experience, because anybody can be in the room. I think it's about how you think through things and how it's a creative mind and a prepared mind and no one's more prepared. And it's a care for execution. And I think it's, you know, I see across the country now, and frankly, in all the different roles, there's different levels of care, there's different levels of execution and diligence. Whether it's putting out something that's totally polished as a product or not, I think is a reflection of what's important to that person. I think, you know, both of them, the output is second to none. And the way you think about what you've done and how you apply that, learning the information and creating these unbelievable situations, it's not luck, it's intelligence. It's being prepared, having your team be prepared, anticipating the second, third and fourth things that might be asked and having answers for those, and also willing to look at a different perspective than you may have initially thought. Think about it and think if it actually could be better and if it is willing to embrace that as well. I think that actually takes a tremendous amount of confidence and understanding of a situation and being able to then execute. Because at the end of the day, you could have the best ideas, but if you can't execute, it's all meaningless.

No question. I would definitely add one more thing to that is I would imagine none of these people that we've been talking about, it's not work for them. It's their passion and everything. There's no delineation. I'm sure that when you enjoy and you have passion for what you do, they work hard.

But I think what has also been so, so amazing about, you know, that each of them is the way that they bring their A game every time.

Yes.

And there is. There. And frankly, I think that makes everybody else. It's like a rising tide raises all, you know, all ships. I think it also brings a level of excellence to everything around them. You're like, oh, my goodness, I have to. I have to double and triple check everything, because this is who it's going to. And that's something that, you know, I think about as I build our company and work with other people. Well, I have to be my A game too. And I hope that those around me also know where that's coming from. It's because I've had the fortune as a view of working with these incredible people who demand excellence of their self. And for those around them and those who can be in their orbit, which I consider myself fortunate to be in their orbit, is something that is, you know, I think it's a staying power that, you know, may or maybe get lost a little bit through Covid. But I think that as a result, those who are more polished, those who put out the right product, it's now even more pronounced. The difference is even more pronounced.

Yeah. I think certainly as things started to get more challenging post Covid and today, you know, again, it's really important to differentiate yourself. And, you know, on that note, 425 Park Avenue, spectacular. One of, if not the most incredible office space I've ever been in. And Rob, who I serve on a board with Spark Youth, what great breakfast that you had. Yes. Was kind enough to host that event. And amazing. That was not an easy feat. But again, that commitment to excellence. Right. And so talk about, in the way, David and Rob's story about, you know, how they grew their business and I'm sure observing, you know, how they grew those capital relationships and how they scaled their business and really parlayed it into, you know, a. Not just a tremendous office portfolio, but now diversifying into multifamily. So what were some of the key takeaways from you for your time there?

You know, it's funny, when I first I was introduced to L and L through Tara, and I was. When I was at this, when I was finishing Wharton, I was trying to figure out what I wanted to do. I was fortunate to have an opportunity to go back to Schmidt's fire, but I wanted something a little bit more entrepreneurial in terms of my own growth. And I really loved my time at Tishman and thank the world of the people there. And she introduced me, she said, you should go meet with David and Rob. I don't know what they're doing, but they're smart and creative guys. I don't know who these guys are, but sure, you tell me to go to them, I will go. And I wound up what I thought was an informational coffee with Rob for 20 minutes turned into an hour and a half interview with David and Rob.

I could see that.

And I really clicked with them and I really liked each of them. They're so very different, but work really well together. And I didn't know who Ellen L was. And what was so interesting is that, you know, by the time I left, people were reaching out to me through LinkedIn over China, saying, you know, when I was at. I would love to talk to you about L and L and all the amazing projects you're doing, which is so interesting in contrast to my telling my classmates at Wharton, well, I'm going to work for L and L. And people are saying, and frankly, like, they hadn't opened up 205th yet. Italy was not open there. I started in the spring, summer actually of 2010, and, you know, feel very fortunate to be part of that growth. And, you know, I think that it's again, focus on execution, a creativity, thinking outside of the box. I mean, it feels kind of like a second thought that of course you would have an amenity and of course you would have grass and trees as part of that and the light and air. And we would take a whole floor and not charge tenants for it. And now people are saying, well, what kind of amenities do you have? But let me tell you, when we were trying to do this, it was, it was, frankly, it was David's idea to say, this is something that will define the building, that will be sought after. This whole idea of biophilia was really out there. And when we were telling people this, there was definitely a lot of thought saying, I'm sorry, like, where is the rent and how are you making this up in rent? And it was a very forward thinking idea that's very much become, you know, a minimum for the building and how people think about space. I think the other thing that was so interesting from that Spark breakfast, I had happened to be in the Seagrams building the day before at a meeting. And when we were designing 425 park, we said, yes, when you go to other buildings, they're going to feel old because we're going to have these, you know, 2014 foot ceilings and 28 foot other ceilings and glass and trees and terraces and all this light and air. And it's going to make the other buildings that we used to think were the buildings and seabrooms. By the way, Rfars done a wonderful job with it, but there are some constraints from it landmarked perspective, and they're making them feel old. And it couldn't have been more in contrast between the two days of being at Seagrams and the next day being at 425 and having the light shining in and the collaborative space. Oh my goodness. In reality, now we're seeing all the things we had talked about. But it's very much kind of being out there, forward thinking. I think from the capital side, what was interesting is really thinking through structures that had not been done before. I think that's also been kind of a continual through my career of kind of doing something out there and being the first like securitization too for Lehman, first Swedish securitization. Gotham center was the first lead office building in Long Island City. And we started that in the fall of 2008. And people were like, what's Long Island City? And why would you build something there? And so I think it's always, you know, I think I've been fortunate to be around people who are not afraid to kind of push the envelope. I'm a kind of out of the box thinker as well. So it's always worked very well for me. But also with people who say I'm going to do it and I'm going to execute at the highest levels. And I think that the reason L and L was able to create the projects, to get the capital to create these incredible bring in the built tenants is because not only were they innovative thinkers, but they always followed through and they did what they say were they were going to do and you know, executed really well. So I think that's.

Yeah, true visionaries. And I had Rob on the show I think a month or two back. So for those of you who have not given that episode a listen, do. I mean, Rob has such an incredible story as does David. I have not had David on the show, but I've heard his story. And he talked about his first deal, which was buying a ski mountain that just because he liked to ski. And it was a disaster, but still.

Has the deed in his.

Oh, he still has it. Okay, okay.

Again, I think that to that point it's like the lessons, you know, I feel fortunate to hear the lessons to continually. And I always think through them, remind me, sorry.

And you. And you learn these experiences build. But again, being that visionary which also comes with risk. And I remember with 425Park coming out of the ground or really expanding on this building and it was. There was a possible. There was an upzoning that was in the works. But you all made the conscientious decision we're going to go ahead with this because we're not going to wait to see when this shows up. And so I thought that took a lot of courage to move forward to that.

Well, just on that we actually did a parallel process. So God bless. Foster and Partners are architect, but we actually had two designs the same time. We were going for the first East Midtown rezoning when, you know, the end of the Bloomberg era. And we were designing that while we were also designing an as of right building. So we were designing a building where we could build larger as well as designing the actual as of right building. Our engineers and architects thought we were crazy, but we said, listen, the upside potential is tremendous, but if that's not going to work out, we want to make sure that we actually have the ability to execute. We are fiduciaries to our investors. We have a timeline. We need to move forward. And we want to make sure that if this plan doesn't work out, which unfortunately, the East Midtown rezoning, well, it.

Took another probably four or five years.

Yeah. And it didn't. And so as a result, we move forward at the time on the, you know, as of right building, which was unbelievably challenging. And I have a, you know, really proud of what the team worked on and creating. And it was hard. And everyone who worked on that, you know, just the hundreds of people who worked on that, the engineers, the architects, the designers, the team, and David with the vision, like, you know, really put a lot of sweat and tears into that project because things work. Some things, as in any project, were unexpected, but there's a lot of things that were unexpected. And I think it's about how you handle the situation and how you move forward. Forward. When you hit a roadblock in a project, which invariably there will be on any development project, this one was extra complicated, but I think the execution was, you know.

It certainly all did work out. So talk about your role and taking on new things, because whether it's doing one of the first securitizations in Europe or it's building a new type of building, like, talk about how you've been able to ramp up the learning curve and then what is your role in advancing these projects?

Well, I think I've been given. I've been really fortunate to have a lot of doors opened and given more opportunity than maybe I should have. But I'm also not one to say no. I said, you know, okay, well, let's figure this out. I think that's very much my personality of, okay, well, we're going to roll for a season. We're going to figure it out. And I don't know the answer. I'm going to ask the 10 people who do, and I'm going to get to that answer. And that's kind of maybe who I am. As a person of. I believe in collaboration and really working hard and trying to go to the MTH degree to figure out how we can make that work. And if we can't also say, listen, it's not going to work. But I think it's been being in a number of places where we've done these innovative projects. The first, you know, office building in was spec. We actually wind up leasing it to the city of New York. So Gotham center was fully leased to the city and that's actually how it got financed. I just think being in places where people took risks but measured risk and were prepared and, you know, just being working with some of the best and brightest in the different fields. And I guess I'm a pretty. I'm a little bit. I'm very entrepreneurial, but I've been entrepreneurial within the confines of a very institutional upbringing within the industry. And again, being so fortunate to work with I think some of the smartest and best people that it's kind of, you know, showed me different things to do. And what I think is interesting about CPACE is it's really unknown in the institutional world. And what I think is exciting is the fact that I've now been an owner, I've been a borrower, a lender, I've refied projects in the middle of construction, which has been interesting. And again, you learn from these things. I've leased space, I've sold buildings, I've sat in every seat. And for me, this, this type of financing has so many different applications, especially now when there's liquidity crisis, that I'm very excited by the applications that we're working on and those that we will, as well as applying so many interesting structures that already exist in other things to this type of very flexible financing and really trying to innovate and come up with solutions for people.

So we should go ahead and define cpace. So just for our audience, for those who again, have not heard of this acronym before, tell us what this is and how it's utilized.

Yeah, so cpace, which by the way, when most people say, listen, Laura, I don't know what this is, like, that's okay, you know. And I think one of the things that's been great about Zoom is people are not afraid to admit when they don't know something. I think that's a big change I've seen relative to being at a table with, you know, 10 people on either side and the senior person, frankly, and the junior person also being afraid to speak out of turn and say, I Don't know what this is. Whereas when you're in a box pretty lunch style, you can say, hey, I don't know. And I'm not afraid to say, listen, let's start with what does it stand for? And then we can go from 30,000ft into the weeds and back. I don't expect for this, you know, for the same reason no one was born reading, I don't expect any, no one was born doing cpace. And it's an innovative project that's starting changing over time. So my view is, okay, let's start with it. So CPACE stands for Commercial Property Assessed Clean Energy. It is a form of long term fixed rate financing, long term being 20 to 30 years that will pay for energy efficient, water efficient seismic resiliency in buildings. What does that mean? It was and it's paid back through an increase in real estate taxes. So where it started and how it's being used now are almost two different things that kind of make it akin to like the 3M sticky note. The glue that was started had one use and one day somebody puts a piece of paper in it and realized wait, this can kind of get loose, stuck and having secondary use to it. So PACE was started to incentivize people to put in more energy efficient measures into their buildings. It was started in 2008 as a retrofit project so that people could put on solar on their building or a more efficient H vac. But as you and I well know, the upfront cost for these things can be sizable and the savings aren't achieved day one, it may take some time. And so the idea was that if you could finance these improvements over the useful life of the solar or the H vac that by the time that your savings over the useful life would be cheaper than the cost of the financing. That market has since grown where not only is it used as a retrofit project, it's also used for new construction. And today in this market it's being used is a form of rescue capital loan modification, refi capital. And so it's becoming used as a very, very interesting capital markets tool as well as. So most of my look back basis as well as on a go forward basis, people say you have money, tell me more, how does this work? Fixed rate money in an inflationary environment. And so the answer is, and as I started saying earlier, a lot of people don't know that they can even access these funds. And so what counts, the answer is your entire building envelope, curtain wall, windows, doors, roofs, to all of Your building systems, your H Vac, your electric, your plumbing, EMS systems, elevators, all forms of renewables, as well as seismic resiliency on the west coast, which by the way is required by code, hurricane resiliency and wind resiliency in Florida and so on and so forth. And so in many cases it can be if you're building slightly better than code, which almost every institutional borrower is doing these days, you will qualify already for work that you've done for, let's say 25 to 30% of your staff. And for work that you're planning on doing. We also could be a meaningful part. So PACE can be used on a go forward basis to pay for new improvements. You want to change. Your H Vac, your Windows and your Electric all pay for 100% of your hard and soft costs. Or it can be used retroactively if you've already done the work. Most states have a look back which can be up to three years. So if you did the work within your TCO was within the last three years, you can check the box for work you already did and access that capital today. And with that, once those dollars have been spent, it's fungible to you as the borrower. So you could use it to pay down a loan and blend and extend. You can use it as part of a refi, you can use it for future ti's and I'll sees that are not PACE eligible and there's a whole host of use cases. Or you can do both. You can say, I've upgraded my base building, but I haven't leased the building yet and I want to attract 10 tenants. I need to do a build out. I can give you dollars perhaps for the build out to attract the tenants to get them into your space.

And how does this fit into the capital stack?

That's the angel debate. So it is not equity. And you'll hear people saying, oh, PACE is a replacement for equity. It's not equity, it's a type of leverage. The payments sit senior to the first mortgage. But if people leave this learning free things. One, you can take off PACE at any point in time. It's fully pre payable from the moment the funds are dispersed. Two, it can never ever accelerate. So even in the case of foreclosure, I can never accelerate my balance. And three, it's fully assumable by the next buyer. So PACE is both top of the stack and bottom. One of the things that's been really interesting is making it a highly effective capital markets tool is there's kind of three phases to case. The first part is called the capitalized interest period. And during that time I can accrue the interest for somewhere between two to five years. Let's just say it's two years for now. During that time nothing primes the first mortgage because there's nothing due. We will put all of our money in all scenarios of case. We'll fund all of our money into escrow at close. Money sitting there in account and I also pay myself. So there's literally nothing prime in the first mortgage because there's nothing due for first two years. Then we can go to an IO period, let's say eight years. And that period only the interest payment sits senior to the first mortgage. Again, let's just put numbers to say $3 million on a $50 million balance. Only the $3 million sits senior to the first mortgage. I can take the 50 million out at any point in time, but I can never accelerate it. And then back in the amortization. So what you now have had is a 25 year, fully amortizing piece of paper. This case amortizes over the duration of all scenarios. But we can have two years accrual, eight years IO and then start amortization at year 10 or 11. So you wait in 15 years. And so I've now created a synthetic 10 year accrual IO fixed rate instrument that's priced over the 10 year, that has a seven handle on it. People are saying not only do you have money, but you'll lend on an office building or a hotel or retail or construction, like you know. And so that's the other thing. PACE can be used for any type of asset.

And the senior lenders, the first mortgage, they're, they are okay with this now. They understand because you are the most secure position. So they're, they're in their creditor agreements, you all have figured this out where they feel comfortable with what you're doing.

So that's the, you know, that's the age old question. I think the senior lender understanding his consent has been one of the biggest hurdles. I think there's two big hurdles to more cp, Three big hurdles to see based adoption. First is lender consent. A lot of lenders don't know what PACE is, they don't know what their risks are. And lenders that we've gotten to consent say, start. The conversation starts with well, oh, we don't do pace. Why not? And they go to find out and they say, well, I don't know why we don't do pace. Can you get on with our council? I say sure. And the, the in house counsel will say, hey listen, I want to start the conversation. I don't know what CBASE is. And I said I know that that's okay. Let's start with what it stands for and go through the risks to you and what that means and what my risks are, what my rights are. And then we got them, you know, to consent. But so I think the first thing is there's been over 300 lenders that have consented and more and more understanding it. The people who haven't consented to it historically don't really know what it is and they haven't spent the time. I think that it's because the size and scale of the market used to be very small. The types of deals were 2 million, 3 million. So on a $200 million deal you're not going to pay attention to that type of deal. It wasn't available everywhere. It's now becoming much more. Many more markets are now open to it.

That was going to be my next question. In New York City we were a little late to the party. So we're.

Well, New York City's evolving and I think the last thing is also just in terms of that the size and scale is now more interesting and there's a need for it given the lack of liquidity and all the volatility in the market. So that answer is that that's growing by the day and just about every borrower or lender that we're working with has never done it before but now it's interesting to them because it's priced appropriately.

And what does Northbridge do?

We are a cpace lender and servicer so we actively lend cpace across the country on any asset class.

Okay, so you are, so you are lending off balance sheet or how does that.

No, we have multiple capital partners ranging from insurance to different types of funds.

So these are, these are deals specific. Then when you have the Exactly. Loan request, you're matching it with the right capital.

Yeah, because everyone has different needs and desires and some people say hey, I'm happy to do hotel say not so much shorter duration, longer duration, different jack sizes.

So to take a step back. So what inspired you to launch Northbridge? Was it, I mean you said you've got this entrepreneurial story, you love figuring things out clearly, big opportunity. But what made you decide to approach this opportunity?

When I left north, when I left L and L and I was buying this portfolio of value add, multi, I was starting to See all these different opportunities that were more national that you know, just again having been more New York focused for so long wasn't aware of and it was really this intersection of real estate and sustainability. And I came across some Z based deals. What is this? And I asked the smartest people I knew and they were like I don't know what this is. And frankly it wasn't live in New York yet. And I really dug into it and having worn every hat I was like wait a minute, this is so interesting because I can see the use cases for new construction, for TI's, for refis, etc. And at the time frankly it was mispriced, it was very too wide, it was priced at 5 to 600 over when you can get all in financing sub 3. Now I think it's even more interesting because of the, you know, know, the volatility and the yield curve inversion and just the need for people to put in more energy efficient measures into their building and not know about that. New York City is Local Law 97 and people say oh my goodness, you know, 2024 is next year. Yes, that's when this first and 2030 is really not that far away. And so when you have not only landlords that are now going to have a full fine if they don't upgrade their buildings as well as buyers and their capital sources who are very savvy about having a certain level of sustainability in the building, otherwise they can't buy it, I think it becomes a very different conversation and people are saying not only how do I access the cpace financing but can you help us make a more efficient building? Which really kind of speaks to my background of understanding how buildings are built and leased and what's important for a tenant and what's important for the buyer and, and I think, you know, so I think having sat in all these seats and putting everything together and then seeing this as a tool, I think it was very, I wouldn't, I didn't wake up you know, saying I'm going to go come become a CPACE lender when I was, you know, 18 years old. But now that I've sat seen so many different perspectives, I think it's one where it really plays to my strengths of being entrepreneurial but having institutional expertise and understanding and to translate and bring everything together.

So with only a couple minutes left, one of the premises of the insider's edge to real estate investing is that you can capitalize on these inefficiencies. So it sounds like to me that you have discovered something where again, when you ask around and most people don't know about it, that definitely sounds like an opportunity. So I guess the question would be for those who are looking to get into the business. So a lot of our listeners are, you know, might be in college, you might be a sales associate, you might be the master's degree. What would you say to getting into this space? Is this too specific? I mean, what advice would you give to someone who wants to get into this business?

So I think that the, I think it's almost twofold. One is getting into the world of like sustainability and relationship estate. And I think that is unlimited opportunity because I think that's really the future and where we're headed, not only from the desires of the capital and capital saying, I'm not going to buy this building unless it's to a certain level of sustainability. And also just the 30 cities and growing in our country that have requirements of building sustainable buildings because our world isn't getting any healthier on its own. Buildings are, you know, in cities are responsible for 70% of the carbon. And so we actually have to do something about it. And buildings can't just change like this as much as we'd like them to. And so understanding if that's of interest and passion, I think there's a tremendous opportunity to innovate in that space. And there are all going to be more products that have not even been thought of or created that will help all of us make that a reality. I think when it comes to pace, there's a lot of different applications to it and there will be more that come into the space and there's many more deals to be done. And frankly, again, most people don't know that they can access it. And now I have people saying to me, buddy reached out to me yesterday, can we talk to you about that ZK again? And sure. You know, again, there's different times where it becomes interesting. It's not for everybody, but I think now is a time where people are saying, oh, you know, Laura, you're my cpace friend. How do I do that? So the space will definitely grow and become more sophisticated as more people are using it and find different ways to use it. But I think that, I think what's interesting about cpace and interesting about sustainability and what I love about real estate is it actually touches on so many different areas. You can be on the leasing capital market side, acquisition side, development side, engineering side, and need to touch different parts of the space for different reasons. And the more savvy one becomes in those areas, I think more opportunity will be there because there's just a lot that's unknown and it's either. And people come to me all the time saying, I'm the new head of esg. What do I do? And I say, you know, honestly, I view this as an opportunity. You have to like it. But I view it as an opportunity where there is very much a Runway that has not yet been formed and fully paved. And it's the opportunity for you to be that person, to go down and create the systems and guidelines for what we're going to be living with for the next however many decades. So I feel like there's a real opportunity for innovation. If that's your cup of tea, it's not everybody's cup of tea. Some people say, I want a guidebook that I can follow. And other people say, wow, I would love to write the guidebook and then follow it. So it depends on, you know, where your, your risk tolerances and your interests are in different things.

Laura, this has been amazing. You have such incredible experience and I just love the vision and taking on new challenges, but also the passion. And that's what I heard in that, you know, that very valuable piece of advice is, yes, this, this is a incredible opportunity, but you have to have that passion. So, and, you know, doubt have that. So, Laura, I want to really thank you for coming on the show today, sharing your story. How can people find you and learn more about cpace and all the incredible things you're doing?

We have an active LinkedIn page and our website is www.northbridgeops.com.

Wonderful. And of course, we'll put a lot of your information, everything in the show notes which you all can find@jamesnelson.com thank you as always for joining us. It's really our pleasure. The show is, is for you. This is to help you gain the insider's edge real estate investing so you can outperform the market. And until next week, this is your host, James Nelson. Thank you again for joining.

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 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.