The Insider's Edge to Real Estate Investing with Larry Botel

Welcome everyone. We are thrilled to have with us today Larry Botell, who is managing partner of Joss Realty Partners and president of Alliance Sports LLC. So maybe we'll talk a little bit more beyond just real estate today, especially for you sports fans out there. But Larry, thank you so much for joining.

Thanks for having me.

It's been wonderful knowing you all these years. Somehow I always just see you out there. Usually Michelle Klieger's in tow. We love Michelle. Shout out to Michelle.

I'd be a hermit if it wasn't for Michelle.

Yes, but you are definitely out there, so we appreciate it. So Larry, just for our audience, let's start with JOS and maybe give a sense of what that portfolio looks like, and then maybe we could talk a little bit about Alliance Sports later in the discussion.

Yeah, I mean, JOS has been around for 20 years. You, you, Ken probably doesn't know, but you may remember Broadway Partners, which was kind of the first time I did this with Scott Lawler. We built a business around high net worth syndications and buying office buildings. Um, left there in '99— and sorry, 2004, 2005— and then started Joss. Same business plan: buy boutique buildings in the, in the tier 1 markets, raise the capital through high net worth equity, um, and build a portfolio. So sitting here today, we've done 32 deals. Probably 95% of them been in the office space, about $1.2 billion in total transactions. We executed in every major market in, in the country. Um, we have 6 assets today, gone through a couple cycles, right, which I'm sure we'll get into. Um, and then coming out of COVID we had 6 assets, about $400 million in total market cap. And it's been an interesting 4 or 5 years for sure.

And Larry, for our listeners, which markets geographically have you been most focused?

Most, most of the assets that we bought over the life of the company have been in DC, but Northeast corridor, right? Boston, Philly, we've done a few things in New York, and then San Francisco and LA.

Yeah.

And, and a, a couple things in Florida. Those were more like sort of partner type of deals. I don't find Florida to be a robust office market because no one really goes there to work, right? So most of the activity that we've had has been in the more— in the larger office market.

Great. And I've got to ask, Joss, how did you come up with the name? What does it stand for?

I'll name drop. Steve Klein was my original partner. We both rolled out of Broadway, um, Steve as, you know, S.L. Green, and then Broadway, and then Joss. And he had two daughters, Samantha and Olivia, and I have two sons, Sam and Josh. So J-O-S-S was the— and it's so funny, like, I think I ran into Sam Recently, I think she's at Goldman or somewhere else now. And I'm like, you know, you're the S, you're the other S in Joss. So yeah, she's like, I know. So it was just, and I think luckily it didn't mean anything bad in any sort of foreign language. Oh, good, good. We got lucky.

That's amazing.

Good to know.

So maybe talk a little bit about what you see in the office opportunity. And you know, we were talking before the show and this has been several decades now that you've invested in office, you've stayed committed to it. So, what is it about the value proposition versus, say, multifamily or some of the asset classes that have you remain focused on it?

Yeah. Look, I got into the business in the S&L crisis, right? Basically, you know, graduated in 1988, started working very institutionally. And so, the office business is something I've always been attached to. My first job was at Perú. They were the largest office owner and lender in the country at the time, back in the late '80s and early '90s. And, you know, the, the narrative around office, especially for the last 5 years, has been almost like it's going to zero. And it's not a 100% problem. And I've kind of said this from the beginning, it's a 20 or 30% problem that needs to be dealt with. So you have 70, 80% of office buildings that are going to be fine, that are going with the right capital structure, with the right leasing agent, with the right ownership, will lease and be valuable. The market, especially institutional investment-wise, does not think that, right? Or they're not acting that way, or they just— it's so far down the list and they got other priorities that the biggest problem in the business right now is just the total lack of a bid, especially on the equity side, although the lending market isn't great either, um, for office. So you've had this pretty massive repricing going on, and you run math on— and, you know, we were just talking about your, your deal in Atlanta— you run math on these deals and you just can't believe that the risk-adjusted returns to equity are where they are, 20, 30% for well-leased office buildings in great markets that, you know, you can capitalize and you'll be okay for a long, long time. And it's just because there's no institutional bid. This has been going on for, you know, close to 6 years now. And to me, and, you know, we were, you know, we were working on an IPO to solely take advantage of that. It's just, it's such a tremendous opportunity. In the real estate space right now, especially relative to other opportunities.

So when you're bidding on an office deal, what are the main factors that you're looking for? Is it the tenancy, the wall, the CapEx requirements, the market demographics? What are your core checkboxes?

I mean, it's to me, and if you look across our portfolio, what we try to do is create best-in-class asset. Asset, you know, singular, maybe assets, right, in the larger markets that we can lease, right, that, that'll position themselves for leasing in their submarket to be head and tails above everyone else. And whether that's from a, you know, quality of the asset perspective, whether that's from a rental perspective, whether that's from a locational perspective, whatever it is, that's what we're looking for, right? And it's, you know, Maybe you'll be one of 10. That should be fine in a big market. Maybe you'll be one of one or one of two, you know, which we've had in the past. You know, Broadway, we own Pickwood Plaza, which was exactly that narrative. We own a building in downtown Naples right now, which is one of two. Like, that's what we were attracted to. So it's not something specific necessarily. It's just leasing is the key. And if you can position that asset and capitalize it properly and staff it properly and hire the right, you know, agencies to make it extremely leaseable, you know, obviously returns make sense. That's what we're looking for.

Yeah. To go back to the opportunity now, because I'm thinking about, you know, 2015, 2016, like last peak point in the market, you know, here in New York, there was no differentiation in cap rate. It was a 3 to 4 cap. It didn't matter what it was. It could be multifamily, could be office, it could be Didn't matter. It was a 3 to 4 cap. I mean, now you've got this world where you have multifamily that's still safely trading in the 5s. In some cases, we've seen some deals in the Southeast trade with a 4 handle. And we were talking about office deals that you can buy 85% leased at a 10 cap.

Yeah, I'm being quoted a 12 cap.

And I understand why it's going to take a while for the institutions to get the comfort and get back into the flow. And we are starting to see examples with that, 590 Madison Avenue and some of the, you know, the Vornado and SL Green here building. But, you know, for the retail investor, right? I mean, that proposition, I mean, is it still just feel like, I mean, I'm just trying to think the hesitation on their side to invest in office right now. Is it still just kind of concerns about, What's, have we recovered and gone back to work from the pandemic? Is it like what's happening in the future with what AI is gonna do to the workforce? I mean, what is it that's still keeping retail investors away?

Well, look, I think a couple things. You know, one is macro, even beyond office. And the last, let's say, 6 to 9 months, I don't know how many times, I mean, I don't think it's happened over the last 6 or 9 months, but there was this period of time where you would sort of get to a point in, in what you think is the, this cycle and say, oh, now's time, right? Now, now that the purse strings are going to come, uh, come loose, people are really going to start investing like they used to. And every time that happened, let's say over the last couple years, something would happen geopolitically, macroeconomically, something would basically say, you know, have everyone do this again, right? Or sit on their hands. So that's the environment we're sitting in now. Office is recovering. Fundamentals are stabilized or improving in every major market in the country. You just look at, look at the numbers, right? It's, it's just this sort of cycle, at least from a fundamental perspective, is over, at least, you know, with regards to the downside. But then you look at the overall macro investment market, you know, office is still, let's say, number 10 on the list, right? Data centers, multi, industrial, you know, go, go down, whatever's coming next. Like, so you, you, it's going to take a while for it to get to office. I don't understand why there isn't an institutional bid right now. What you do see, which is interesting on an institutional level, is some of these office REITs being taken private, which is a long-term play on office valuations, right? Because let's say you're— Elliott took, took one of them private in the last like 6 months. How long would it take me to build out the portfolio that they bought on a, on a REIT basis? So they're willing to pay a premium, which I do think REIT stocks in the office market are trading at a premium to private. Like, if these guys started unloading their portfolios, they would get crushed, like, relative to their equity value, um, because the private market just isn't there. But the cost of aggregating a portfolio like that and then taking advantage of the pricing dynamics that are right now— the smart— there's some smart money out there going for it. The only place I've really seen it is in that space, and it's happened 2 or 3 times, and it makes total sense, right? Yeah, you know, take— let's say the mark— let's say the market value is $100. If you put it out in the private markets, it's worth $90. But what the cost of building that portfolio is probably $20 or $30 or $40. Sure. So guys are taking advantage of that. They have patient money and they'll eventually sort of unwind these portfolios. And when, when office is back to being an institutional quality type of investment asset and they're going to kill it. Mm-hmm. So it just— it takes time. You know, this cycle is different in that, you know, and I equate it to the SNL crisis. SNL crisis, the SNLs all, you know, stopped funding. They all wound up like collapsing. And all of a sudden, you know, everyone kind of followed and there was no liquidity in any real estate assets. This— and it was bailout by securitization, was bailed out by CMBS and other securitization methods. This cycle had that same type of thing when it came to office, and now there's nothing really there to bail it out other than time.

Yeah, this really speaks to the importance of leveraging the data to get a really good risk-adjusted return. And I just feel like so often at the— we're seeing this like live at the asset level. If you have, you know, 7 years of Walt and it's 90% leased and there's below-market leases and it's a, number one, you know, office submarket. And then still people are so reluctant because of the headline risk. So it is an opportunity to get an amazing risk-adjusted return. But it is all about the data and having that inside information.

Who's going to be that first, you know, the sale acquisitions VP to walk into the office at Brookfield, who's now unloading everything and say, I got a great office deal for Right, go to investment committee with that. Like, I mean, that's, that's the mentality, right? And you're right, you're exactly right. Like, the information is so much better than it was in the '90s, right? You can now actually find information that really can build a narrative around what your investment strategy is and how successful it'll be, and do the analytics and do upside and downside scenarios based on real information, right? So it should be, it should like be coming together for people that Wow, I can invest in a relatively low-risk asset and make a 30%, but it's not.

Yeah, it feels like what's still happening is a lot of these, um, you know, offices and assets gets painted with one brush. And even thinking about, you know, we keep talking about this deal that we're, we're working on, uh, in Atlanta, and, you know, it just gets put in the bucket, oh, it's suburban office. So if it's suburban office, it can only trade in the high teens. Well, actually, you know, there's different sub-markets and different demographics, so I think it's a reminder for all of us that it's, again, really to look at the data and what's happening on the specific submarket and class. But Larry, one thing I was thinking about with what would it take for the institutions to come back to office en masse, because I've asked this question a couple of times, is I think there's no shortage now of interest for value-add, right? Where it's, hey, if I can buy distressed office at a discount, but then The question is, where's the takeout? Where's the core buyer? Once I've repositioned this, who am I selling it to? So what would you say to that?

I think the debt markets need to get more conviction. Like, you know, you hear a lot of friends— been along in the business a long time, got a ton of friends in CMBS scattered over all the banks. And, you know, you talk to them at a cocktail party, which you've seen me at, as you say. Yes. And they're like, yeah, we'll do that for a 10, 10 debt yield, right? There's no 10 debt yield out there. Like, you know, you throw a real deal in front of them and it's a 12, right? So there, there still is no— and, and they'll do multi at 7 or 8, right? So there's this 400 or 500 basis point gap in debt yield, which again doesn't make sense. Doesn't matter what the building is, doesn't know how it profiles. Maybe a New York fully leased asset for 12 years may is a difference, but not an 8-year wall, you know, great tenant, suburban office building, it's 100% leased. I got a 12 or a 13 debt yield quote, you know, multiple times. So that, that needs to change. That goes back to our conversation about liquidity, right? The liquidity needs to be better. But I also think there needs to be some of those ones at the top of the list, right, the 1 through 5s, they need to start, you know, creating a little bit, or the opportunities need to start becoming so expensive that the institutional money, which there's a ton of it out there on the sidelines, starts to look at the bottom 5. And does the data center thing start crapping out, or does the regulatory stuff around data centers just become too much to bear, or the electric cost, whatever it is, right? I think that needs to crumble a little bit. And look, the big difference is An institution can— again, I go back to like that aggregate number— institution can dedicate, you know, $1 billion to one deal in the data center, right?

Right.

Dedicate $1 billion to one deal, to, you know, 30 deals in the office space, or 40 deals in the multifamily space. So it's, it's all about allocations, right? So they're, they're able to like sort of keep their money flowing into data centers or large industrial deals and allow that to allow to keep their, you know, what they're allocated to real estate, you know, where they want it to be. So, you know, I think the data center business going through a cycle will help office a lot.

Interesting.

And then, you know, hopefully the fundamentals continue to prove themselves out and, you know, people don't get scared of AI. And I also think you got to be careful as New Yorkers about feeling like you're— or not recognizing that we are in a bubble to some extent. Um, you know, we're in 5 or 6 markets. They all feel a little bit different. Like, I would not want to own a half-leased office building in a sec— in a Midwest secondary market. Um, so, you know, I think being in the major markets makes us a little bit spoiled when it comes to office. Um, but we do a lot of investment in Philly, and, you know, West Market in Philly feels very different than Fifth Avenue in New York or Park Avenue in New York.

Great. Let's jump into some, uh, some office deals in your portfolio. We saw that, um, in March of 2020 you closed on a Creekside Way in San Jose. Um, that was like $140 million. How, how did that deal hold up? Because obviously the, the timing was March 2020. What was that process like when COVID hit, and, and how has that deal performed over the past 5 or 6 years?

Well, and not so well is the best answer. So the investment strategy around that building was brand new building in Silicon Valley, quality triple net lease tenant for, for, for I think it was 12 years, not a credit-rated credit, but a good business that had been around for, like I said, 25 years.. And we made the judgment call that there was no way they were not going to pay their rent. Their lease started in March, March 1st of 2020. They consolidated offices into this spectacular building in Campbell, California, which is like a, you know, sort of a tier, second-tier market inside Silicon Valley, but very middle management, you know, upper middle class residential, tons of amenities. Great, like, great space. And, you know, I think their rent starting out was like $4 triple net, getting, you know, $48 in annual terms. And that same building would have leased for twice that in Mountain View or, you know, some of the more close-in, you know, Silicon Valley burbs. So they move in, COVID hits, they empty out the building. You know, Silicon Valley was very slow to come back from a regulatory perspective. And when— and this was an in-the-office firm from the get-go and always wanted people back in the office. And what happened was, was when they tried to bring people back in the office, there was no one there. There was no one in the Valley to basically bring back that represented their, you know, sort of middle management, middle salary type of employee base. So they wound up outsourcing a lot of their businesses to, you know, offshore, or, you know, letting some of their employees stay remote. And, you know, the building, sadly, while they're spread out all over the place, is maybe, you know, 20% population occupied. But tenant continues to pay rent. We have a year left on— we did a great CMBS loan, you know, right, literally right before COVID as rates were interest were falling, you know, like through the, through the floor. Um, so I think it was 3.6% interest only for 7 years. Um, and but that's burning off in the, in about a year. Um, and you know, we'll see. But look, it's a great building, it's great real estate. I'm confident we're going to figure something out in order to, you know, either recapitalize, lease it up, recapitalize it, sell it to a user, something like that that'll result in a decent return for our investors, um, who have been getting, by the way, getting coupons for 6.5 years now. Good coupon. And we raised $57 million around that deal in high net worth capital. It was by far our largest deal, um, and, you know, the momentum was great, and then, you know, things happen, right? GFC happens, COVID happens. So But that— it's, it's great. And as I said, great real estate. It'll, it'll lease, you know, the, the— we're, our timing seems to be pretty good in that AI is, is really creating momentum in Silicon Valley. And as I said, the building's unique. It, it's— you can't find 150,000 square foot brand new, like, you know, little lady from Pasadena car, right? Because it hasn't been used at all.

Right.

And, and we're gonna, you know, aggressively go out and, and try to find that tenant to lease it long term and then, and then realize something good for the investors, you know, when the debt matures.

Yeah, we're really bullish on, on San Francisco and, and that whole area, um, buildings and all of those kind of micro markets getting like $8, $9 a foot triple net, 2,000-foot trades. So it's, you know, hopefully it gets a mixed bag. Yeah, but it's interesting that even with that experience, you're still really bullish on, on office as an asset class.

Um, pricing at 25% of what it used to, right?

Right.

Well, I was going to say, like, how has that experience— after, after experiencing that 2020 purchase, now when you're looking at a deal, has that sort of shifted your focus at all? Or like, what lessons did you take away from that specific deal?

You know, it's so interesting. I don't know what lessons I can take away from a pandemic.

Right, right.

Like, yeah, I mean, everyone can talk about— we can run downside analysis. Could you really run downside analysis on a pandemic or the GFC? I mean, the GFC, you could kind of, you know, if you were smart enough, you kind of see it coming. Um, you know, what we didn't do, and, and I think it was for a number of different factors, was we didn't start buying, you know, out of COVID when there was some pricing adjustment, interest rates went pretty low. There was that sort of window of about 12 months where you could have made some pretty bad decisions. And we didn't, you know, because we weren't really sure how to analyze an office deal, right? Because you knew you didn't know what was going to happen with return to work. And again, not going to zero, but could it go to 60 or 70 instead of 80 or 90 eventually? Just you had no idea, right? Because there was no stability in the, in the, in the fundamentals. And you could get debt, you could probably raise some equity, but it was just impossible to understand what was something really worth in the office space. Now you sit here, like I said, the fundamentals are stabilized. And to me, I was young and then out of the S&L crisis, but there were plenty of guys that built big office portfolios buying buildings, especially in New York, for like $30 a foot. And it was the same thing, right? They were leased, they were fine, they were well located, and it was just this complete lack of capital that created this opportunity. So it's— it— everything's been repriced, everything. And even like the deals in Manhattan, like, you know, and I, I'm sure people— we all realize it— they're nowhere near the valuations that these buildings are worth in '18 and '19, not even close. Right, there's capital coming in, you know, they're hitting 4 digits a foot, right? But it's not $2,000 a foot, it's $1,000 a foot, right? So everybody, anybody who's doing anything right now is taking advantage of the repricing. And whether it's 40% off or 80% off, there's been a repricing in, in, in, in office that's pretty substantial.

How has the fundraising environment been for office in your experience?

Terrible. I mean, now it's hard, it's horrible.

But, but back when you did, I mean, to raise $57 million, and it's interesting because I, I never thought of Broadway Partners as a, as a syndicator. I mean, I, I just assumed that we started, that they were all, you were just bringing in institutional capital. But what does $57 million look like? Is that, uh, is that 200 investors? Is that high net worth? Is it family offices? Like How— what does it look like and how do you go about creating that network?

The Broadway history is good.

Yeah.

You know, and at Joss, we never went to institutional as much. Right, right. But we pretty much stuck to the high net worth investors because we weren't trying to buy $1 billion worth of real estate. We were trying to buy, you know, $500 million worth of real estate. That was the goal. But at Broadway, you know, we started, I think the first deal we raised $1.2 million amongst like, you know, 20 friends and family. And then the next deal was like $4 million amongst friends and family. But a couple of those friends and family were like Alan Landis, who, you know, I'm sure you, you remember, and Scott, you know, Scott still runs that business. And I think Steve Roth threw a little bit of money in.

Um, so you guys were just going to— it wasn't the proverbial dentist or doctor, it was someone who was in the real estate business, maybe working at big shop. They said, okay, I, I like this segment of the market, you guys know what you're doing. And then they start telling their friends.

Yeah. And, and, and then it expands, right? That network just expands and expands, and they tell their friends. Um, brought, uh, Pickwick Plaza, we brought in our first institutional investor, which was Scottish Widows. And on Creekside, we brought in Qualitas, who was an Australian much like us, like a, a family office that raised high net worth capital, right? And obviously, had we sort of, you know, gone from there, we probably would have done a lot of other things with them. Um, so it starts with that little friends and family network, and then a lot— obviously, a lot of us in the business are associated with real estate people, so it sort of builds from that. Um, you know, when, when my— our term ended at Broadway. Steve and I, we had to start from scratch. Like, we had non-competes, but we wanted to jump into the business. So we actually— and Steve was a big part of that— created this new network that had nothing to do with the old network. And look, timing was right. It was 2004, 2005, and you could, you could actually like jump in. A lot of people wanted to buy, you know, own real estate, right? And that was the trick. Now today And I'm pretty active at Georgetown and I know a lot of people, a lot of the younger people that are trying to do this. And my question is, is like, can you do it? We were back in the Broadway days, back in 1999, we were kind of pioneering, right? Where 2 or 3 guys just say, "Eh, I'm gonna go hang a shingle and start buying office buildings," right? Could you do that today in any space, right? Without some family money, or without, like, you know, I, again, I don't know what, but there are people doing it. You know, it'll be interesting to see what this cycle looks like because it became very difficult to do what we were doing without having institutional capital. And the difference was 20 years ago, Blackstone— you go to Blackstone for money, right? They had a real estate fund. They didn't have real estate people. So as a sponsor, you went to them and said, oh, I got a deal. They're like, oh, deal looks great, gave you money. Now these big funds have real estate platforms. They don't need us, right? So the business evolved where it became much more difficult. There's sort of a fork in the road. You either stayed what we were doing, which is just kind of cobbling together money for deals, or you needed to become so big that you never had to worry about it. Capital. So now kind of coming back and, you know, in this cycle, will guys be able to do what we did? I don't know. I hope so because I'm rooting for them. And but it's different.

What advice would you give anyone who's looking to break out and start something of their own like you did today?

Yeah, I would get educated. You know, I'm a big advocate of going back and getting your post-college graduate degrees, because I went to University of Chicago and it taught me things that I would have never known had I just stayed in the real estate business. And I can sit at a table and understand securitization way better than most people in the real estate business. I mean, just say it flat out. Don't want to be obnoxious, but I mean, I, I was taught efficient market theory when CMBS was being created, and that's all about efficient market theory. So I kind of got it. Then I went to Fortress, right? And that's all they did, right? They weren't real— they're not really a real estate shop. They're a, they're a debt and trading shop that uses finance to, to create opportunities. I would have never understood that had I not gone back and got my MBA. So get educated. And whether that's going back and getting a graduate degree or working somewhere, right? Work for an institution, because I think fundamentally You need to know, you need to have all these tools or a knowledge of your— these tools in order to be a real estate investor. You need to know finance, you need to know about buildings, you need to know about people, right? You need to know about, you know, positioning buildings properly. I don't know how you learn that, you know, if someone just says, oh, I have a, I have a nice aesthetic, you know, view on things, and then just go out and start building condominiums, like you need to know about everything. This business is not easy. It's not complex, but it's not easy, and you need to know all these different things. So be educated. Like, I think we started Broadway when I was 34, and I, you know, I think that's too young, to be perfectly honest, but I had— I worked for Pru as an analyst. I worked for Mutual New York doing workouts. I worked for BlackRock, UBS, what eventually became Fortress. I had all these tools that I could then take to the investment business being a principal investor. You kind of need that to, to, in order to be successful and not just be lucky.

And you, you started talking about it before, but along those lines, the capital raising piece, which is so important when someone's looking to branch out on their, their own. I think probably the one, uh, thing that's typically holding people back is that lack of capital? Because out of the gate, unless if you worked with one of the biggest funds out there and you're recognized, very hard to get institutions to take a bet on you. So, is the road still to go start with the friends and family, do a couple deals, show proof of concept, and then make that leap to the institutional side and start doing bigger deals?

I mean, you still, you need to develop a track record. You at least need to show, especially if you're— as you like go higher up the ladder relative to what type of investors you're getting, again, you know, trying to get to the top, which is institutional, you need to show you got deals done. I mean, I think the most— and, and the narrative around that has been the same for a long, long time. You need to show pipeline, right? You need to show there's a there there relative to your strategy. You need to show a strategy and be relatively focused around it. And then, yeah, you need to be able to say, yeah, I closed these 2 deals in the last 6 months and I'm looking for the next round. I don't think you necessarily need to show track record. That track record, I think, was always a little bit— I'm not saying you walk in the door and you tank 10 deals, but if you're starting out and you don't necessarily have that track record, I don't think that necessarily eliminates your ability to raise capital. But you do need a pipeline, you do need a strategy, you do need a couple deals like under your belt. And even if they're small, but, you know, you need to be able to say, yeah, I closed this and this over the last, you know, 3 or 4 months and this is the next deal down the pike. And then, by the way, my deals are doing pretty well.

So there's another deal that we'd like to ask you about, which is the East Market project.

So we ask about the whole block, $500 million mixed-use office, retail, apartments.

And then you also had the Roost Hotel. Walk us through your vision and process here and what your, uh, competitive advantage was.

So I'm born and raised in Philly, which is probably the only reason I would have ever gotten involved in East Market. Um, but complicated deal. It was a, um, quasi-public partner owner of the property called the Girard Estate, which I think at one point was the largest landowner— Stephen Girard, largest landowner in in Philadelphia. They ran a process in, I guess it was 2005, to do a long-term ground lease on a full city block right at Main and Main in Philadelphia, except it was on the east side of Main and Main, not the west. West was the traditional office market. East was always this sort of mishmash of some GSA property, a big suburban train station, Reading Terminal Market, but never an old DisneyQuest site that never happened. Like just this sort of, you know, almost hole in the donut that never got figured out. So they do this process and lots of trials and tribulations. So, you know, we eventually foreclosed on the guy that won the bid, wound up bringing in National Real Estate Advisors as our partner. And that's the IBEW pension fund. They were building out their development platform and just willing to write a lot of checks to get electrical workers jobs, right? That's fundamental. So with them, we were able to do this multi— mixed-use, what eventually became a billion-two project, because Jefferson built a cancer center for like $600 million as the last piece of the site. And it, it's been You know, it's gone through some trials and tribulations, right? Definitely affected by COVID. Building large projects has a lot of issues around it, right? We were effectively delayed for 2 years while under construction on the first tower. So, but it's a beautiful project. I'm incredibly proud of it as a Philadelphian. I think we pretty much got close to getting our own money out despite being, going through the GFC, right? We did all this and put it in place before the GFC, and then, you know, the development happened kind of coming out of it and after, and then COVID, and then we ran into COVID. So, um, it's— it was a mixed bag, but it's a great— it's a great project. I think it should have taught me that I'd never do development ever again because it's just so difficult and so long, right? You, you have to survive a very, very long cycle. In order to be successful on a development deal or get really lucky during a long cycle. So, but it was a great, it's a great project.

Yeah.

And I'm sure a lot of things outside of your control as well. So, Larry, as we think about the trajectory of raising capital from private to institutional, so you've spent time thinking about tapping into the public markets. So maybe talk a little bit about, you know, the potential opportunity there, uh, whether it's an IPO, whether it's, uh, you know, joining forces with a publicly traded company and, and, you know, access to the, the public markets. How do you, how do you look at that as, as a next step?

So, I mean, real estate is kind of the illiquid asset class, and all of us in the business spend all of our time trying to find liquidity. I, I'd always believed, you know, especially kind of getting into the business in the early '90s and understanding securitization, you know, efficient market theory, securitization, the public markets, that the best route to consistent liquidity was being in the public markets, right? Being a REIT. Um, and when we were coming into the GFC, we had, we had aggregated a portfolio of about I guess $300 or $400 million. We had 16 office assets, you know, mostly on the Northeast. And at the time, you know, you, you could go public if you got like half a billion. If you got half a billion dollars in market value, that was, that was sort of the trigger. And we spent a lot of time trying to figure out a partner to come in. And basically, you know, there was this whole narrative around how New York and D.C. were going to come back more quickly than everywhere else, which it did from an investment perspective. Couldn't figure it out. There was just too many guys in too much trouble to sort of say, yeah, here's $200 million worth of assets, go public, or let's go public. Coming out of the COVID it was sort of the same math, and we were much smaller. The Creekside deal was not ready to go into basically get traded at a lower valuation into a public entity. But, you know, the rest of the assets were. So we spent about a year and a half trying to go public with, you know, 4 out of our 6 assets or 3 out of our 6 assets. And it's, it's a process. And there's a lot of, as you said, a lot of things out of your control. It's very like, you know, any geopolitical— you're basically like, you know, getting slapped around by the public markets before you even start being public. So, you know, after working on it for about a year and a half, you know, what— when we were actually clear to launch from the SEC, which took a lot of trials and tribulations, we— the IPO market for small cap— for small cap any businesses just wasn't there. And we were registered on the NYSE Amex We were— we had a full S-11 filed and approved. We had everything lined up and ready to go and just couldn't raise $25 million, which is pretty shocking given, you know, what we're talking about and other monies that we have raised. But that's the public markets. What will eventually happen is, it seems, you know, fingers crossed, is that we'll be able to accomplish what we were trying to accomplish in a, in a slightly different way, but Again, to me, it's, it's especially with this opportunity out there in office, I need liquidity, right? I need that liquidity to execute it. I'm not finding it anywhere else. And, you know, to me, the public markets— then you can deal with the crappy debt quotes that I'm getting, so long as you have access to equity. Um, but just think about it. If I can go into the public markets and raise money, let's say equity, at a 9 or even a 10, and then I can go invest it. Like we're talking about, you know, these deals and what types of equity returns they could have. Even on a cash basis, you're taking that money, you're investing it on a cash basis in the high teens right away. And then overall, you're probably looking at, you know, somewhere in the high 20s to 30 on an overall return under very conservative assumptions.

Yeah.

Um, that to— that creates value in the stock market, you know, eventually. Obviously, you're subject to the whims and public perception and, and all of that, but I think you can build a real fundamental business around that with access to liquidity in the public markets.

Yeah, I mean, shifting gears a little bit, uh, this is something I know James Nelson and I are both really excited to ask you about. So you've run sports and real estate side by side for years. You're also president of Alliance Sports. So you have a portfolio of minor league teams while also running JAWS simultaneously. Let's dig into that. Where did this interest come from? What does this entail? And like, how did you even get involved in that? Yeah.

So, I mean, it's literally as, as easy as Gary Green, Steve's son, right? And I are really good friends, go back a long, long time. We were sitting around in like 2008 saying, Let's, let's go figure out minor league baseball. So we spent a year running around looking at different opportunities. And again, private equity, same private equity model, right? High net worth investors, promote structures, fees, all that kind of stuff. So to me, like, that's the easy part. It's like, oh, here's a real estate deal versus a minor league baseball team. So we wound up, you know, flash forward to a few years ago, we wound up buying 3 minor league baseball teams, the Richmond Flying Squirrels, the Omaha Stormchasers, and the Montgomery Biscuits. We bought Baseball America magazine, which was a whole nother, like, education in publishing. Um, and then we started a soccer team in Omaha, which is playing in USL League One, which is like level 3 US soccer. So, you know, since then we have sold Montgomery and Omaha to private equity. You know, back then it was all friends and family. There was no, there was no debt. There was no, like, institutional capital in the business. And so all the money was raised amongst all of our friends as we cobbled this stuff together. And you bought a— you— I think we bought the Squirrels for, you know, we, we basically recapitalized that deal with the existing partner. It was like a $12 million valuation. I think Omaha was $18.

Is that on a multiple of EBITDA, or how do they trade?

Back then it was on, it was on stick value of what level they were at, which makes no sense. Okay, but now, now these things, now that private equity has come in, it's— they trade on multiples. Um, and we did fine, you know, the couple that we've sold, we did okay. That's more about the capital that came into the business over the last like 3 or 4 years. Silver Lake bought 50 minor league baseball teams over the last 24, 36 months.

50. Wow.

There are, there are $2 billion long the minor league baseball business. Thank God, because it gave us liquidity, um, and, and, you know, a better understanding of like what value was. Um, and we took advantage of it on a couple things. Avenue bought, um, which is Mark Lazary, bought Montgomery. So there's all— Arctos was just bought by KRR. They're, they're buying a minor league baseball team or two. So there's all this liquidity that's coming to the minor league baseball business, which is great. Um, but our, our, our best deal will be Richmond. And fundamentally, we opened the new stadium this year. Richmond's a great market with no— and these are the fundamentals of like where you can be wildly successful: good market, no competition, right? There's no Big Ten school that dominates the headlines. Um, and we got a new stadium built, and that— our revenue increase from the old stadium, which is literally across the street, so it's nothing to do with geography, will be close to 4 times what we were making in the old stadium we'll make in the new stadium.

What are some of the synergies between buying baseball teams and buying real estate?

So, well, I mean, what's also happened that's pretty interesting in the 15 or 16 years of us being in the business is the business has evolved, which is why a lot of the private equity money is there to be real estate deals. Build a new stadium and then build a few hundred apartments around this. We're going to hopefully be able to execute this in Omaha. Where we're building a new soccer stadium. We have 10 acres of land adjacent to it that we're going to need to develop, you know, as part of the deal, and it helps support the costs of building the soccer stadium, which you need to make all this work because a stadium is worth nothing unless, you know, unless a team is playing in it, right? So it's not really a real estate asset. So you need these other real estate assets enabled to support it. That's become a huge part of the sports business. And not just at the minor league level, at the professional level. Every stadium development has an adjacent mixed-use massive real estate development associated with it.

From an investment strategy standpoint, when you're buying a sports team, what are some of the ways that you can add value so that when you sell it, you're actually making a good investment?

Yeah, I mean, one of the theories that we had was that the capital was— and this is like, again, New York finance guy thinking about the business— the capital was so inefficient. It was like, okay, buy a team for $20 million, you can maybe put a $2 million loan on it, and you had to raise all the rest high net worth. That's like a horrendous capital structure. So what has evolved is now the private equity has come in, right? Instead of, let's say, 20% returns that the high net worths want to see, Private equity is like, oh, we could live with a 12, right? And they're also willing to allow more financing. So all of a sudden, instead of having a, let's say, a cost of capital at an 18, which we probably did have on some of these things, now you're like closer to a 10. And that, that obviously just creates value. The good part about minor league baseball is the major league teams pay the players, so we can actually— you can actually make money, right? You can make money in the business like on a day-to-day basis with your boots on the ground operation and selling tickets, concessions, merchandise, sponsorships. Soccer, you pay the players, you're not making them, you're not doing that. You're kind of carrying these things. So there's a big difference between soccer and minor league baseball.

Interesting.

But it's a totally different business. Like, you go into the publishing business for ages, you know, for another podcast. And it's, to me, Look, I was doing real estate for 30-plus years. It was— it sort of kept the clock going, right? It keeps you energized and keeps you interested in, in what you're doing and, and keeps you going to be able to do this for a long time, which 40 years is a long time. So, so it's great.

Well, Larry, this was awesome. Thank you so much for sharing. I mean, it's amazing to hear what you've done on the real estate side, let alone with Alliance Sports So we really appreciate you taking the time to share with our audience.

Thanks for having me. This was great.

And as always, we want to thank our audience, both myself, my co-host Kim Troller. I know you probably got a tremendous amount of value from this. The best thing you can do is share this with a friend, forward this on. That's how we continue to grow this and help you provide and get the insider's edge. So until next week, thank you again for joining.