The Insider's Edge To Real Estate Investing with Adam Wolfson

Welcome, everyone. Thrilled to have with us today my friend Adam Wolfson, who is founder, CEO and CIO of Wolfson btr. Adam and I have gotten the chance to get to know each other through BizNow and their escape retreat that happens every year. So spent time in a more casual environment. But wonderful to have Adam now up here. And apologies in advance because you live in Miami and you came up to New York obviously not just for this podcast. You had other plans here as well. But I checked the thermostat this morning, it was 9 degrees outside. So thank you for making the track up here.

Thanks for having me. And being from Michigan originally, I think I can still handle this. Except been in Florida now 16 years and the blood tends to thin, as they say.

Well, wonderful. So I think, Adam, as we first, I think define what btr, because I had to ask you myself as well, as far as build to rent versus sfr, single Family Homes for rent. So maybe just for our audience, the definition of what BTR is.

Sure. Well, first, it's a. It's a strange name, putting it mildly. I don't like the name at all. I think it's. It's very hard for people to wrap their heads around. But I'm grateful for the fact that we have a name because that means we're investible institutionally. Before that, nobody knew what to make of the asset class. But BTR in essence refers to communities of homes that were built to be rented, right. It's typically three, four and five bedroom homes. It's sort of the cousin of multifamily and sfr. Whereas multifamily, you're dealing with studios, ones, two bedrooms predominantly. And in SFR you're dealing with threes, fours and fives. Multi is all sort of centrally built, right? It's centrally managed, which makes it really efficient. Whereas sfr, there's these large homes which were typically purchased in portfolios or at the end of quarter from builders or through I buying. And they're scattered all over the place, right. They're not a homogenous pool of assets. So they're sort of, they're all over the place in terms of both the, the type of units and the geography. So BTR took the two asset classes and really sort of combined them and did something in the middle which was vastly more efficient.

Right.

You can now operate all of these single family homes with on site management versus scattered site management. And you wind up also getting the benefits of sfr, which really appeals to a different sort of demand driver than multi and so BTR entire purpose built communities of homes for rent, typically townhomes or single family homes, typically three, four and five bedroom homes. We amenitize them just like a multi family deal. And you know, these are, you know, again they're, they're, they're taking the best parts of SFR and the best parts of multifamily and combining them.

Great. Now that makes a lot of sense the definition because when I was looking at your portfolio, and again at this point, maybe this status is a little dated, but at the time, time when you were recently covered in an article, said 2,000 units in the pipeline and then I, I looked at some of the projects. So in Bradenton you had a project that was on 31 acres with 184 units. But then you had a project in Michigan which was 100, excuse me, 75 units, but only 4 acres. So it doesn't necessarily have to have, you know, dozens of acres. I mean you can do this in a more efficient way. But again, it's as opposed to one large multifamily, it's more broken out living. Right. How would you describe those two projects that you did? The one in Bradenton as well as the one in Michigan?

So the Michigan one was never really intended to be a BTR deal. It was more of an adaptive reuse where you wound up with townhome like units.

Right.

But they didn't have attached garages. They had small sort of balconies or backyards, but not, not a real yard. We, I think evolved with the Cantabria deal. That's the Bradenton one. That was 184 units. That deal was the, it's credited as being the first large scale BTR development in Florida that, you know, sort of was a pioneer in many ways. It was the first deal that was done on balance sheet with a publicly traded builder almost as a partner. It was also the first pre sale in the space which we sold to JP Morgan. It's public information, so it can say it, but you know, that's a very different community. As you said, it's on 31 acres. We have deals now that are on 200 acres.

Right.

And so in order to do something, you're really individually platting each home.

Right.

And so it's going to have to follow the same setbacks, it's going to have to follow the same zoning code as a townhome community that was for sale. And so that's, you know, seven to call it 10 units per acre. Not really much more efficient than that. It's not really an adaptive use. These are townhomes, 20 foot wide, attached garages, private backyards, and very much akin to what you would be finding, as if you were looking, say, at a starter home, townhome community.

Right.

One thing I noticed about the photos, the renderings, these were not cookie cutter. I mean, I'm sure there's definitely economies and that you are, you know, there's certainly similarities, but it didn't just seem like some type of commodity built. So I don't know if that was intentional to write, to kind of give them their own character. But how do you think of design when you're also trying to, you know, build for efficiency?

I think it depends on the market you're in.

Right.

It also depends on what segment of the market you're trying to, I guess, market to. For the most part, we're going to look at something that would be, you know, these are not. Even though they're sort of entry level houses, these are still homes that people need to be proud of.

Right.

When they're going home. And so the person who's renting that home would have also bought that home.

Right.

And so you can't have something that's going to just be a commodity product that, you know, is going to be something that you could sort of find and replicate everywhere. But at the same time, you really need to have those economies of scale in order to make it work. So it's a balance.

You know, the other thing I was thinking about, so most of these homes that have been built historically, whether it's the Toll Brothers, the Pulte development, where they're. They are selling the product. So why did you decide to take this different tact and how are the economics different? I mean, are you, do you think you're still competing with the Toll Brothers? When you're looking at a site so you're looking at it for rent, they're looking at actually selling the houses. So how do you. Yeah, how do you kind of weigh the two options?

So there was a time, right. So we had just come off the heels of the Bradenton project and went out to raise a fund internally. My partner helped raise a fund for us. We raised three different vehicles over the course of our partnership. And, you know, as we started to go out to secure land, it became apparent that for a time we could outbid the home builders, the publics, and they had no idea why.

Right.

We were still, for a time, and the rest of the BTR industry really wasn't there yet. And so we were valuing obviously the capitalized value of the noi.

Right.

We were just essentially backing into a cap rate value of how much we could pay. It's always the last thing you value. It's the land. And so we were, in doing that, you know, candidly capable of even paying more than we did for a lot of the sites. But all you had to do was essentially pay $1 more than the next closest bidder. And a lot of those bidders were public home builders. But whereas the retail value of the homes they were going to sell, let's say at the time might have been 320 to 370, our capitalized exit value there was well north of 400. And so we had an ability to, I think, pay more than they did for a little while now. When cap rates blew out recently, that changed. And so the public home builders were still having a lot of demand. I mean, demand for homes is through the roof. Right. And we can touch on that later. But they now have been able to outbid the build to rent guys, because the build to rent guys are looking at now needing to build to north of a 7 or close to a 7. Know the exits, which once were, you know, low fours, are, you know, maybe just over a 5 right now. And so you've had close to 100bps of, of spread come out of that market. And that's really favored the home builders as it relates to being able to buy land.

Yeah, Even here in New York, I mean, when we see a piece of land, we're still looking at what's highest and best use. So we've got the rental model, we have the condo model. The rental for a while was very quiet, but has now been supported by tax abatements. Right. That are helpful because here in New York, when you build something and you know that the taxes can really impact your bottom line. So, you know, we had this 421, a program that expired. After that, land values dropped by 75. Not value, excuse me, transaction volume dropped by 75%. Basically, land wasn't trading until we have this new iteration. It's a little early to tell. Will that be a widespread success? That that has certainly helped. And I think that's the city's way to kind of even the playing field Right. Between rental and condo. That being said, we know if we have a corner site on Madison Avenue or you know, the village that's going condo. Right. That you can give as much tax subsidy as you want when you have condos. Or maybe the comparison in your Business is if you're in a certain neighborhood where single families command, you know, a premium, it might not make a difference. So how much kind of the neighborhood factor, I mean, I got to imagine there's some areas where maybe you're building where maybe there's not a strong of.

A market for homeownership, I would say it's actually the. The other way around, right. People will determine home building is drive till you qualify.

Right.

And so as you start to get one exit further and one exit further from, you know, the central business district or wherever the jobs are, you know, people will to own a home, typically go a little bit further out to get that better price to be able to commute in. There is a certain distance, and it's not a scientific set distance, but. But if you're having to commute an hour in from a rental, folks aren't going to do that. They can typically find a rental home 30 to 40 minutes out, which they'll do, but they're not going to go an hour. Plus where a homeowner will. Being from the Midwest, you know, we drive on the west side of the state in Florida, people are from the Midwest. They drove down 75 versus 95 on the east coast, and they're used to driving. And so folks, you know, in Fort Myers might work as far north as Sarasota or vice versa.

But.

But typically, I don't think those folks are going to rent to go drive that hour. They will buy to do that.

But how much when you're looking at the land, are you. I mean, you're obviously running the comps on where you think you can rent homes for, but are you even comparing or aware of what homes are selling for in the area does that? Because that's got to play into the calculus, right?

100%. You know, the fact that we do these on individual plats, right. Each home on an individual parcel means it could be sold retail if you wanted to do it. And so you always have to be cognizant of the fact that you can't be over overbuilding for that.

Right.

You have to build something that's not going to exceed retail value for your cost of construction when you go to finance it. At some point, the debt markets are going to absolutely look at the value of the collateral both ways. And so you can't be building, you know, a townhome for 400,000 when dear Horton's down the street selling one for 350.

Right.

You need to be absolutely cognizant of what's happening around.

You got it. So you said before BTR wasn't really institutionally recognized. Obviously you sold your Baitington project to JP Morgan. That that sounds like a pretty good endorsement now by the institutional world. So why was it that the institutions had not taken notice of this before and why are they now? Are they still heavily focused on this sector?

Yeah, I mean the institutional investment has grown significantly in the BTR space. And I think you had a lot of folks who understood sfr. In the institutional investment space, you also had a lot of folks understanding multi. But for a time, and it was really the same sort of calculus I was going through when I came across the first project. Okay, so you have these small three bedroom, 1300, 1400 townhomes, they've got a garage. The project is almost all threes and fours, right? Almost all threes. The question is, can you rent that many threes? Well, you look to the SFR industry, right? And you can see there's an analog in that there. At the time in 2017, they were 97, 98% occupied. And so, okay, market specific. If you look at a specific market, you should be able to get an idea as to whether you can rent that. So we check that box, you can rent it. Then the big question is, can you finance it? And then the second one is how do you exit?

Right?

And once the second one was solved, the third one became, you know, it takes care of itself. And so there was a time when you really didn't have a construction lending market for this type of product because nobody knew what the exit was going to be, you looked at multi, it was trading at the low fours. You know, you looked at SFR right around the same place. And so theoretically this should trade like either one of the two. But nobody had really built one of these at the time. And so when it became apparent that you could put multifamily debt on it, and once we understood more fundamentally that we were building to, we were building the first one to north of an eight when I first underwrote it, it looked like a seven, seven and a half, right? And then when I realized I was using multi family construction numbers and this is far cheaper to build, it was an eight and a half, you know, and multifamily permanent debt at the time was in the low fours. So you didn't really know what your exit was going to be at the time because there wasn't a market for it. But once you knew there was debt for it, if you're building to, even conservatively, 350 bips above your cost of debt, your permanent debt, you're going to return most of your cash or most of your investors cash from cash flow alone. And so once those dynamics really started to, you know, figure themselves out, then it became apparent that this was institutionally investable. And once there was one trade, then when there were more trades. And so, you know, there's a trade that just happened not too long ago where I think on in place, on, you know, the seller's numbers, it was already into the high fours.

Right.

Buyer thought that they could manage it a little bit better and so on their numbers it was a low five, but that's a pretty good number and not too different than multi these days.

So how do you look at demand? So is it demographics? I mean you're looking, what are the major drivers that you're studying to see if there is in fact that demand that you're talking about for so many three bedrooms. If you're going to go build, you know, 200 plus homes, how do you know that there's going to be the absorption for them?

So, so everything's going to be market specific.

Right?

There are a lot of markets right now we wouldn't touch even though long term the demand is there. You know, there's just too much supply and there's too much land where there will be more supply over time. There's also a shadow market of single family homes that people purchase to rent even though they're not contiguous.

Not to stop you, but this is a really important. How do you figure out what the supply is in the shadow?

The shadow is really difficult to figure out, but the first thing we'll do is we'll go to Zillow and see, you know, where are the home builders building. And if we're going to, you know, take 150 units and there's two or three or four public home builders building right around the corner and it's similar starter home product, that's a problem.

But if their condo, because you know who the developer is, or I mean individual home sales, you're not as concerned with that if you're not competing with the sale product.

No, because they, the home builders have figured out that when they get to the end of the quarter, if they have inventory they need to move or if they're just starting a project and they need to get some sales book, they'll go to the SFR guys and sell them at a little bit of a discount to the SFR guys. And so you could wind up and you do wind up in a lot of cases where brand new product that is not too dissimilar to what you just built is, is being rented by institutional owners in a for sale community. They bought two or three, they bought five, they bought one.

Right.

And so you could wind up with progress or invitation owning a home in a community that was originally for sale down the street. And so it's, it's very hard to quantify because they're allowed to sell these however they want.

Right.

So that's the supply side. How do you determine what the demand side looks like?

So the demand side, you know, is not too dissimilar to figuring out supply demand fundamentals in say multi, where you can figure out what the net migration is going to be or has been. You can figure out the number of starts, you can figure out the number of deliveries, permits, all of those things. Those are, that's readily available data. But taking a step back and getting sort of out of market specific, there's a fundamental housing shortage, right. It's an unsolvable problem. We are on average building 500,000 homes less every year than we need. And you know, coming out of the Great Recession, that number is now, if you total it all up, somewhere in the four to six and a half million range. Right. So we have since 2008 to 2011 under built by six and a half million homes, call it four and a half to six and a half million homes. And when you look at sort of the household formation, it hasn't dramatically slowed, you know, during economics difficulties. It does slow a little bit, but it doesn't fundamentally change. You're still having people getting married, having kids, getting a dog, graduating from what would have been a rental experience in multifamily. And then in multi, as you know, what did they build 5%, three bedrooms over the years, since the 90s. And so the folks who are in the three bedrooms aren't leaving. So where do you go? Well, typically those folks would have gone to the for sale market and they would have gone for their starter home with, you know, again, such a shortage of homes to begin with, they can't. So the price of homes keeps going up. Even if the rates were decent, they couldn't afford the price of the home. They didn't have the down payment, they didn't have the credit. And now with rates where they are, you know, we're talking about for our home that we would rent for, call it $2,700 per month to 3,000, you have somebody that would in a mortgage be paying $4,400 per month. The interesting stat is if you cut that mortgage payment, if you cut the rate in down to three, they'd still be paying 32, $3,300 a month for that home. So it's fundamentally cheaper to rent a home than it is to buy one. And so I think you've got this sort of secular, it's not even a tailwind, it's a secular hurricane, right, because you've just got a supply demand imbalance that is really, I don't know how you build your way out of that for the next 10 to 20 years, they say. So you've got that sort of secular wind behind you. And then cyclically, right, you've got, I think, a hedge on both sides of the interest rate trade. So as rates go up, people stop building, they can't get construction debt. Apartments don't get built, homes don't get built, people can't buy homes, they're forced to rent. But you didn't have any new rental product delivered, so the rents go up. On the other side of that, when rates go down, yeah, you might lose some people to the for sale market, which is fine, but debt's getting cheaper, which means your cap rate value is getting better. And so it's really sort of, you're straddling both sides of the interest rates trade, but you're really buoyed by that secular, I think fundamental supply demand imbalance.

So I was going to ask you, this was right at the top of your LinkedIn page. You said, Solving the housing shortage one BTR community at a time. So how much, I mean, talked on the show before and Simon Sinek, what is your why? I mean, have you really thought about that? You're addressing this housing need. I mean, how much does that become kind of mission driven as opposed to, you know, this makes for a great.

Investment thesis in the beginning. You know, candidly it was a great investment thesis and that's really what we found. And you see those spreads at the beginning of an industry, like I was saying, right, you're able to build the market's inefficient at that time because it really didn't understand what it was. But when you saw 400bps of spread, I mean apartments were getting done for 125bps of spread on a development deal or even inside of that in some cases. And so, you know, in the beginning it was, wow, there's, there's an opportunity here. As time went on, I don't know that you can really separate the mission from the returns.

Right.

If you're, if you're chasing, I guess, returns that are that higher, if you're chasing a mission and there's that much opportunity, that means the problem is that big. And so as you start to see opportunities, I think as you start to see spreads like that, it's really telling you that, that there is a huge problem that has to be solved. And so, you know, I don't think we've crossed in all in all into the. We're doing this and we would do it for 75 bips, a spread, mission driven.

Right, right.

But we're very much aware of, of the problem and it just happens to also be a very good investment thesis.

Have you ever thought about going into kind of the affordable side of the equation? Is there subsidy available for what you're doing or is it just all kind of governed by the free market?

Originally governed by the free market. But Florida has been ahead of the curve. They passed Live Local, which allows for tax incentives for, for designating some of your units. Not capital A affordable, but affordable within, you know, X percent of the median household income. And so we've actually looked at that for several, several of our projects. It also allows you to get streamlined zoning.

Right.

So you can get through a zoning process and people really can't get in your way. You can build more density than you typically be able to build as long going to, you know, designate a certain number of units. And, and really, you know, hats off to Florida. We need that there.

Right.

We need more building and the regulation and the hurdles you have to jump through to get a project out of the ground. We're two years into some of our deals before we're breaking ground. And you know, it, it's a difficult process. And so to have not only the tax, tax incentives, but the zoning and approvals incentives for building something that's more, you know, lowercase a affordable. Absolutely. We're looking at.

And how. I mean, clearly there's gotta be some opposition, you know, for these projects from the community. I mean, we deal with this in New York as well. NIMBY not, you know, not in my backyard. I mean, I think everyone acknowledges that there's a housing crisis, but at the same token, is what you're doing appropriate for the area? There's also environmental concerns. You know, is it, this being done in a thoughtful way? I know in Florida concerns about, you know, kind of the water tables and what that's doing. I mean, how do you, how do you get out ahead of that and kind of engage with the community to have a more, you know, balanced approach to these projects.

Sure. You know, the environmental is, I think, a harder one to tackle. Right. Because there's going to be a disturbance of a wetland, there's going to be a disturbance of a natural habitat. It's, there are ways of mitigating that. And we work with the Army Corps of Engineers, we work with the, you know, Florida, Florida water management districts. Locally, it's very difficult to avoid those impacts. And so it's a real conversation of what are the best interests of society, what are the best interests of people. You need housing to put people in and yes, fundamentally that can have environmental impacts, not to say you can't offset them. And so we, we try our best to do that specifically with wetlands. But with respect to the NIMBYism, that's a different thing. Right. And it's not. Does this fit in with the character of the neighborhood? Usually because we're a lower density use, we're going to disturb less of what was there before. We're not building a, even a mid rise building in someone's backyard. This is, you know, at worst going to increase traffic because you're going to have more homes there. But there's a stigma that people have against renters.

Right.

And that is really the more difficult one, I think, to sort of break. It's a societal thing where people believe that renters are more transient. In fact, in Malte, right, that may be true. You're turning 50% of your units per year in single family homes for rent and build to rent, we're turning 20 to 25%. People stay in these homes, they take care of their homes, they maintain their homes better than sort of normal apartment renter would because they feel a sense of attachment to it, a sense of ownership. Their kids are in school in the neighborhood. And so the, I think the stigma is totally unwarranted. But I don't know fundamentally how you change it other than through speaking out against it. And whereas people in our industry will listen to this podcast and, you know, get it, I don't think the neighbors for one of our projects in Florida are tuning in here because it's not really relevant to them. They just know what they don't like. And some of this is just, you know, years and years and generations of, I think maybe, who knows, maybe a long time ago this was something that was appropriate, but it's no longer. I think most of the country is going to rent now at some point in their lives even as they get into the later stage. I think before the stat was that the average age of a renter was in the late 20s, early 30s. Now it's late 30s, early 40s still, before they're going to buy a home. And so I think that that stigma goes away at some point because more people wind up going through the system and have rented at some point. But for the moment, it's a challenging one.

Now, I know at least two of your projects have been in Florida, but obviously the other in Michigan. And maybe that's because that's where you grew up, you went to school. But is it really just. Is your sole focus right now in Florida or are you looking at other states as well?

Yeah, we're, we're. I mean, we're based in Miami. We don't have a single project in southeast Florida. Cost of land is just too high down there. All of our projects are scattered through the state of Florida, but we've been looking from Texas to Tennessee and sort of down. We're looking at doing a number of different JVs. You know, candidly, at our stage, we'll call it top 10 to 15 in the country in terms of portfolio size, depending on whose math you believe. And you know, we've been able to do that without really raising institutional capital. That's all high net worth fundraising. And so for us to go out and sort of do one deal at a time is a way to grow, but I don't think it's the path to sort of growing as fast as we want. I think there's a moment of consolidation in our industry because there's a lot of developers who have 3, 4, 5 projects that aren't bankable, that can't get their financing in order for all of it. But that's sort of our target for growth. We want to go find folks that have three or four projects tied up, can't capitalize it, need an LP that would also take a cogp. And so we're looking at portfolios in the Carolinas with one particular partner there. We're looking at some in Georgia and Alabama with another partner, we're looking at some in Texas with another partner. And the idea is to see if we can do all of those deals through our fundraising network and trying to do almost more M and A activity where we can just get to units faster.

So you said that your stable of investors are high net worths. Right. And you're doing this more on a deal specific or is it a fund approach?

We've done both so the Bradenton deal was deal specific. The Fort Myers deal wound up being deal specific because it was too large to fit into the fund. But we did launch a fund vehicle called the Plain Sight Properties Resi Fund Series, and that was a discretionary vehicle. We came into it with, call it 60% of it already identified and allocated, but that was a fun vehicle.

So if the JP Morgans of the world are willing to do the takeout piece and buy it once stabilized, is there any institutional appetite on the front end, the acquisitions doing something programmatic?

Yeah, I think that the institutions have definitely stepped into the development space because that's where they can find the better yields, the takeout space. There used to be a middle market, which was your forward sale, where the institutions would come in and buy it at certificate of occupancy, vacant, and they would sort of take these down over rolling takedowns over the course of, you know, six months to a year, and then they take the lease up risk. And so if you were, let's say, building to a seven and the exit is these days of five, that should be called a six.

Right.

And that market still exists. It's not as robust as it once was because I think people are either, you know, looking for development yields or they're really just core buyers at the end. And so we're waiting for that middle market to come back more than, than it's been lately.

So again, we've spent time down at BizNow's retreat at Escape, and for those of you don't know, it's an opportunity. This is not your typical real estate conference where there's panels and people, you know, talking about, you know, the market specifically. I mean, although a lot of those discussions happen, you know, in these breakout groups. So how, how is it that you've gone about growing your network and, and maybe when you talk about maybe your growth, geogr is going to be finding partners. Right. So, which seems really smart because as opposed to your setting up shop maybe in Texas and competing against the local players, it sounds like your approach is more going to find, you know, the boots on the ground, but maybe they need your more institutional approach. So that, that begs the question then, how do you find these partners, whether they're in South Carolina or Texas? I mean, is, you know, maybe you're, you're meeting them at, you know, conferences like the, you know, the BizNow escape, or, you know, is it kind of more just through word of mouth? How do you go about expanding your network?

Conferences, obviously, like, that's A great place to meet other owners who are looking for capital, other developers, other capital providers, investors. But the local broker network is really, you know, I think where a lot of these come from. I've been fortunate because I was around in the BTR space before it was a BTR space before we had an acronym. And so a lot of the folks just know because I've been around for a while in the space. But going into a market, you don't know you're making a mistake if you don't talk to the local brokerage community because they know on the land side who owns what land, how long they've owned it, what they're looking for, who would take a COGP partner. A lot of the capital markets guys are out looking for capital for developers that don't have it right. And so being active in the brokerage community I think is a, a very good way to stay connected or to, and to get more connections.

And then how do you know when. Brokers can certainly be helping helpful making those introductions. But you know, there's something having know someone, maybe they've, they've transacted with them on the brokerage side, but actually becoming a partner and doing a deal together for the first time, you know, there is a little bit of a leap of faith there. So how do you determine that this is the right kind of match and how do you go about these partnerships?

Yeah, it's a good question. Because it's hard to find a deal that pencils right. And so does it work economically is typically the first question. But once you get through that, it's can I live with this person as a partner?

Right.

Are they going to be able to deliver on the things that they said they're going to be delivering on? Are they capable? If they're capable, are they good partners? Because those are two very different things. And so it's a challenge. I will say that I've had good partners, I've had bad partners, but the better partners are the ones. And we're going through this in a deal right now where the deal's changed quite a few times, not due to things that we're doing internally, but these are folks that when the deal changes, are doing the right thing. And that's I think, more fundamentally important to a partnership than anything else. Growing up in the Midwest, I was a little surprised when I came down to Florida. There are a lot of sharp elbows, a lot of folks that didn't do what they said. And you know, it's, it's culturally different Right. You have people coming from all over the world who have different business practices, where things are okay, where they came from and, you know, where I came from, we shake our hands and that, that's what we're gonna do, you know, come hell or high water. And I think those are your better partners, how you find them, word of mouth.

Right.

You need to vet them. You need to understand who you know has done deals. If they've done deals institutionally more than one time with the same partner, that's typically a good sign. You know, there are typically red flags, I think you will find if you dig deep enough on a potential partner. But track record, prior partnerships, repeat investors, those are all good things to look for.

Yeah, I was going to mention we certainly don't have to get into the details if it's still a live situation, but I remember coming back from one of the events and we shared an Uber ride and, and clearly a situation that was a result of a neighbor maybe being, let's say, a little unreasonable. And, and it seemed like this was a, a challenging situation to say the least. But I could just tell, I mean, you get a sense of people, you know, spending time, you know, going back, seeing how they handle conflict. It didn't. This clearly was a very frustrating situation. You seem to keep your calm and you know, really, I guess look more on how to solve the problem. Is that, is that a pretty good characterization of how you approach? Because in real estate there's issues. Right. Things pop up. Sometimes people do things that aren't great, other times there's surprises. Right. And how you manage those issues, how you deal with them. What's kind of your approach with that?

Not to take it personally, although in this particular case, I remember this, this neighbor, he just had it out for one of the people in, in the transaction, not, not us. And so it didn't really matter what, what, yeah, what, what you wanted to solve. He just didn't want to solve it in a way that benefited the other party in any way whatsoever.

Right.

And so that was a challenge. But you know, I was reading a post closing document on the way over here, so it's still, it's been solved. The closings have all happened, all of the cross access easements are all done. But it was a challenging situation.

Yeah.

And, and you know, for us, we were going down one path and that was the way this neighbor wanted it to be. And we said, okay, fine, we'll pivot and go that way. And he said, well, let's go back and do it. The other way. Okay, fine, let's go back. At the end of the day, all we cared about was the result. If someone needed to feel better because it went one way or the other, fine. If I thought about sort of the legal dollars we spent in doing that and the time and the brain damage associated with it, I wouldn't be happy about it. At the same time, when it's done, it's done. And we've seen internally a lot of situations, not necessarily as difficult as that. But in development, when you go buy a piece of land and you have to go through entitlements in the state of Florida and you have neighbors that have differing opinions of what. What should be, you're going to wind up running into problems. And so I think you have to compromise. I think you have to be confident enough in your own underwriting where if you lose a percentage of your units or if you have to change something here or there, or if you have to dip into your contingency bucket, you're willing to do it for the betterment of your project. At the end of the day, you're protecting your investors.

Right.

And so you buy this piece of land and something comes out of nowhere. You have to, first and foremost, try to figure out how you're going to get your investors through this deal and paid back at the end. That's your primary responsibility. Your secondary responsibility is trying to make some money doing it.

Right.

Yeah. I don't know if it's a mix of Dale Carnegie, how to Win Friends and Influence People, or maybe more. A few couple years ago, Chris Voss came and spoke at BizNow. I don't know if you were there for that on the. He was the. The former chief hostage negotiator for the FBI. But he said a lot of the times when you get in these disagreements or you have the tension, it's about the other person wanting to be heard and trying to empathize with that. So even, you know, it's trying to see the other way of someone's thinking. And again, that can be very challenging when you're dealing with someone who's irrational. But it sounds like you're trying to put yourself in their shoes and trying to say, okay, how is this person wired? And to your point, just how do we get to the finish line?

What do they want?

Ye. Right. What do I.

Can. Can I give them what they want and not hurt myself in doing it? Because if that's true, give it to them.

Right.

Just move on.

Right.

So, Adam, I'd love to Hear a little bit of the. The lead up on how you got to actually founding your own company. And I. I know you spent some time with a friend, Peter Lewis from Wharton equities, who is on the show as well, also at the BizNow retreat. But. But how, you know, as you think about Michigan, GW from. With the masters, you know, from there, what was your path to actually starting your own company?

Chaotic.

Yeah.

Right.

And not direct. I will say that when I graduated from both of those schools, I really had no idea what I wanted to do when I grew up. I didn't know how to model, which was crazy. I didn't really have basic Excel skills coming out of an mba. I found a way to sort of get through both of these programs without really doing. I graduated Michigan with a degree in psychology, graduated GW with a degree in entrepreneurship.

Right.

Not finance. And so as I came out of these programs, my family's a real estate family in Michigan. My dad's been a developer all of my life. And so I went to work for him. But, you know, the way that sort of my dad always did things was a handshake. 50. 50. Like we. There were no promotes.

Right? Right.

He built the coolest projects that I've ever seen. Always focused on design. It really didn't matter. Sort of. He wasn't going for the middle of the market. It was always sort of like, how do I design the coolest thing ever? And I'm gonna sell it.

Right.

I'm gonna rent it. And so that's. That's what my experience was with him. But I knew, sort of seeing friends of mine go through the private equity route.

Right.

Go through the investment banking route, that there was a different way of doing these deals. And I knew I needed to learn that. And so I went to work for a few different companies when I moved to Florida. And then as I started to go through, I realized I really didn't know anything. And I've told this story before, but I got into my first real job in the investment space. I knew a little bit about cap rates, I knew a little bit about, you know, how things work. And I sat down and I opened the model. And I was working for this sort of storied real estate investor in Miami. And I sit down and it's 14 tabs.

Right.

It's amortization schedules, which I've never built before. It's the most complex model. The guy was a Harvard dual Harvard degree analyst who was there before me, and I couldn't keep up. And I Lost that job after a year. I deserved to lose that job after a year. But what happened was I, I just understood at that point I needed to teach myself finance. And, and I've said it before, but we live in a time where if you want to learn something and you don't, you really didn't want to learn it, you can learn anything you want. The Internet has everything. And so I would stay at my desk, you know, after work from 5:30 to 10:00 clock at night, 8:00 clock at night. And just I was on GetRefm, which is Bruce Kirsch's thing, property, metrics, acre, all of the different resources. And I taught myself Excel and I got to a place where someone like Peter Lewis would hire me. And I had. That was the best job I ever had in terms of jobs. And so I was with Peter and David Eisenberg in their Miami office for three years. And that's where I really learned how to write an institutional memo. I met institutional investors through that and I learned how to interact with them and I learned how to model. I learned how to present a model. I learned that, you know, when you're talking to an investor and they present you with a potential downside, you don't try to get around that. You deal with it head on and acknowledge what it is.

Right?

And that's. That was the path to getting here. And somehow in that period of time, family partner wound up coming across this piece of land in Bradenton, Florida and getting stuck in it because it had too much lime rock. And so I was sitting at work one day and he called and he said, you know, I don't really know what to do with this thing. And they're telling me I can't sell homes and I'm not going to make enough money. And I looked at and I said, yeah, that's right. And it just dawned on me to throw it into the multifamily apartment model. And when I did it, like I said, it came back with over a seven. And then when I realized my construction numbers were way too high, it was over an 8. And that was sort of the push to get into the BTR space.

So I've got to imagine with a psychology degree and then entrepreneurship, I mean, I. Real estate was, you know, top of mind. But, you know, clearly there was something that, you know, put you on that path and maybe it was having that time with your father and experiencing that. So curious kind of what point you recognize that that was the track you wanted to go as opposed to Maybe pursuing entrepreneurship or something in psychology, or you could say maybe real estate is psychology.

I guess dealing with some of the people in real estate is most definitely psychology. But I think I always had in my mind at some point that real estate would be a career.

Right.

It was the only thing I really knew. Well, I think it fits perfectly in with entrepreneurship. Learning to deal with starting a company. You're almost not dealing with real estate anymore. You're running a company, and then there's a real estate component to it. But I think that as I started to work and seeing the buildings get built, I mean, when I was a kid, he used to have me in his construction sites, and I was hauling bricks from one side to the other, learned a little bit of framing, a little bit of mechanical, like that kind of stuff on job sites. And so I think I always knew that there would be a real estate component to it. But it was when, you know, I really started to watch my peer group going through and doing these really interesting deals. And there were these puzzles that needed to be solved in all of them, right. And there was a language that I wanted to learn, and there was just an appeal to it where I said, like, okay, I've got a background in it. And that seems like a really interesting and potentially lucrative way to. To. To make money. And so that. That was it.

And for your first deal where you had to take that leap, right? And along with you investors who said, you know, we. We know you. We. We see that you've worked at bigger institutional shops, but now it's you. Now it's your name on the door to, so to speak. How did you convince them that you could execute on this, let alone lenders and.

Yeah, well, so the first deal, that Bradenton, Florida project, my partner, who is now my partner in the business, John Mulkey. John is the greatest partner really anybody could ask for. So he and I failed on a few deals before that.

Right.

We were chasing some adaptive reuse deals in Miami. And, you know, they didn't get done, not through any fault of ours, but we just couldn't get them closed. And in every single one of those cases, the deals tended to do well for the people that bought them. And so he started to see, okay, you know, I should put some faith into Adam. He has a good eye for what's going on there. And more to the point, as we started to lose these things, you know, we. I treated him the right way, I think, when we didn't get things closed. And I think that's really Important. And so when it came time to do this Bradenton deal we had, at that point, I wound up partnering also with another SFR operator. They brought Lennar, who wound up being our balance sheet builder on that. And so we had the components in place, and John said, okay, I'll be the equity for that deal.

Right.

I'll probably syndicate it later, but I'll do the equity. And Covid hits and the rest of the world stops, and he sticks by the project.

Right.

And ultimately we wound up getting JP Morgan to commit to buying it, which meant a little bit less of a need for capital at that point, because financing was a lot easier to come by at that point. But then we did the exact same thing with him. We said, you stuck by us during COVID And so our partnership has evolved over the years, both from, you know, convincing from my side, convincing him that, you know, I have an idea as to what we should be investing in. But then I think from both of our sides, always doing what we say we're going to do.

Yeah, it always amazes me when I hear, you know, the conviction that came in right after Covid, and, I don't know, kind of the timing sequence, but obviously sounds like identifying the site, you know, moving forward with the project Covid hits and then continuing to move forward. I mean, that definitely took guts, for lack of a better term, because it was, you know, there was a point where we didn't know, you know, is this the end of the world? What. What happens? I mean, especially even, you know, early on. So what do you think led to that conviction that this was still going to be a viable project as you're devoting time and resources towards it?

You know, the. The thing. I don't remember the exact sequence of events, but. But I do recall that this was before we started to see evidence of mass migration down to Florida. There was the idea that, well, no one's going to want to stay in a city, I think. And we understood that a little bit early. And so that was certainly probably part of the calculus. But when he said, no, I'm going to stick with this deal, I think that was more of a, you know what? This too shall pass. It's a good deal. Then it's probably not going to get any worse. The fundamentals are going to change. If anything, it might be better. But this was before the evidence was there. And so this was a leap of faith. But again, this was on underwriting, you know, internally north of an 8 when we first looked at it. Then when we beat it up and through every conservatism we could at low sevens. And so it was still a really good deal, irrespective of COVID And you, I think, had to take the bet that either the world's going to stop or it's not. And if the world comes and that's absent, you know, massive changes in migration, the world's going to be here or it's not. And if the world's going to be here, this deal should still be good.

Love it. So I want to talk a little bit about. You're now giving back with the University of Michigan. You're on the board of advisors for the Weiser center for Real Estate, the Ross School of Business. So how did that come to fruition?

Simon Ziff, he can be very persuasive.

Right.

We were talking at a conference, cocktails or conference, or one of the two, and he mentioned that he was on several boards. And one of them was that. And they were just forming and looking for folks. And I don't think they really had somebody who was in the BTR space. And so he connected me with somebody there. It turns out I knew several of the other folks that were joining the board, but that's been the coolest experience.

Is this a new school? Because I obviously heard of the Ross School of Business is wiser that. That is the real estate.

That's the program specific to real estate. Right. And it lives sort of between Taubman School of Architecture and Ross.

Okay.

And now recently, it's a minor that undergraduate students can get in real estate. And so it was just approved for LSA that kids who are in the LS and a school can now get a minor in real estate so they can get exposure to financial modeling. I didn't have that.

Right.

I didn't even know that I wanted that. Didn't even know it was an option. They can get exposure to what's called real estate fund there, where there's an actual fund that students are pitching their ideas for. And it's been, you know, of all the different things that I've done, like that's right now I'm more excited about that than anything else because I had no idea what I wanted to do when I was there. And so it's really cool to be involved in this.

So how much of that is helping with the strategy, Maybe the programming as opposed to. I mean, are we talking about direct mentorship? I mean, what does that look like for you?

Yeah, it's so a lot of mentorship. They will pair you with one or two mentees. And so they've done that. Really, really great kid that I'm working with right now, also an entrepreneur. But then of that, outside of your official mentor mentee, there's a number of other kids that I'm talking to. They'll. I mean, just last week on. On the 18th, I wound up speaking to a guy that I've been talking to since the beginning. It's great to watch their careers progress. It's great to watch you being able to steer people away from mistakes you made or towards things you didn't know to go towards. And so that's my favorite part about it. I've been able to go in and I taught a careers class. I spoke to the real estate fraternity there. In February, I'll be going to do two more classes there. That part I really like. The strategy of it is, you know, I just joined last year, so have been less involved on that side. But we're already trying to figure out how we grow the program. And so there's, as you can imagine, in a room with 30, 40 real estate folks who, you know, started their own companies or, you know, had varying degrees of success. There's a lot of opinions to it. And so they're.

But.

But everybody's working for the common good of trying to figure out how we grow the program to be a top 10 program program.

Great. So with only a minute or two left, and I'm glad we can end this on. On mentorship, not just mentoring, but also being a mentee. And I know one, one of the articles that I wrote for Forbes on mentorship was actually one of the most read articles. I figured, oh, here, here. You think that, you know, the real estate column people would be looking for real estate advice, but they're really looking, you know, very interested in, you know, what to look for in a mentor. What. What would you say makes a great mentor? What makes you an effective mentor, and then what makes for a great mentee?

School's out. And whether I'm a good mentor or not, I've only been doing this for a little while, so I won't. I won't pat myself on the back. But in. In seriousness, I think that you can't really be a good mentor unless you have a good mentee. And I think a good mentee is somebody who, you know, there are a lot of folks who will sign up to be mentored, right, because they're checking a box, they can put in a resume and you can tell, you know, who that is. They can they're trying to use it for something else. But then there are other kids that really want to know. And you can tell the difference because when you set up your second call with them, they've taken actionable steps, you've given them, hey, I think you need to do X, Y and Z. And they come back and say, hey, here's a financial model I created right here. I made it to, you know, number two of 350 in an analyst program. You know, what do I do next? How do I get over the thing? And that's coming from a sophomore and he was competing with juniors. And this is, to me, someone who's willing to work hard and to do the things that other people aren't willing to do and to take your advice and to try it out, maybe wrong, but to see how it goes. I think that's what a good mentee is. And I think good mentor is honestly just patience and being vested in the outcome.

Right.

Like if you see someone who's vested in the outcome with you and you're not also vested, like, don't bother to do it right. You want to see your mentee do well. Otherwise I don't know why you would do it.

Yeah, no, it's fabulous advice and especially for the mentees. And I was thinking about a recent podcast I was listening to with Ed Mylett and he was talking about follow through and making the difference in success. So taking that direction and you know, or to quote Rod Santomosimo's book, knowing isn't Doing. I mean, it's great to depart knowledge. And for those of you listening to this now, again, you've heard incredible things. Are you going to apply it? Are you going to follow through? So important. But Adam, this has been amazing and certainly I know that you're a great mentor because you could see not only what you've done, but how you're able to give back and share. And this show has been a great way, way to do it. So just, I'm so glad we could do this in person as well. I, I, I just assumed, you know, this was going to be virtual and that you wouldn't want to brave the cold. But I'm glad you were in town and we could do this and really appreciate it again.

Yeah.

Thank you very much for the opportunity. It's been great, wonderful.

And thank you all, as always for joining. Really appreciate the comments that have been coming in. When you rate the show, when you leave the reviews, that's what helps others find the show. Certainly when you forward this as well. I mean, such incredible information, ideas, Adam's story. So encourage you to go to james nelson.com again. I built this site for you. This is not about me. There you can find the show notes, you can see how to connect with Adam. There's also a lot of helpful videos there, white papers that have written and really designed to help you gain the insider's edge to real estate investing. So until next week, thank you again for joining.