Vetting Deals with Jesse Terry

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

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Welcome everyone to episode 191 of the Insider's Edge to Real Estate Investing. This is your host, host James Nelson. I'm principal and head of Tri State Investment Sales for Avis and Young. And with us today we have Jesse Terry who is cio, that's Chief Investment Officer at Hub nyc. I've known Jesse for quite some time. Not only have I spent time deal making, but also on his sailboat. So we talk a little bit for you sailing enthusiasts out there towards the end. Jesse is going to be taking a trip to Bermuda shortly, so we'll wish him plenty of luck on that. But I love Jesse's perspective. The company that he's a part of owns and operates free market rent, stabilize apartments. They also own a lot of retail. He talks about his system and I think if you really want to be successful in this business, you have to learn how to scale and you have to learn how to have systems in place. And if you really are a student of really improving your business, this is what we would call Quadrant two type stuff. Working on your business than in your business. I'd also recommend you listen to the podcast I did with Chris Ford. But what is amazing is the way Jesse and his team tracks every single opportunity that comes through the front door. And it's not just if they liked it, they bid on it, they passed on, they then track those opportunities. So I love sharing statistics with Jesse because we can go back and forth and really talk about what's going on with the market because he has that, that information that no one else has. That's called to me the insider's edge to real estate investing. So Jesse's also going to talk about the value of having a team to work on different aspects. He talks about the importance of due diligence when moving from bid to close. And he really draws on his own extensive experience which includes includes doing thousands of deals. He worked also in the special services arena. So he's had some distressed experience. He brings a lot of value to the table. So I know you're going to get tremendous value from this. As always, I would suggest take notes on this. And most importantly, quoting one of my mentors, Rod Santomosimo, knowing isn't doing. In fact, he wrote a book on it. You should definitely check it out. So it's great to take notes, it's great to be listening to this. It's way more important to actually take these steps and put them into practice. So as always you can go to jamesnelson.com and if you haven't already, sign up for the newsletter. That's where we culminate all the things that we're doing every month. The podcast, the articles, the videos, we're kind of teeing it up all for you in one place. You can sign up for that newsletter, but you can also find the show notes for this podcast where you can also find out how to connect with Jesse. So we're gonna have a brief word from our sponsor and we'll get into that interview with Jesse Terry.

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

Welcome everyone. Thrilled to have with us today my friend Jesse Terry who is Steve, CIO for Hub NYC Properties, privately held owner of retail and residential properties in New York City. Welcome Jesse.

Thank you very much for having me. James. Pleasure being here.

Absolutely. We are here in the newish studio. So We've been at 530 Fifth Avenue where the Avis and Young New York headquarters are, but we've now moved up. You can see behind us it's not a green screen. Maybe some of you are watching this right now on Instagram, LinkedIn or Twitter. You're used to that incredible virtual screen we have behind. Unfortunately this background is red so it does not work. Next time you'll have a Pretty skyline of New York behind us, but you know, who are we kidding? Ourselves. They want to see the two of us anyway.

Yes.

So, Jesse, we've known each other for a really long time, done a lot of business together over the years. Although I've got to say, maybe shame on me. When I was looking over your bio, I mean first of all, super impressive, you've done a lot of incredible things. But I want to start first of all with kind of what you're doing now. And then I want to work our way backwards. So, you know, this might seem like a really obvious question, but Chief Investment Officer, what does that title mean? What is that role?

I think it just means a hyper focus on investing in real estate in New York City and actually deploying equity and capital on behalf of institutional equity partners. So how do you deploy that capital efficiently in a specific asset class, which is real estate in New York City.

Okay, and so I see. And I don't know if CIO means that you're the one who ultimately that the acquisitions, the team. I mean I would imagine you hear about the investor, the pipeline meetings every every week, you're kind of presiding over this, you're seeing opportunities. I mean your team is pitching you up possible investments.

Absolutely. You know, we look at easily probably 50 deals a week and just trying to find the most compelling opportunities every month basically. And what is the most appealing real estate opportunity in terms of risk adjusted returns at whatever point in the market cycle. And that's just a hyper focus on doing that.

Perfect. So and Hub, which you'll have to remind us that the date of inception, but today it's been close to 100 acquisitions. A mix of multifamily retail, really Manhattan, Williamsburg, Park Slope. Is that a pretty good sense of the overall scale and size of the portfolio?

Yeah, absolutely. Approximately 90 properties, mainly in Manhattan, but coming out of COVID we were able to deploy a fairly substantial amount of capital and Brooklyn and Queens as well.

And I know kind of when Hub NYC first started, it was a pretty big emphasis on retail. I know we transacted with a lot of street level retail, retail condos. And then you saw the opportunity clearly for multifamily. And like you said, the last few years have really been gravitating more towards newer construction.

Yeah, absolutely. We had a focus on retail initially, but the landscape wasn't large enough to deploy substantial capital in retail. Specifically. Specifically. So we started organically developing into residential, which is mainly from mixed use properties. Retail on the ground and residential on top. And honestly we continue Deploying a substantial amount of capital into retail over the past several years. Just come from retailing ground.

Perfect. So now I want to get a little bit into your story. So you went to Wharton, right? And you hold an MBA from NYU Stearns. So is this was real estate something that was always on your mind or you thought about getting into?

Yes, I was actually in the engineering school at Penn, but I always knew I wanted to get into real estate. I studied structural engineering, which led to a lot of design work in undergrad. And I, for instance, went to Rome to study city planning as an undergrad. It was always my focus. Took a lot of finance classes, real estate investing classes in my undergrad years as well. So. So always wanted to go into real estate.

So when you're touring a building, I mean, do you still some of those kind of engineering type perspective, knowing, you know, looking at the construction of the building, kind of a knowledge of the workings of the building? Is that something that you'd say it's been helpful?

Yeah, I mean, absolutely. It definitely gave me a good foundation to understand the bricks. It also is a methodology of thought and how you evaluate deals and that certainly very helpful as well.

Yeah. And I was going to get into this a little bit later, but we might as well talk about this now. And a huge compliment for you. I will say that the investors that we work with, I mean what you and your team do to track pipeline is exceptional for you to know what's on the market and then watching those opportunities determine what trades, what doesn't trade. So a lot of that you're saying kind of goes back to that kind of engineering type mindset of really making sure that there's a system in place so you can properly analyze opportunities.

Certainly we absolutely want to know what the best opportunities are available to us and our capital partner to invest at that time. And it's really just weighing all these different opportunities against each other. So you have to know all the opportunities and you have to know the risks and weaknesses and strengths and opportunities for with each of those deals. So we really critically evaluate every deal.

In the market and I would definitely suggest to you all whether you're out there looking to invest, you're a broker, whatever your addressable market is, it's really difficult to figure out kind of what is the opportunity and then figure out are you having success. So for us on the brokerage side, we're very focused on what is our market share, which is pretty simple to determine. We look at how many properties sold in our target market and then we figure out how many we sold them, and then we can track year over year, we can figure out how are we doing to cover the market. And I think it's pretty impressive how when a new opportunity comes in that you all effectively timestamp it, you know which analyst is working on the deal, and then you track that. So, I mean, maybe for some of you out there, you see an opportunity, maybe it's for you, maybe it's not for you, and then it just kind of falls by the wayside, and maybe you don't follow up on whether or not it traded or not. So the fact that you're actually going in and tracking the life of the deal, I would imagine that that's something that's been helpful for you all.

Oh, I mean, absolutely. First of all, I think it's very important to understand the opportunity costs of investments so that, you know, if you don't invest your money in this specific deal, you know, what is your available opportunity in the market? So that helps us value deals more critically. But it is definitely a measured evaluation of the market at large as well. And I think with the fact that if you look at the percent of deals that come out into the market for sale, well, the number of those that actually trade changes all the time. So in like 2017, 50% of every deal that came to the market actually traded. We have data now that shows that 10% of the deals that come to the market trade. So it's so much lower. So many people that want to sell, but they're not trading. We need to figure out how to unlock those opportunities.

And there might also be potential to track those. There's 90% of the deals that didn't trade. Then do you continue to stay on them? And maybe that property goes off market and. And maybe a year or two from now, you pick up that opportunity again and you have that institutional knowledge. I'm sure that that's probably happened a couple times.

Absolutely, absolutely.

While we're at it, and I'll see how good your stats are, because this is something I'm very fascinated with is what is the percentage of listings that actually sell on market versus off market. Because. And I have this stat. Well, CoStar has this stat for across the country. I looked at what is the percentage of sales and get. We're talking all asset classes, like COSTAR tracks which percentage of those were brokered as opposed to off market. First of all, you want to. You want to take a guess on all the sales that COSTAR reports, how many of Them were brokered across the country. I'll give you a hint. It was surprisingly low.

Okay. I guess that's because no one may have had an exclusive listing agreement for and that made the stat very. A lot lower. Because in New York, I mean, a lot of deals with we see the listing is expired, but it still transacts through broker plus the relationship. So I'm biased in this because I associate a broker with every deal that we look at. But I don't know, I guess 30%, 40% are brokered.

But it is a good point. I mean, if it was brokered at one point or was there a broker involved, but they didn't track that again. But it's interesting to me that there's still a lot of opportunities that end up selling off market. I mean, we've had this discussion before and you said, and this isn't, believe me, I didn't just bring Jesse here to give a big plug for why you should work with broker. But I believe you told me in the past that you only like to work to buy through brokers. Has that changed or if so, what's your preference?

We have to work with brokers in the sense that we purchased 90 deals and every one of those deals has been with a broker. And that is I purchased deals from one developer knowing that we pay, you know, more than most people for like 421, a deal couldn't do one of the three off market with them. There's always a broker involved. If I give an offer to someone, they're always going to shop that offer to see if it is the highest and best offer. And that's where the broker lends credibility to the potential transaction and improves the surety of closing. So I've had bought a building, had the neighbor want to sell us their deal, giving them an offer, and then they get a broker involved. I've never been able to do a deal without a broker. Now, in the record, there may be no broker associated with it, but there's always a broker involved. And I can tell you, like a lot of deals get done from 2022, 2021 or before. And for instance, there's always a broker involved because the broker has the relationship with the seller. So you need that for the credibility of the transaction.

So thank you. And again, that was completely unsolicited. But I remember you have told me that in the past. And look, many of you that are listening or watching right now are saying, you know, James, I want to buy off market. I want to buy directly from the owner. Because if there's a broker involved, that means that, that the price is going to get driven up. I'm going to have to compete with the whole world. I mean, I think again, if you acquired 90 properties in every single one had a broker involved, whether it was on market, off market. Clearly we spend our day, you know, trying to prospect, trying to find opportunities. You're trying to spend your day trying to analyze these opportunities and transact so, you know, two different full time occupations. But what I will say, say especially to a lot of you who say, James, I want to find something completely off market that no one knows about and buy it, you know, before a marketing process. I mean, first of all, I think, you know, at least in New York where you, this is a very, you know, efficient, well brokered marketplace, that's going to be tough to do. But even if you could find that opportunity, your point? I think a lot of owners have a very challenging time. What if I'm missing out? They can't help themselves. And I think sometimes that marketing process can be an education process and sometimes, especially depending on what direction the market's going, if the market's kind of either flat or even, you know, maybe on the downward trend, educating the seller and for buyers out there, you might want to be the last buyer in as opposed to the first buyer. And I don't know if that makes sense to you.

No, no, absolutely does. It's always also more efficient for us to go back to the last broker that worked on a deal because we're tracking all the old deals and so we want to be able to field, you know, that potential area for investing. And it's just so much more efficient to go to the broker that worked on it three years ago as well. That provides a lot of opportunities for us.

Wonderful. So now that we've established kind of the importance and how you're working with brokers to find opportunities, why don't they be helpful? Especially for the brokers we have who are listening to the show or investors who are trying to cultivate relationships? You know, how would you advise going out and creating those relationships?

That is an excellent question. It happens over time. It's not something you do all at once, but you definitely want to do your best to network and talk to as many people as possible. I am learning every day from the community around me, which is the brokerage community. We share ideas and we all grow together. And you need that time and opportunity to engage with the brokerage community to understand the market dynamics and what are Good opportunities, but it just happens over time. You got to go out there and you have to network and you have to talk to as many people as we'll talk to you. And keep doing it again and again and again.

And I'll give you another compliment because I think for a lot of you investors who are thinking that, you know, you're staying in touch with a broker and that broker is basically, maybe they call you once a month or they call you when they have an opportunity and great, you have a five, ten minute conversation, you get the information you need, maybe a bid, maybe you don't. But I think what we're really talking about is relationship building. And Jesse, whether it's, you know, sitting down for lunch or when your team says, you know, why don't we just sit down around a table, let's trade some notes, let's go through pipeline. I really, and this is an in person business, I think when you take that time to sit down, I think what you'll typically find is a lot of opportunities tend to come out of those meetings where that phone call, you know, I might be calling on one thing, but if we can kind of sit down and let's, you know, let's just go over everything, you know, humor me. You know, probably most of this isn't for us. We've already vetted it out. But there might be something that we're working on where I would imagine when you're spending that time, like face to face, that you can uncover more opportunities that way.

No, absolutely. And over time, things change. I may have missed something the first time around. My investment needs may have changed, the seller's investment needs may have changed. And so the world continues to change. So you have to routinely follow up on those things. And honestly, a big part of what we do is knowing what the brokers worked on and maybe what didn't trade so that we can follow up on the old deals just to see what has changed.

So I want to now talk about, and we'll get back to more, the investment philosophy of Hub NYC and how it was set up. But before that you were working as an SVP at CW Financial. This is one of the, you know, the biggest servicers out there. 24,000 loans in REO properties. Tell us a little bit about that experience. I mean, I would imagine most people listening or watching this right now are thinking, wow, we've got this tremendous market in front of us. There's going to be incredible opportunities. You have all this debt that's coming due distress, you know, you're kind of on the other side of this, trying to manage this distress involved in these workouts. I mean, what, what lessons would you say that you learned from your, your time at CW Financial and, you know, any advice that you would give to our listeners on how to go out after distressed opportunities?

Yeah, just to be clear, I took that opportunity during the great financial crisis because I had been working in acquisitions for a private equity company that was not going to be doing much investing for the foreseeable future. And I had this opportunity to work at CW to honestly get my foot in the door in the recovery from the great financial crisis. So I had such an incredible survey of information and data from working there. And it was, that was the experience I was going after the development of my career is to sort of see what opportunities would come out of the great financial crisis and the recovery. So CW was owned by Fortress. The big private equity companies had made their plays into servicers. And at that time, and they were rolling up their sleeves aggressively, trying to figure out how to make sense of all this debt that had defaulted, basically this overlevered CMBS debt. And I was working sort of through the asset side of it. And what I will say, because from my perspective, we were evaluating, is it better to foreclose on the borrower? Is it better to sell the note? Is it better to make a deal with that borrower and whatever is in the financial interest to maximize the recovery of proceeds for the lender? Is what the lender is going to do? That was my education there.

And I'm sorry, were you working mostly on behalf. These were like CMBS loans.

So, yeah, I specifically wasn't working on. But they had Stuytown, Petrus Village, for instance. I mean, they had a lot of assets in New York City. Not a lot of resi assets in New York City, but a lot of different types of assets, a lot of office buildings.

So. So can I dig a little diplomat deeper? And yes, you have a fiduciary to try to recover and have the best outcome. And you mentioned it could be restructure, it could be foreclosing, it could be a note sale. But when you're factoring kind of the timing, the legal process, again, you can make your best assumptions. But first of all, I would imagine it's radically different from state to state as far as what that process is like. I mean, I remember after the great financial crisis here in New York, I mean, there was some loans that were, that were in the courts for years. Right. So how are you trying to make the determination of the best path when sometimes you, you really don't know. I mean, a loan sale I think is a pretty, you know, quick outcome. You kind of know what it is, you sell it. But as far as going through and foreclosing, sometimes it's difficult to know how long could this potentially get dragged out for legal cost. How did you quantify that?

I mean, you just put your best foot forward in trying to evaluate it. But foreclosure was very rarely the outcome. I mean, the outcome was generally either selling the note. There were a lot of note buyers at that time trying to take advantage of the opportunity in debt. And then it was a lot of like A note, B note structures where the B note was basically a hope note and you're trying to incentivize the borrower to put more money in the asset. The only point I was going to make in terms of how it relates to now is that this concept of blending and extending occurred in the great financial crisis and occurred for a long time during the great financial crisis. And I don't expect it to be much different now. And we're going to be going through this period for a long, extended time period because of that blend and extend option.

Did you think, well, wow, maybe I want to go into distressed investing?

No. I always wanted to do direct investing in real estate and be closer to the assets themselves. I certainly did not want to do lending or be part of the loan. I want to have an impact on the assets. But what I learned from that experience is that equity is so important. I certainly learned it at my investing job previously going into the great financial crisis and certainly again at cw, looking at all these different borrowers and how they were reacting to what was a substantial capital strain on the assets. So it was just purely a focus on what is a stable long term capital source to invest in real estate. And honestly, I was focused on, you know, institutional investing and it led me to basically the pension fund world for investing.

Got it. So maybe you can tell the audience how you found out about Hub nyc. I mean, I've got to say the number one question that I get from you all is, James, how do I find my next job? That's typically, you know, James, can you point me in the right direction? So how did you, you know, what year was this? At what stage was Hub nyc? Do you remember how you found out about it? Maybe share a little bit on that?

Yes, I had developed a relationship with the current president of Hub NYC several years before the great financial crisis, which Shows shows the importance of maintaining long term relationships in the real estate industry.

This is Johnny McCarthy. Amazing, amazing. And how did you meet him?

I was looking at co investing in an opportunity with Acadia when he was there at the time. So I'd reached out to him about an investment opportunity and had just maintained the relationship. I was looking at a job opportunity with Ohio stars in a very similar role. And Johnny's platform @hub NYC was also with the pension fund. So there was sort of a dual thing going on there I think accelerated the opportunity to, to work at Hub.

And when you started there again, Hub's focus originally was just on retail. So. So you have a, a pension fund that you invest on behalf and I don't know if allocations the right term, but they gave you. Okay, this is, I'm sure you or Johnny pitched them on a strategy. New York Retail is that. Yeah, fill in some, some of the blanks there.

Yeah. And Johnny worked for a public retail company with Acadia.

Yeah. So we've had Ken Bernstein on the show as well. So again we can piece the whole story together.

Exactly right. And so it was basically a derivative of similar strategy except that Acadia is probably more focused on high street retail in our strategy was very local in neighborhood retail. So that was a slight nuance to the change in strategy, but still investing for the long term.

So I mean maybe this question again, if Johnny was here we could ask him, but I mean clearly he had that institutional experience. But you're talking about really kind of a programmatic investment. Right. So you get an allocation. So I mean that probably takes. Talk about relationship building. I mean that's a pretty big commitment to say, okay, we believe in your strategy. Okay. Even though you haven't done it on your own yet. But we're going to seed you to do this. I mean, do you know any of that backstory of how that came to be? Because I'm sure a lot of the people would listen. I mean this is like the holy grail of investing to have kind of a long term capital partner. I mean again you've had to be clear. Hub NYC has had one investor since inception who is. You've continued to grow with. Right?

Yeah, I mean that was their. The investors investment strategy was to have local sharpshooters deploy capital in a very specialized way so that the people that were working on their behalf were very knowledgeable and that lowered the risk having the real local knowledge in terms of how that happens. You know, Johnny was a very active leader of investing on behalf of Acadia. So, you know, it's not that farther than like, you know, someone partnering with Carlisle or KKR today. You know, it just slowly happens with your, obviously, Rolodex to getting access to those people to have the ability to, you know, get the meetings. But then your specific asset strategy and how you can. How effective, incredible your investment strategy is.

Right. And I would imagine having that institutional experience is very important because when you have an investor like that, they probably want to know what you're up to. Right. So what does that look like as far as. And yes, you had the investment committee, but you are investing on behalf of this pension fund. So. And I think I've talked to you all before about this kind of, is it discretion within a box? So if it looks like this and it hits the metric, or is it still like every single time you need to go back to your investor and make sure they're on board with that?

I mean, we work very closely together with pipeline calls and discussions on what we feel are the best investment opportunities at the time. But, you know, for instance, we have 90 properties and a lot of different neighborhoods. So to say we're investing in a new opportunity in the Upper east side, well, that's not that new. It generally fits the box of what we have already done. So the longer our relationship has occurred, the easier it is because there's that level of trust, and trust is the most important thing.

Good. So I'd like to talk a little bit more about now, your focus as far as how you identify opportunity, because initially it was a retail focus, and then you decided to make a big push into multifamily. And again, your analysis, you're clearly very data driven. So how did you determine that there was, in fact an opportunity? And again, for the people listening or watching who are thinking about, okay, what is a good investment thesis that, say, if you wanted to, you know, go out and find, you know, an incredible programmatic partner to invest with, I mean, what. What constitutes a good strategy? I mean, the idea of buying retail and multifamily unto itself in New York, there's a lot of investors who do that, both private and institutional. So. So what was it about your thesis where you were able to get this investor on board to understand the opportunity that was in front of you?

Well, the expansion into residential, I think, is probably a better thing to talk about, because as we talked about, Johnny had the Acadia background in terms of direct retail investing, but the mixed use, if you take a neighborhood like Hell's Kitchen, which is a Lot of smaller ownership groups in the retail, for instance, is more mom and pop. But like 9th Avenue has great co tenancy. I mean it's a restaurant corridor. You could take from our perspective, institutional capital and really recreate the retail experience there. And honestly the residential above, but it was a little easier to see it clearly on the retail because you know, you could do institutional investment and get national tenants on Ninth Avenue by being willing to pay the TI's to see the importance of signage, to see the importance of the street frontage and the retail presence on the street. That wasn't a priority for owners on ninth Avenue, for instance, previously. So you could apply certain institutional strategies to local neighborhoods. And a lot of local neighborhoods had those types of inefficiencies that also worked on, you know, the residential. Because the residential 100-year-old buildings that haven't seen strategic investment. I mean, think about all the people that did that in like the East Village, right? And so that was just a much more competitive space. Our competitive advantage was being able to do that both on the retail side and the residential side.

So Jesse, this is interesting though because you've on one hand you've bought streetfront retail, like you said, smaller boutique buildings. So you don't have a minimum deal size per se. But it would seem to me that if you are looking at say $10 million and under opportunities and for those of you who are not invested in New York, I mean you might say, James, that that's kind of a pretty high bar to call a small, you know, to maybe even mid sized transaction. But I would think that there's probably a lot more competition. Like when you go try to buy a 5, $10 million deal, you're competing with a lot of private investors, foreign investors, 1031 Capital, where you go do $100 million deal, especially in an uncertain marketplace, there might not be as many competitors that you're showing up to. So are you, you know, how do you, how do you justify that?

I certainly don't want to be in the very competitive space where there's a lot of different bidders. We are more competitive in that small deal space. If there's a reason that the potential investment, you know, universe can access the capital market. So if there's a reason, let's say had vacant retail on the ground, someone may not be able to write the check for that because you probably won't get debt as easily. So that would give us.

So you can close all equity when you.

Yeah, yeah. I mean, we've done that on Small deals with you. And we've also done it on the like $190 million AIMCO 24 building and finance it afterwards. So I mean it really depends and we can apply that strategically.

So what is the sweet spot then? Because you said when you go 10 and below, there's a lot of competition. Right. But you could also say a lot of inefficiencies. Whereas, you know, $100 million plus. I mean, is there kind of like a perfect range to target where you.

Absolutely. Particularly now where people are capital constrained. The like $15 million to $50 million deal is the perfect size for us because it's too small for the institutional players that you're competing against, mainly on the cost of capital and it's too big and debt dependent for the smaller balance sheet investors.

Got it. Okay, so and I know you track this, but on average every month, how many deals do you get inbound?

New deals that we have never seen? We get 150 each month. Sorry, I usually do it by quarter. We get 50 to 60 deals that I've never seen before.

Okay, so you, and a lot of this is you've done the hard work of cultivating these broker relationships. And if brokers don't know who you are after the show, hopefully, you know, maybe we get up the, you know, 60 or 70 deals per month, but that's a lot of opportunities. So when you see that broker setup come across the desk. Right. So I can't imagine you're doing a full underwriting of 50, 60 deals a month. So like what is the first kind of screen, if you will, to decide? Okay, this is something that we're gonna really take a serious look at. Like how much of the information do you kind of bet on your own? Do you kind of rely on the broker flyer? How do you really analyze?

No, we don't. I mean we basically, you know, check it out on Google Maps, you know, just look at what's going on around that building. We take the rent roll, you know, the revenues probably from the broker and then we just apply our own expenses because everyone has a very different view on what it takes to operate a building in today's environment. So we get a basic NOI and look at the yield in place or the stabilized yield. So we have an understanding or an opinion on value.

Yeah. I will also tell you that you are very astute when it comes to taxes. That's. That is usually the first thing that you will tell us on the flyer. James, you know that your taxes are only at 18% of EGI and you know they're going to go up to 25 to 30%. So it's, it is. That makes a lot of sense that you're kind of doing your own analysis because I would imagine you have all these different broker flyers that are presenting information different ways. Like what you're trying to do is get some kind of tool for comparison where you can compare what's out there. So, and just for our audience, because I think this is really important, especially when, you know, maybe you get frustrated. Oh, I can't make any deals work well. Okay, how many are you looking at? Are you? I, I would doubt if any of you. And please reach out to me. I'd be curious to kind of see what is the percentage of deals that you actually see to actually making an offer and ultimately closing on. So what is the percentage? And again, if you want to do it by quarters, we could do it by quarters. If.

No, it's great. I mean, just to be clear, and it's market dependent.

I mean, in a hot market where things are working, like maybe you have a higher degree of success, maybe now you're being a little more selective. But like you get 50 deals a month, how many do you think you're actually making offers on?

We try and put a value on every deal because that's the most important thing a broker could have is our view on price. So even if it doesn't, it's not relevant today, it could be relevant three months from now. So we definitely need them to have that tool and maybe why we came up with that price. But only 10 to 15% of these new deals are actually trading today. So that's actually not even best use of my time right now. What we are spending, the majority of our time is going back through the 2023 deals, going back through the 2022 deals and making sure we know exactly where that potential seller was. And that's what we're really focused on, the people that wanted to sell and could not.

So what is that? I mean, if you were to try to det. Determine, you get 50 deals, but right now only 10 or 15% of those are trading. So ideally you want to just focus on the opportunities you think you're going to trade. So what determines that?

Well, right now, and I know you don't want to talk about the now, it would be the capital structure. What is going on with the seller's debt. We need to know clearly from the broker why the seller is selling in today's environment. Because we cannot waste Our time on someone that's just testing the market. They need to be a need driven seller. We want to know why they need to sell today.

I believe that a chapter in my book on sellers, motivation now, now more important than ever. So I'm glad we agree on that. Okay, so talk a little bit now about the process of getting from, you know, bid to close. So what is, I mean you're sitting here, you've bought 90 properties, you know, close to $700 million I believe. I mean post Covid, I mean, which, which a lot of buyers have been on the sidelines here. You've taken down over $700 million of properties. How do you get from like bid to close? Because I would imagine, you know, putting the numbers again, submitting the offers, it's not as easy as the broker just saying, okay, great, we accept the bid, let's get it done. So kind of what, what happens between bid negotiation, getting a deal signed and closed?

Just a lot of due diligence. The New York City market moves that if we think there's a good chance of getting a deal done, we move night and day into due diligence. Because there's so many things to unpack. In real estate. You are really trying to uncover the history of the real estate over the next two or three weeks, whatever it takes to negotiate a contract. And that could be environmental history, that could be structural history, that could be something in the regulatory environment. And you're trying to put numbers into or onto everything and you don't stop digging in. Every time there's a question, you dig in further.

Is this all in house? Because first of all, you know, some people might be listening to this saying, oh my gosh, how could I possibly onboard 50 deals a month, analyze them? I mean, how big is Hub nyc, man? How many people are we talking about? How many analysts? Like what is your.

So there's approximately 30 of us in the office every day. I mean we do our own property management. So approximately 100 people at Hub NYC in on our team, on the acquisitions team. There's four or five of us. But if we think we have something, we will have members of our leasing team helping figure out the market rents, the potential rents.

What about like the legal due diligence? Are you outsourcing a lot of that stuff or do you have like in house counsel?

No, heavens, heavens no. We, we outsource that. And also in today's regular, wouldn't that.

Make sense to bring and have that.

Efficiency all in house to specialize? We own these Properties for the long term. We've never sold an asset before. So we want someone to check the zoning, we want someone to check environmental issues, lawyers checking these things, the regulatory environment. Post hstpa, we need multiple law firms evaluating regulation issues because there's not enough from post HSTPA in case law. So you can't even depend on case law to defend certain issues. So we need many different perspectives on it.

Got it. So with only a couple minutes left to go, I want to. And by the way, I have to ask you before we kind of. I want to get your advice to aspiring investors out there, but I got, I got to ask you about this. So you're a sailor, right? I've actually been out on your boat. Unfortunately. It wasn't a lot of wind that day. I don't know, maybe I'm bad luck, but you told me that you're about to embark on a regatta. Is that what you call these things?

Yes. You're going to go from Newport's Bermuda.

Okay. Isn't there like that Bermuda Triangle thing in the, the in between that you're supposed to be careful of?

All fiction. James. Yeah.

How long is it going to take.

You to do four to five days probably.

Straight.

Straight.

So, and what are you doing and how many, like how big of a boat are we talking about? What, how many in the crew?

It is a 40 foot boat and six of us on the boat and it's three on, three offs of naval watches. And we've actually done this before. This will be my seventh race.

Wow. So are you like how you're on shifts, obviously. So is it like eight hours on and then you sleep? Like what, what's, what's happening on the boat here?

Four hours on, four hours off. And no matter how you look at it, it's a real test of your endurance.

Wow. And again, we, we don't want to talk before you're going off on this voyage, but I mean, that's got to be pretty crazy being out in the middle of the ocean. I mean, you've probably been in some, some scary situations, but I mean, being able to navigate that and, and I mean, today I would hope with all the technology and everything, it probably makes it a little easier to figure out how to chart your course.

Yeah, I mean it's certainly easier than ever to find Bermuda, but you know, it's just about four days. There's enough to get storms in that time. And for instance, this race every other year and last year with the same crew, I went to Newfoundland and There's weather coming off the Arctic up in Newfoundland and it was a real test of open water sailing.

Wow. Well, can't wait to hear about that. I don't know if we can break the news here, but I think they might even be doing a documentary to go along with this. So we might be able to see this, this journey once, once you complete it. Is that, is that true?

That is, that is true. They have chosen us as one of a couple boats that they're going to, to film going down this year. So I'm excited about that.

Can't wait to see it. So, and, and maybe that, you know, that focus, that attention to detail, I'm kind of noticing a trend here between your investing, maybe it's sailing. I mean, what, what are the parallels here that have helped you be successful throughout your career?

Yes, I, I guess there are a lot of similarities in sailing. You're incorporating a lot of different elements and details with the weather, the seas, the ocean and all the different things on the boat and the team that takes to do it. And that's true of, you know, navigating investing, particularly in New York City. There's a lot of different factors that go on and you certainly can't do it without a strong team and everyone working together to understand it and to succeed in it.

Wonderful. So, and is that, do you think that's part of the reason why? I mean, you've been at Hub NYC for how long now?

For 10 years.

For 10 years, right. I mean, that's a pretty long run. You guys have a great thing going. You know, that idea to be part of something bigger as opposed to, you know, there might be some people listening saying, okay, well, I don't know, should I. Is the goal to kind of go off and do my own thing and something more entrepreneurial or, you know, do you plug into a larger organization? I mean, what do you say to that?

Yeah, I mean, right now, particularly in a period of uncertainty, I value it now more than ever. I look at, you know, the team that we've assembled and working together, it's certainly so much more efficient, but it's also an efficient understanding of the different things that impact the market. And you know, some people are surprised at the length of history that I have information on. And quite frankly, it's probably for me just being there for 10 years. You know, I have 10,000 deals from, from, you know, all the different brokers that we've looked over at the 10 years. You know, we have a very good database that spits out A lot of different data on all the different things that have happened. And underwriting all the, the deals with a similar underwriting methodology gives you a lot of good information on cap rates and returns and things like that. So that sort of stability, I think helps me do my job better.

Okay, and then I'm going to close with again, I told you before that one of the top questions I get is for career advice and especially, you know, kids, kids, students out of college saying, james, how do I find my next job? There's a lot of frustration out there. Maybe you've been trying to email, maybe you're trying to, you know, respond on LinkedIn and not having a lot, a whole lot of success. So you said you have 30 people at Hub NYC, 100 if you include managers. So. And I don't know if you get involved in the hiring, but when you see, you know, resumes or what is it about the people that you hire that kind of give them the advantage?

Well, I know one thing that I look for is definitely a passion for the industry. It takes so much to succeed in this industry that you can't just do it as a job. I think you have to really be passionate about real estate and I definitely look for that in people because I think that contributes to success.

Awesome. Well, Jesse, that, that's a tremendous way to end. So thank you again for taking the time here, sharing your story, sharing Hub NYC's story. Just really impressive what you all been able to accomplish in a very challenging market. So I, I definitely applaud you for that.

Thank you, James. And thank you for your support throughout the years.

Wonderful. And thank you all for joining. As always, you can go to james nelson.com that's where you can find the show notes for this. You can figure out how to connect with Jesse and Hub nyc. You can also subscribe to the newsletter. So we have a newsletter that's going out every single month now that really summarizes not only the podcast, but the white papers that we have on Forbes.com we've got a lot of great content that we're out there sharing to help you gain the insider's edge to real estate investing so you can outperform the market. So until next week, thank you again for joining.

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