The Differentiator with Scott Zwilling

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 to episode number 140 of the Insider's Edge to Real Estate Investing. This is your host as always James Nelson. I'm principal and head of Tri State Investment Sales at Avison Young and on this week's episode I'm interviewing my friend and client Scott Zwilling who is co founder of Spirit Investment Partners. Scott focuses on acquisitions, equity and debt relationships and firm wide strategy. Spirit has completed over 1 billion in transactions including 34 assets totaling almost 6,000 multifamily units across 11 states. I know you're going to get a lot out of this interview. I'm calling it the Differentiator as Scott not only talks about not following the herd when investing, but also developing your own approach. In the case of Spirit, it was investing in the Midwest when no one else was looking there. Scott also wanted to have the best design in their product and materials. He was certainly ahead of the curve. Scott then goes on to speak about how to choose the right institutional partner and how to cultivate relationships. This starts with getting to know them first as opposed to just rushing into a deal. He also talks about the importance of having great deal flow as opposed to just having a good investment pedigree. Prior, Scott was the Director of Northeast Acquisitions for jpi, a national multifamily developer and an Acquisition Manager with Crescent Heights where he he was responsible for over a billion dollars of property throughout the Northeast. He's also served as an adjunct professor for Columbia, spent some time at Arthur Anderson and Ernst and Young and last but not least was also received his Master's in Real Estate development from Columbia. So he's got a really great story to share for you today. Scott speaks above about the importance of working with great mentors and knowing yourself. He talks about why he knew he could go off on his own to start his own investing platform. So you can find out more about Scott and his company atspiritInvestment partners.com so we're going to have a brief word from our sponsor before we do that. Thank you to all of you who've already pre ordered my book by going to jamesnelson.com that's where you can find the link either to go and order that from Amazon, Barnes and Nobles or wherever you like to get your books, or you can sign up to get a bulk order where I could come in and speak to your organization, your firm about all the lessons in this book that I've Learned from doing again 140 podcasts here, as well as close to 25 years in the business. So I'm really excited for this book which is coming out at the end of January with McGraw Hill. So we're going to have a brief word from our sponsor and we'll get right into that interview with Scott Zwilling. Thank you.

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

And now it's time for our Investor Spotlight and with us today is my good friend Scott Zwilling, who is the co founder of Spirit Investment Partners. Scott, welcome. Thank you so much for joining us today.

Yeah, thanks for having me.

Great. So I know we're both from Connecticut and live nearby and our sons have spent time out on the flag football fields, but great to have you to talk about your story. We've also had the pleasure of doing some business together in the past. So Scott, it'd be really helpful for our audiences to maybe talk a little bit about your history, maybe where you started off and how you ended up getting into the real estate business.

Sure. So thanks again for having me talking about your podcast for a while. So I'm happy to be on so real estate investment development. I mean people come from many walks of life. I actually started through really accounting. My father was an accountant, retired now, and he used to tell me that accounting was a great entree into really any sort of business and it would open up a lot of doors. And I think while that was true, you know, for him, you know, many years ago, you know, really, you know, the guys in finance, you know, finance majors, really have the opportunities that the former accountants did, you know, 40, 50 years ago. So I started out in accounting and at Arthur Anderson in their audit practice. And you had to choose between three industry groupings, and one of them was real estate and financial firms. So we started out, I was auditing MasterCard, and ultimately I had one client that really turned me on to the real estate business, and that was Ian Schrager. So we had done a lot of work for Schrager Hotels who, you know, Ian Trager is an amazing hotelier, you know, father of the boutique hotel, super trendy cool factor. You know, it was a very, very sexy business. And ultimately, you know, he was trying to convert his company to a REIT in. In the late 1990s. And ultimately, you know, we had worked on that project, fell in love with the business, and ultimately decided that I wanted to get out of county, but more into the hotel business, you know, and went to go work for Ernst and Young, a competing firm to Arthur Anderson, but in their consulting practice. So Ernst and Young had a group that dealt with all things real estate. They did market studies. They did, you know, you know, financial analysis for developers or for lenders. You know, they raised capital for, you know, for various real estate projects and ultimately landed in their real estate or their hotel subgroup within the real estate consulting group. And quickly realized that I knew nothing about the hotel business that, you know, my accounting background and interest in, you know, in hotels. I was in a group of, I don't know, you know, 10, 15 people. I think 14 of them went to the Cornell Hotel school. And I was the only one who didn't. So from there, I knew at that point I really needed to go back to school to kind of break my accounting mold, get more interest in real estate. Really, that was, you know, that was the impetus. And went to Columbia to get a master's in real estate development. Ironically, Michael Buckley, who was the director of the program at the time, was also a partner at Ernst and Young. And we had worked on a hotel project together in Louisville, Kentucky. And that's how I got to know about the, you know, the program. And we talked a lot about, you know, career aspirations and, you know, so went back to school. And it was, you know, to spend, you know, time getting a master's and doing exactly what you'd wanted to do was, you know, was. Was eye opening. And after that, you know, I felt like I needed, you know, I wanted to build on, you know, my finance background within real estate, and went to work for an investment bank called Wells Hill Partners. And they were an interesting group. They were, did a, you know, I don't know if, you know, you know, the folks there, but they kind of, they did a lot. You know, obviously they raised capital, both debt and equity for various projects, but they also invested, you know, on their own account in various projects. You know, anything from continuing care retirement community down south to an office building in Nashville to apartment building, you know, office buildings in New York City. And got a lot of good experience there. But really there I realized that I wanted to be on the principal side of things, which led me to press in Heights. And you know, I could say, you know, I remember when I interviewed with Bruce Menon, he had told me that I should be paying him to work there because it would be the best education of my career. And I don't want to admit he was right, but he was right. You know, we were, I worked there. 03 to 05 and I think in 2004 we were the largest buyers of apartment buildings in the country, which, I mean, we were more than any reit, more than anyone, the number one buyer in the entire country. And they were mainly condo converters and ultimately, you know, morphed into developing. But by 2005, we were kind of sensing the market was getting very frothy. And again, it's very easy to say this in retrospect and also being on their side of the table, we would bid on projects and we would lose out on every single one. This is in late 2005, and Sunny Khan, the chairman of the company, had basically said, you know what? Why don't we sell everything we can and repatriate our capital to maybe another country or where we think there's more opportunity. So they sold off almost everything in 2005 before the crash, which is insane when you think about it. We bought a site on Spring street, which later became the Trump SoHo. I bought that site for roughly 20 something million dollars and we sold it to Bayrock and Sapir for 80 something million dollars after owning it a year. We had the plans done, you know, mostly none. You know, there are other projects that we got out of and you know, ultimately they were kind of preparing for a downturn. And you know, I, I, I, I knew that, you know, they weren't going to just, you know, keep everyone in the company for an extended period of time. So I, you know, I made a conscious decision to move to the rental side of the business. And really by the time, you know, 2006 happened, I knew that I was really just biting Time until I started my own business. I knew that's what I wanted to do. I really proved to myself that I could do it, you know, while at Crescent Heights and then, you know, ultimately work for jpi. Cause I couldn't afford. I didn't, I didn't have a family trust or money that I could stop working and go pursue my entrepreneurial interests without having a backup plan or some sort of cushion and went to work for jpi. But while I was at jpi, I was building my business and bought a project in East Harlem on 110th and 2nd that ultimately I sold out of, did very well on. And that's ultimately where I met my partner, Dave Nachman. And we started in, I want to say, 2011. And the business plan was pretty simple. We got together. Dave has an interesting background working in real estate. Kind of all asset types work for Craig hall, who is one of the largest syndicators of apartments in the world, became a wine vineyard owner. Craig's in tons of businesses now. But ultimately we got together in the city really to try to put our heads together and take advantage of what was happening. And what we realized in New York was that the cycle was super quick. It dropped, and then it went back up super quick. And there was just so much money chasing deals in New York that we started with nothing. So we knew we had to go where other people were not looking at the time. And that was really in the center part of the country. Dave's from the Midwest. I went to Ohio State, undergrad, lived in Columbus. So we were looking where no one else wanted to go, which is the center of the country. Really. The only financing you can find at the time was for multifamily. So that's how the business really started. And, you know, obviously we wanted to stick our teeth into not just buying a property, but adding our own value. And really that, that's, that's what we've done the last 10 years throughout the.

Eastern half of the U.S. scott, that's an incredible story. And I've known you for a long time, but I hadn't heard all that. And you definitely, you know, some of the people you've worked for or with, I mean, those are some, some big names for, for our listeners out there, if you, you haven't heard of them. And I, I've had the, the pleasure, should I say, experience of working with Bruce Men. And he's a tough customer, but he is brilliant. And yeah, wow, timing is everything. But also, clearly they had a sense of what's Going on. So I want to go back just quickly to talk about your time at Columbia, because that decision that you needed to go back and get a master's for what you were doing at the time. But like, fast forward to today as an entrepreneur, your own business, and for those listening, thinking about, hey, I want to go out and do this on my own at some point, and maybe you don't have aspirations to work for a big organization. Do you think that what you learned at that master's program is that proved to be invaluable to you throughout your career?

Yeah. I mean, listen, going back to my younger self, I was not a proponent of going back to grad school. In fact, after I graduated undergrad, I got my CPA just because that's what you did. And of course, my dad's mind, it was to have a backup plan, which I never used. So I really didn't want to waste time or money going back to school. I heard tons of people, my friends on Wall street, they'd work for an investment bank for two years, and they'd have to go back to get their MBA so that they can get promoted to an associate level. And I just decided, I'm like, that is not. I'm going to figure out a different way to do it. But what I realized was that I was missing a real knowledge base and what Columbia gave me. And I say this to people listening, it's not for everyone. If you're in real estate and you're getting good experience, you know, either underwriting deals or, you know, working on the brokerage side, or, you know, then. Then frankly, you know, maybe you're not going to get a lot out of a master's in real estate development. It was a little taste of everything for me. So, you know, I learned real estate finance there. You know, you don't become an expert in it, but I learned it. I was exposed to architecture, construction terms, legal. You know, I remember the first line of my real estate development textbook basically said, you know, that being a real estate developer is like being a movie producer. You know, you can come from many different angles and be an expert in something, but ultimately the job is to bring together people with other skill sets and manage them to get a project done. You know, and you're a marketer. You're, you know, if I'm not strong in finance, then I can bring in a financial partner. You know, I'm bringing in architect, I'm bringing in, you know, a contractor. And, you know, so for me, the. The program was invaluable and the contacts. You know, I know you. You know, you and I have friends in common. Marwanda, Louis from American Properties and some other folks. I'm doing a project today, a development project in Stratford, Connecticut, with another friend that I graduated Columbia with. So, you know, and ironically, Marwan, who's now overseas, was able to introduce us to the seller of that property. So it's all, you know, these are all contacts at Columbia. And I know, you know, on Wall Street, a lot of employers wanted their employees to go back to grad school, really, for the contacts and for that, you know, it was great. But, you know, I just was reading a story of Michael Stern. You know, Michael Stern didn't even go to college, right. And he started working for a general contractor out of, you know, out of high school. You know, I think he felt he didn't even go to college. So to answer the question, for me, the program was invaluable. You know, if you have a strong real estate background, I'm not sure that it's going to provide you with, you know, a ton more. You definitely will pick up things that you didn't know before. But, you know, I don't know if it's as transformative as it was for me, who did not have the real estate background.

That's. That's super helpful. And, you know, that network, I think a lot of people forget to really leverage that, even if it's been years. I mean, I. I actually did not. I've taught at master's programs, but I've never received a master's myself. But for undergrad, I was at Colgate, and I've really leveraged that network. That's how I ended up with my first job, a lot of my first clients and contacts, and, you know, look, you come from the same place and organization and, you know, there's that willingness to help people out. And I still take tons of calls from undergrads at, you know, Colgate. You know, I'm sure many of them are probably listening to this podcast right now. So that. That's, you know, for the network alone, I think there's huge value there. So.

Yeah.

So, Scott, I want to talk next about, you know, you mentioned while you were at Crescent Heights, you know, you knew you always wanted to go out on your own, and you knew you can. You could do it. So I want to break that into, you know, two questions. You know, why did you sense at this point that you wanted to do it on your own as part of a, you know, bigger company? And then, you know, how did you know you could do it? I mean, at Crescent Heights. And I'm sure there was, you know, hundreds of people working there, you know, huge infrastructure to do things, to say, you know, hey, I think I can just, you know, go start this thing up on my own. You know, how did, how did you know?

That's a good question. And, you know, I think my advice is that people really need to know themselves. And I always knew from a young age that I was an entrepreneur, you know, started many businesses. You know, when I was in undergrad, I started. I was actually a dj, but not a club dj, where I was creatively spitting records. I really was at a fraternity party my freshman year and noticed that the guy playing the music was just one guy, two speakers, and he had a whole bunch of DVDs. And he'd press play and then on another CD player, he pressed play and moved the fader over. And I remember asking someone how much that guy got paid. And, you know, and he would play a song that everyone liked, everyone run it to the dance floor, and then the next song, everyone would walk off. And, you know, and I just, I felt like it was so easy. I could do it. And by my senior year, I had. I was doing every fraternity and sorority at Ohio State. I was doing Barnabas Mitzvahs, I even got offered to do a wedding. I had four people working for me and ultimately sold the business to a younger kid who lived in the area for more money than I made my first three years working combined. So I've always been an entrepreneur. And when I started my career, it wasn't okay, I'm going to be an entrepreneur, it was just a thirst for knowledge. But when I, you know, to answer your question about how I knew I could do it when I was at Crescent Heights, their, their kind of training was really just trial by fire. You know, it's go find me deals. And, you know, I had to sit back and watch how some did it. You know, to this day, I'm amazed that some of the people that work there, the doors that they were able to get into and find some off market deals is just amazing. And these people, you know, some in particular did not have very sophisticated training. You know, I had the finance background, I had, you know, the ball, so to speak, to, you know, pick up the phone and call anyone. But really when I found myself finding opportunity, understanding that it was a good opportunity, pitching it to the chairman of the company, getting it under contract, running the due diligence and Closing it, I realized I can do this on my own. And that Trump SoHo site, which before it was Trump, so it was just going to be a condo hotel. I found that deal. I worked on the acquisition of it, and ultimately I'm the one who found the buyer. And it was their money, their risk, and I had a team of people with me doing it. But I realized right there and then that I could do this. And it was from there, that point on that I started looking for opportunities myself.

That's awesome. So talk about at JPI and starting to, you know, work on your own investments. You mentioned that first deal in East Harlem. So how. How did you. Maybe you could walk us through that deal. What did you pay for that?

How much equity did you have to.

Raise and how'd you do it?

Sure. So you know, that that particular deal, what I was looking for, obviously was a deal small enough that, you know, I can raise the money myself. I had a partner, another friend from grad school, who I ended up buying it with. And it was 2000, and actually we closed in 2007. So arguably the worst time to be buying real estate. The peak of the market, before the world came crumbling down. And what we found was a 36 unit rental building on 110th and 2nd with a rent roll that was not rent stabilized, but it appeared, but had very, very low rents. And ultimately what happened, I literally found the one diamond in the rough in all of New York City. I found an owner that bought a building in the 90s, boarded up. I think you probably, in those days, the city were giving away buildings for a dollar if you just agreed to fix it up. And they were immigrants from Italy, and literally they just arrived here. They knew construction, but for basically taking a building that was out of service and putting it back into service, they were entitled to a tax abatement. But the father of the company told us, he said he didn't trust the city. He figured, why are they giving me something? What do I have to give them in return? He didn't get it. So he's like, I don't want it. I don't want the tax abatement. So for not taking the tax abatement, he wasn't required to regulate the units, but he didn't have the real estate tax abatement. Right. But in those days, taxes were very low in East Harlem. And ultimately when he set the rents, he would look at the buildings to the left of him and to the right of him to try to get an understanding what the market was well, most of the buildings in East Harlem were rent regulated. So when we bought the building, one bedrooms were renting for $600 and two bedrooms were renting for $800 because that's what buildings on both sides were doing. But it was free market and we saw an opportunity to come in and ultimately we doubled the rent roll in a year and then the market obviously crashed and we held it through the crash, but we were still weighing the money on it. I think we bought it for $6 million and ultimately I sold out of it at a value 14 + million dollars. We had some air rights. We were trying to buy the lot next door to us. That deal felt fell apart, but I bought it the worst time, but I ended up making a lot of money on it.

That's, you know, there's always a story when it comes to the deal and looking for that, that opportunity. A lot of what I talk about in my upcoming book is finding these mismatched opportunities. Whether you've got an owner who doesn't realize what they have, you got a broker who doesn't realize what they have, or you see kind of something that no one else does or maybe in a location.

So I think it's really hard to do. And I would say that, you know, the one thing you know, so. So in my business I have two partners in spirit. My partner, Dave Nockman, who sits here in Stanford with me. Dave runs the capital market side to our business with investors and debt. I run the acquisitions and disposition sides of the business. Then I have a third partner, Ian Hafner, who runs our asset management and operations. And on the acquisition side, the hardest thing is to. I'm always looking for obviously that unique opportunity. But what I had to get my head over is in order to really scale the business, you can't be looking for that time in the rough. Always you have to be. If you want to go out and buy 10,000 units, you can't expect that you're going to be finding deals like My east rental property. It's just they're unique, they come around once in a while, but you got to be looking in order to find it. But you can't scale a business doing that. It's very, very difficult. So I had to kind of change my mindset a little bit in order to get to the scale that we're at today.

So talk about raising capital for those first few deals because you hadn't done this on your own yet. So how did you know? Was this all friends and family?

It was all Friends and family. Yeah. And it was all, you know, finding a good deal, levering up as high as I can get, putting as little equity as I can. You know, I didn't have a deep network at all. I don't, you know, my dad made a very nice living. But, you know, I, he was not an investor, you know, an uncle that invested. I had friends. I remember actually when I was at Crescent Heights, I remember I started to develop a list of all the people that said to me, when you have your first deal, let me know. I'm an investor. And I'll never forget one of the first people who said that was, I can't remember his name, but he was owner of a very famous steakhouse in New York City and Irish gentleman who ultimately we leased the space to at 25 broad. And he was the first person I called. He ultimately didn't invest, but I was keeping a running tab of all those people that said that they would invest. And what do you realize is you go through that list, okay, first person says no, second person no. Maybe you pick up one or two people from that list and then you're out of names. And then next thing you know, I'm telling my dentist who's drilling my teeth to ask him if he's ever invested in a real estate deal. Everyone was a potential investor. And it's hard to do. It's, it's, you know, that's one thing that, you know, since we started, we've, we haven't, we've done a few syndications, but the bulk of what we've done over the last 10 years have been, you know, private equity joint ventures where we've partnered with Oaktree and Fortress and family offices and. Which is a whole different ballgame. And, you know, I wish we had spent more time building out that high net worth investor list because ultimately, if you make money for them, they probably will end up being investors for forever. Whereas the private equity guys, you make money for them and they like you. Until they decided that they want to switch gears to office or retailer. They don't want to invest in Atlanta anymore. They want, you know, somewhere else.

It's a great point. It's a great point. So talk about how you built up your organization because, you know, going from that first acquisition, you know, you got three partners. You know, that was, I think you said 2005, right? So here.

Well, so, so make my first, my first deal, it was in East Harlem with a partner who's not a partner today. And ultimately, you know, we just wanted different things, which is why we ended up not being partners long term. I really wanted to build an organization and he wanted to really focus on squeezing every last cent out of things, which is a strategy. And he's done well in his own right. But I couldn't build a business if I was spending all the time showing apartments myself and responding to no heed. And I needed to delegate and I need to hire people in order to focus on finding more deals. And he didn't want to do that. So we just ended up parting ways and I met my partner, Dave Nachman. Really, when I ended up focusing, I thought I was going to focus exclusively on East Harlem because I thought it was really the last frontier in all of Manhattan. There were lots of development opportunities, vacant lots and deep buildings they call taxpayers, retail that's open and boarded up, buildings above and found a property and pitched. Someone led me to a guy who Dave was partnering with at the time. They had raised a fund before the market collapsed and they were looking for investments and ultimately market collapsed. They didn't invest in anything. They returned the capital and Dave and his partner went, went their own ways. But that's how I met Dave. And you know, to this day we can't remember who introduced us, but you know, I'm glad they did. So, yeah, I mean, you know, when we started, our thoughts were we really wanted to. You know, we all come from institutional backgrounds. You know, my other partner Ian worked for Aret on the West Coast. So we've all come from fully integrated backgrounds and we've all done each other's job, by the way, which is also another difficult thing, is that Dave's done acquisitions, I've done the financing, Ian's done acquisitions, I've done a little bit of asset management. So we knew that right off the bat we need to have liens and we need to have roles. We're all type A entrepreneurs and that's why we were willing to stuck it out, stick it out with no salary during the recession and try to figure it out ourselves because we just knew that we had to. There was no other way. I think we've done a great job at being small but highly institutional. We set up procedures and policies early on, before we had employees. We invested in our infrastructure, in our systems and our reporting, even going back to our first or second deal. If you looked at any of our reporting, you would have thought we're a couple hundred million dollar operator with millions of dollars under management. That's just the way we were trained. And we knew that in order to track big capital, we had to look a certain way and talk a certain way. So we invested in a lot of that. The other thing that we spent a lot of time focusing on is our differentiary, our different differentiator. And, you know, I'll admit that to be a differentiator in what we do is difficult. You know, you know, we're buying existing multifamily buildings throughout the eastern half of the U.S. we're adding value, right? So in some cases, we're renovating, you know, anything from light renovations to extensive renovations. You know, we're. We're operating it, and ultimately, you know, we sell it or hold onto it. And, you know, there's a lot of people who do what we do. And what we noticed, we spent time studying the business and, you know, we thought our differentiator was going to be marketing and design, that a lot of companies are just doing the same boring design. You know, at the time in 2011, 12, you know, most department buildings outside of New York City, of course, were called the Falls at Morgan Hills or the Highlands at Something Station. They had a location moniker and they had a descriptor, and every building was called that. You'd go to Atlanta in 2011, 12, 13, and tour 10 buildings, and at the end of the day, they all sound the same to me. They look exactly the same to me. So we said, okay, we've got to figure out a way to do it differently. We got to look different, we got to smell different. But at the end of the day, you know, we can't be, you know, renovating buildings with higher quality, you know, finishes, and it can't cost more. It's got to be as economical as what everyone else is doing, but it's just got to be different. And we spent a lot of time sitting in, you know, with a marketing company helping us to try to figure out what our, you know, our pitch was and describe us. And, you know, and ultimately what we came to is that we weren't going to, you know, buildings had. Have personality that, you know, people needed to feel some sort of tie to their building because if they did and we brought the community together and it had some sort of personality, they were more apt to stay if it was just an address and just some apartment. It's easier to let it go. Right? And we've proven that good design and good marketing yields to higher rent and lower turnover, and we've done very well with that. And we spent a lot of time focusing on that.

I love it. That makes so much sense. And I think for those of our audience listening who's looking to start up their own brand, their own company, it's.

Yeah.

What is your differentiator?

Everyone. And James, I know you probably have to deal with it all the time. You know, people ask you and say, james, why. Why hire you to sell my building when I can hire Cushman and Wakefield or. Or whoever, you know, and you've got to tell them your pitch. You know, you're providing the same service. But why are you different? You know, we get that all the time. Like, there's a lot of multifamily investors. Why are you different?

It's great advice. So tell us about what, you know, how your organization looks like today. So you've got, if I'm not mistaken, you have $30 billion assets under management, 34 properties, close to 6,000 units across 11 states. So what does it take to operate that?

Sure. So, you know, like I said, I have my two partners. We all have our lanes. You know, ultimately under kind of my purview. You know, I have a few analysts that help out on the acquisition side. You know, Ian, who runs our operations, has a few asset managers, and then ultimately all the property managers and the property level folks report up to him. And then Dave has a team as well. So we've got. At the corporate level, we have a team of about 11 people which focuses on acquisitions, financing, and asset management. Then at the property level, we have all the property level folks. So a typical property, again, outside of New York, because New York operates under its own set of rules, you know, outside of New York, I would say, you know, typical property is a couple hundred units. And for 200 units, we'd have probably up to four people working there, you know, two on the leasing side, two on the maintenance side. And, you know, we, you know, have been selling off. Actually, you know, funny, like what. What our property portfolio looks like now, we've sold off the vast majority of it prior to Covid and then into Covid. So we were buying. And we always talk about this, James, I always wanted to buy more in the Northeast, but frankly, I was finding better deals in the Southeast. And we bought. The chunk of our portfolio was in Nashville, Atlanta, Louisville, all throughout the Southeast. And we ended up selling those properties for ridiculously low cap rates when the market left New York and California. And we're focusing on the Southeast. And we actually then returned back to the bigger cities, bought another couple of deals in Chicago. We had tried to buy more in New York. We've Always been a bit contrarian, but I think the benefit of looking at a larger market like the eastern half of the US is I can look at market to market and I can figure out the job story, the population story, what's the going in cap rates. And you could start to see at points in time, markets that would stand out as great investment opportunities. Like in 2013, we bought a deal in Sandy Springs in Atlanta, great market. Ultimately, Mercedes built their North American headquarters next door to it for a 6 cab when Charlotte and Orlando were trading at fives and New York was trading at low fours. And we looked at it and said, there's tons of people moving to Atlanta. You have a major corporation building right next door. There's so many good job stories, too many dimension, and it's 6K. I don't get it. And so we bought it and ultimately cap rates compressed, and now we sold those deals at high 3 caps. I said, why would I buy in Nashville or Atlanta at a 3, 3 and a half cap when I can buy New York at a 5 cap? Just doesn't make any sense. So we've always, we've been good at looking at various market. Not just there's benefits to focusing exclusively on one market and building your entire career out of it, but I think there's also benefits to, you know, having a bit of a wider angle and, you know, in order to find opportunities.

That's great. So talk a little bit about your ability to source. And I know you talked about the team and having acquisitions, but also how to win deals because, you know, the space that you play in, I mean, you're definitely going up against the institutions. Right. And obviously you have institutional partners. But, you know, I wouldn't surprise me on a lot of these deals that you're competing on nationally. You're up against the big REITs. And if I'm a seller thinking, okay, well, I've got one publicly traded company and then there's, you know, Scott. And again, you guys have a great track record, but how are you able to convince these sellers that you're the best option besides just, you know, paying the highest price?

Yeah. So, I mean, you know, keeping in mind that the first deal was a friends and family raise, there was really no institutional equity was touching. That deal in Ohio that we bought in 2011, we bought that for a 10 cap on a $6 million acquisition in Ohio. And then the second deal was actually a deal that I bought for JPI that fell into foreclosure. I kind of tracked it all the Way through. And ultimately it landed with New York Life, who was the mezz lender and even above them was Guardian, who had the senior loan. But we were there in 2012 when no one else was to buy it and they were willing to take the risk on us. But from that point on, we really had to sell ourselves that. We definitely lost some deals early on that people said, listen, I've got Harbor Group who's willing to go hard in a day on a 10% deposit. I couldn't compete with that. So instead of just trying to compete with that, I had to, you know, go after deals that I thought I could win. And that's also been another hard part, you know, in building our business. There's a lot of times where I wanted to pursue certain deals, but, you know, we didn't have the capital. You know, like I, you know, for example, you know, during COVID I really wanted to buy core. Core acquisitions thought there's a great loss lease story by super high quality real estate. And yet our equity partners that would invest with us wouldn't invest in a core deal because they can do it themselves. So I couldn't buy the core deal I wanted. Either you have the relationships to get it done or you don't. And I think sometimes entrepreneurs try too hard to pursue something that, you know, it's such a long shot. We also found a number of off market opportunities. So, you know, I had to build up my book of business. You know, for Crescent Heights, I didn't really have a territory. My territory was anywhere, you know, but I found better success closer to home because it was a shorter flight. Right. You know, I remember for Crescent Heights, looking at a deal in Vancouver and realize that I'm not gonna be able to fly back and forth every week to try to get a deal done. So I built up a large contact list of owners and brokers. I mean, obviously you have the larger brokers, but then you have a lot of smaller brokers. And I think it's been clearly communicating to people what we're looking for, being able to articulate that is important. So that there's times where James, you've called me up and said, scott, I got a deal that I think is for you. Right? You don't call me with every deal because you know exactly what I'm looking for. And just really staying diligent. On that deal that we bought in South Norwalk out of foreclosure, the first 20 times I called New York Life, they didn't pick up the phone. I just Stayed on it and finally the guy picked up the phone and took my call and we ended up buying it. Now, if I'm going to compete toe to toe with the institutions, it's very simple. Either I can compete on the same terms they can with the same deposits and the same due diligence, or I get to be a higher price. Why would a seller pick me? Or I have a relationship with the seller, which has happened before too, where I know someone really well and I've also lost deals that way. Right. Had a deal in D.C. that I was close on during COVID and ultimately the seller went with someone else because it was like a brother in law of a brother in law and I didn't win the deal. So that's really how we ended up doing it.

That makes a ton of sense. So talk a little bit about lining up your capital partners. So you see a deal and you have, you know, some great institutional partners you've mentioned Blackstone, Fortress, Oaktree, and I'm sure part of it is knowing what each of you know, buckets of capital they're working with. So I would imagine when you have a deal that you like, you probably are thinking of a half a dozen, if not more potential partners. Maybe talk a little bit about how you manage that process simultaneously with trying to bid because you're trying to win the deal. And I'm sure you're ultimately want to show the seller that you're showing up with a credible partner. So how are you kind of managing that? You know, selecting the right partner, going to the table with them, and then ironing out your agreement with them as you're also trying to sign a contract with the seller.

Sure, yeah. I mean, I always believe the best way to do it is to have the relate. I mean, you know, our business unfortunately, you know, a lot of times becomes, you know, very business and not personal. I mean, James and I, you have a personal relationship. You know, our kids have been on the same sports teams together. But ultimately, you know, if I didn't know you, you had a deal I liked, you know, I'm going to buy it and we're just, you know, you're a phone call and it's a business relationship. But when it comes to, you know, investors, I was always of the mindset, you know, let's sit down and talk. You know, everyone's like, well, send me a deal. You know, you sound interesting as a company, but send me a deal. And that's a way to start a relationship. And I said, well, why don't we sit down and get to know each other first. I can tell you about the deals I've done. I can give you my opinion on what I'm looking. You know, what I think is interesting, but what I really want to do, just like you've done with me, is I want to be able to pick up the phone and say, this deal fits so and so and be able to call them and say, I've got a deal for you. Right. So we spent a lot of time, you know, meeting with these people before we even have a deal. I mean, we did two deals with a family office out of Middle east, who. We spent a lot of time meeting with them before that deal was done. Right. And with a lot of these private equity firms and also with us, our minds change day to day, week to week, with such a dynamic market that I can tell you what I want, but I promise you it's going to be different in a few months. So we've got to stay on top of all these investors and what they're looking for. Sometimes just the stars align. With Oak Tree, it was interesting. Oak Tree had a fund in 2011. I don't remember what fund it was, but they were invested in a lot of office, retail, hotel, not too much multifamily. The fund was doing really, really well because they bought a lot of assets during the recession, and they were fundraising for another fund, and ultimately they didn't have a large multifamily allocation. And we were knocking on their door at the right time. And ultimately they wanted to put out a lot of money in multifamily. So if we weren't knocking on the door, we probably wouldn't have gotten that first call. Or maybe we would have, I don't know. But it's just staying on top of folks and understanding what they're looking for. I took a cue from some of the best retail investors in the city, like Jeff Sutton and, you know, Joe Sid. You know, those guys buy buildings, you know, that are vacant and have a retail tenant already, at least by the time they close, because they know what that tenant's looking for. Right. And they go out and look for it. And not every tenant has or every investor has the same, you know, the same, you know, investment thesis and the same requirements. So it's really understanding what everyone's looking for.

That's great. So with only a couple minutes left, what advice would you give to aspiring investors? Maybe they're working at a big firm like you did and thinking about going off on their own. What Would, what would you tell them on how best to get started?

Yeah, I mean, you know, I would say there's many angles that you can, that you can come through to do what we do. And I think the most important thing is deal flow is just seeing a lot. I interviewed with a firm before Crescent Heights that was a pretty prominent developer. And it was a well known gentleman who was spinning off from a family and very, very wealthy family. And his attitude to me was, listen, we're not going to, I don't want to do 10 deals a year. I want to do a deal a year and I want to do really high quality. And I just knew that I was not going to see enough. And I think whether you're, I could have worked for a brokerage firm and saw a ton, right, A ton of volume. Maybe you're not getting into the hardcore underwriting or the operational business plan as you would on the principal side, but you're seeing, you're seeing deal flow and I think that's the most important thing. You know, sometimes people think, oh, and everyone's got a different opinion on. This is just my humble opinion. But if you're going to do it on your own, I think pedigree, you know, in terms of the name brand that you're working, it matters less. You know, sometimes we're so, you know, programmed to think, okay, we've got to get a job with the best name developer, the relateds, the Brookfields. You know, the reality is that the bigger the company, the smaller, you know, role you're going to have. Which again, you know, if your career is going to be working for someone else, you know, getting those names on your resume and working on some very high profile projects is great. I chose a different path. I wanted to be with a company that was well known but, you know, was different, was privately held. They were super active, very entrepreneurial in the way they were organized. You know, I mean, I had friends that worked for acquisitions and other companies and ultimately, you know, they spent the first two years doing just like pitch books, you know, or, you know, never going out on a property tour and just doing numbers. You know, I have, we have interns that work for us that I bring on property tours and you know, and underwriting deals, I mean, to the extent they can move quickly, you know, people negotiating contracts early on, you know, so I just found the right environment to learn as much as I can. And you know, when I felt like I, you know, at jpi, that was the last job I had before starting, you know, my current company. But if it wasn't the right time, I would have left there because I just feel like I hit a wall in terms of knowledge. You know, I would have jumped to another firm to just, you know, I was a thirsty sponge.

Great advice. So, last question. So the name of this show as well as my upcoming book is the Insider's Edge to Real Estate Investing. So what would the Insider's Edge, what does that mean to you? You know, and how would you say that that helps you outperform the market?

Yeah, so. Well, I can't tell you all my secrets, but, you know, I think a couple things. One, you know, like I said before, what's your differentiator? Right? And I kind of explained our differentiator on the marketing and design. We are not, as of now, we're not focusing on, you know, the uber high end, you know, part of the business. We're focusing on really, you know, the middle market, you know, call it loosely, 80% of AMI. And we have many theories on why we think that is the best part of the business right now. And, you know, what we've been good at is not investing with the herd. Although there's times where being a contrarian is difficult. And by the way, I say that, and that's really my education from Crescent Heights, I can tell you that. I mentioned that deal in Vancouver. I had a piece of land in the best area of Vancouver and I had the chairman come take a look at it. He got off his plane, looked up the coast and saw six cranes on the ground. He said, nope, too many. Got right back on the plane and went home. And I said, sonny, don't you want to hear the street? Too much construction. And his attitude was he wasn't going to build in a market that was. Everyone else is doing the same thing. So we say that, but we're still raising capital on deals. So I can't be a complete contrarian. So there's that balance of finding the right investment thesis, the right market at the right time. And I think we've gotten very good at that. And to always think 20 years in the future, even though you're just starting, people want to invest with someone who is going to be a steward of their capital. And you know, a lot of times people just think it's, oh, it's a good deal, it's a good deal. No, you know, it's more than that. Sometimes, you know, you can mess up a good deal. And, you know, if you want the best chance of success, I think you need to think, you know, on a larger scale.

That's fantastic.

Well, from James Nelson's, you know, that's the other way to find good deals.

Well, I appreciate that. And Scott, you know, you got an incredible story and I know our listeners are going to get a ton out of this. So I guess is going to your website, is that the best way for people to see what you're doing, spiritinvestmentpartners.com or I don't know if you're active on LinkedIn or where else people.

Yeah, our website's the best. We've been actively looking for new deals. We have a few things that we're, we're circling a couple development deals closer to home and some other larger projects in our markets that we're hopefully going to be about to release soon.

Awesome. Well, Scott, thanks again for coming on. Really appreciate it.

Yeah, thank you, James. Appreciate it.

Perfect. And everyone, this is your host. Thanks again for joining this week. If you have not already, please go to james nelson.com where you can find the show notes for this episode as well as you can go and pre order my upcoming book to give you the insider's edge to real estate investing. So until next week, thank you again.

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