Visionary Growth with Doug Elenowitz

Welcome. This is the Insider's Edge to Real Estate Investing with James Nelson, the principal and head of Avison Young's U.S. Investment Sales Group, and his co-host Kim Trohler from his investment sales team. 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 are your hosts.

Welcome everyone to episode number 237 of The Insider's Edge to Real Estate Investing. This is your co-host James Nelson, and this is Kim Troller, also your co-host. And today we are with Doug Elenowitz, and you're going to learn about urban development and housing. Doug is co-founder and principal of Trailbreak Partners, a Denver-based vertically integrated firm focusing on residential and in multifamily investments and developments. Doug shares how their hands-on investor-first approach has created a loyal capital base of high-net-worth individuals and family offices.

You'll hear about navigating complexities when transforming forgotten properties into places where people want to live and work. Doug also offers insight into building a strong internal culture and designing spaces that fit the neighborhood rather than repeating a brand template. First of all, it was really refreshing having some Mountain West representation, um, and Doug brings a really unique perspective to development coming from a field development background and environmental health science background. He's also an expert in like public financing strategies like TIFs, LIHTCs, HUD loans, and he's working on a lot of really exciting new developments in Denver that you'll hear more about.

Yeah, and I think for our audience who— for those who are already out there investing and looking to build their, their company, I mean, sometimes we think about that as how do you expand and do larger transactions, different asset classes, different geographies. But the fact that again, Trail Partners, our vertically integrated firm, you know, talking about all the different things that they do from inception to development. So I know you all are gonna get a lot out of this episode. As always, you can go to jamesnelson.com. We built this site for you. That's where you can find the show notes, how to connect with Doug, and also a lot of helpful resources, including this new educational course that I'm coming out with in partnership with Adventures in Commercial Real Estate. As I said in the last episode, part of this is a James Nelson AI Uh, we've fed all the, uh, uh, transcriptions from the podcast, the book, Forbes articles. I mean, there's this incredible knowledge base that you're gonna be able to access. So I'm super excited about that. We're gonna have a brief word from our sponsor and we'll get right into that interview with Doug Alenowitz.

Avis and Young's United States investment sales platform executes on multifamily office, retail development, and specialty asset transactions across top US markets. As experienced leaders in the industry, our integrated national team is here to help you make informed investment decisions, whether advising on your current holdings or identifying new opportunities nationwide. Our one unified platform is built on unparalleled collaboration and connectivity across 120 full-service offices around the world, giving clients direct access to the deepest pools of capital. We put our clients first, delivering tailor-made strategies to achieve superior results.

Today, we're thrilled to have with us Doug Ilenowitz, who is co-founder and principal of Trailbreak Partners. Had the chance to meet Doug at Ascent with ThroughBizNow. So Doug, great to see you again. Thank you for joining us.

Thanks for having me. I'm excited to be here. Thanks, James Nelson.

So Doug, I saw in the first line of your bio, you said that in EOS speak, you are the company's visionary. So EOS, I remember that from, from Gino Wickman's Traction, which is an incredible book. If our audience hasn't read it, maybe you could talk a little bit about that and and how you see your role as visionary for, for the company and what that entails.

Sure, sure. I'd be happy to do that. Yeah. So we discovered EOS and began implementing it back in 2020, right around the time of COVID We had a bit of an inflection point of saying, hey, you know, what are we doing here with the business? Are we going to grow an intentional strategy? If so, as a second-time entrepreneur, it was important to me to have a system in place before we hired our team rather than trying to change behaviors after the fact and came across Traction. And it really resonated with both myself and my business partner. The idea of having a way to interact with one another, to be able to have visibility into all the operations of the business and really try to create efficiency as we were building our team. And central to EOS is this idea of a visionary and an integrator. One has sort of big ideas focused on large relationships, is a problem solver, is a relationship builder. The other is more attentive to process and operations. And we did a bit of a profile and personality test, and amongst myself and my business partner, really it was, it was pretty obvious that I was more in that visionary seat. So today, uh, and, and really since the beginning, a lot of what we do with our business is generated by a wide range of ideas that may come to me. And I rely on my partner to sanity check whether whether we're running down rabbit holes that we shouldn't be in or if these ideas have merit and are something that we should pursue as a company.

That's awesome. Yeah, I'm a big fan of that book. It's definitely time for me to give it another read. But it just— it also brings back thoughts of Jim Collins' Good to Great and having the right people on the right seats of the bus. I think also one of the pieces of advice when you're hiring that Wickman talks about is hiring someone who gets it, wants it, and can do it. Talking about the right kind of people you want to hire to grow the organization.

So, uh, yeah, GWC, it's central. And we, you know, we hire, we fire, we promote, we reprimand, we reward by the core values that we set up. It's very different than other businesses that I've been involved in in the past where you go through, you know, sort of mission and values, all these things, and it sits on the shelf. Here at Trailbreak Partners, and then I think all EOS companies, it really becomes fundamental to the way that you operate and conduct yourselves.

Wonderful. So Doug, it would be really great to hear a breakdown of Trailbreak Partners in terms of kind of who you guys are, what are your markets of focus? I know you're, you're active in the multifamily space, but you've got some other types, asset types in that portfolio as well. So what's your current breakdown in terms of geography, asset type, and kind of strategy?

Yeah, thanks Kim. So, you know, we're Denver-based, we're, we're an owner-operator here in the West, and we are focused on multifamily and mixed-use projects. In the West. We're boots on the ground in Colorado, Utah, and Idaho. And to date, we've done about $900 million worth of projects. We're vertically integrated. We do ground-up development, we do acquisitions, and we operate the, the communities that we're involved in, in each of those markets. And it's really, it really is residentially focused. And then within residential, it is multifamily focused. And a lot of that is just behind our conviction around Maslow's hierarchy of needs, the need for housing, and then really in the markets that we're in, seeing where there is structural dislocations that really lend to residential and multifamily investing.

Are you— I know that Denver is a very bifurcated market from an office and residential standpoint. Are you focused more on value-add strategies, or are you kind of investing in those what is it, Cherry Creek, kind of the areas that are a little bit more booming? Like, what's your kind of geographic breakdown?

Yeah, so here in Colorado, we are large. We actually cover, you know, the entire state. So we own assets from Durango in the southwest portion of the state up to Fort Collins in, you know, northern Colorado. But a lot of our activity tends to be in what I'd call the Front Range, which is the 7-county metropolitan area. And Certainly Cherry Creek is a, is a place unto itself, but we, we really see a lot of opportunity across the Front Range. We're a little bit contrarian, so we recently broke ground on a, on a high-rise multifamily project in, in Golden Triangle in the CBD, and we like that that's going to be delivering in early 2028. And what we see here is there's long-term fundamentals that really support the investment The— at this moment in time, we are dealing with, you know, massive dislocation from, you know, record supply that's been delivered. What's interesting and what we're really monitoring, though, is while we've had that record delivery here in the last several years, including this year, behind it, there's virtually no new development. So we fully expect between the continued migration, continued job growth, and, and lifestyle choices for people to be in Colorado, that when we look at these assets in just a couple of years, we're going to see a massive shift towards demand-side fundamentals.

That's, that's definitely a trend that we've seen across the country, that drop-off in supply over the next few years.

So Doug, is most of your investments ground-up development, or you're doing rehabs as well? What's the balance there?

Yeah, most of what we're focused on right now is, you know, I'd say our emphasis currently is on the acquisition side space. So we are seeing, and we think there's sort of generational buying opportunities today where there are, you know, newer vintage assets that are trading at significant, you know, 20, 30, 40% below replacement cost just because of the disruption that's taken place. And so cash flow is pretty weak going in at the moment, but we believe that, you know, buying in the down and disrupted market and holding into a, you know, the, the market where the, the demand side has shifted is really a great strategy. So that's where our focus has been, uncovering, you know, situational sellers in, in, in Colorado, in Salt Lake City, and in Boise.

And how do you capitalize your deals? Are these all deal-specific where you, you work with LP investors, or walk us through the, the typical capitalization of one of your deals?

Sure. So to date, our, our projects have been— we've made 16 investments to date. They've all been deal-by-deal syndications with high net worth and ultra-high net worth and a little bit of family office investors. With the growth of the company, the number of deals and the size of the deals that we've been involved in, we are migrating more towards fewer larger checkwriters and starting to explore the JV equity space on some of our investment opportunities.

Do you guys typically like to be the, the J— the GP? Are you making LP investments as well?

No, we've only done GP investments. We have done some joint ventures where we are co-GPing with others. But for us, predominantly as the capital raiser and provider for those, we maintain control positions in those as well over major decision rights. We, we just really aren't set up structurally to, to, to be passive equity and other people those deals.

So with your stable of high net worth investors, curious, have you ever thought about raising a fund to, to, to, to go about investing programmatically? Or it sounds like now the shift is more towards bringing on larger, more institutional type investors.

Yeah, it's a good question. We've looked at funds in the past, and we, a number of years ago, did some surveys of our investor base who've been really reliable and terrific for us. And, you know, we got mixed results, which wasn't surprising. Some were interested in only deal-by-deal investing. Others said, oh goodness, we were waiting for you to ask. We don't, you know, we trust you. We just want you to go and make good investments on our behalf. And for us at the time, as we were looking at what was happening in the market, we had some concerns about frothiness and pricing, the ability to deploy. We, we hit pause on, on going out with a fund. More recently, we are exploring a GP fund that would, that would invest alongside the JV equity or family office investors that we've been speaking with. And the idea there is, one, it's a leveraging tool for us. It allows us to be able to move more effectively with, with those types of institutional partners. It also— we really don't want to abandon the folks that got us here. We're, we're very loyal to our investors that have been supportive of the growth of the firm, and it creates an opportunity to allow them to continue along with us and invest in our opportunities.

Yeah, I, I like the fact that you surveyed your existing investors, and, and I wonder for our listeners, those who have been at this a while longer and have a, a good stable of investors, how many times has someone actually, you know, reached out? And I'm, I'm just curious, was that, you know, phone conversations? I mean, you know, with a certain list of questions? Were there like an email form? I'm just, you know, when you were asking those questions, just how did you go about getting the answers you were looking for?

Yeah, well, look, one of the things we really pride ourselves is accessibility to, to our investors. They all have my cell phone. I mean, some days this works against me, but on those days we really value, you know, value that kind of personal touch. So some of it is phone own conversations. But in this case, we actually did put together and spend a lot of time thinking about a survey that went out electronically. It was a, you know, a form that could be filled in and it asked a wide range of questions from, you know, expectations around returns and different levels of risk tolerance. It talked about and sought to understand what are the different knowledge that each individual investor brings to the table in terms of the types of asset class and the profiles of returns and the risks inherent in them. And then it went into very specific questions around, hey, you know, if we had a fund, would you be interested in it? You know, things along those lines. So it really was discovery. And we have insight and instinct, but we really wanted to be sure and validate that what we were thinking aligns with the investors' needs and interests.

Was one of those questions about geographic preference? Because I was going to also ask you either, you know, there's enough to do in Colorado or that's again, where you're doubling down on your focus, or have you thought about investing outside the state? I, when I was looking at your site, it looked like you had one hotel investment in San Antonio, so I don't know if that was just kind of a one-off, but did you think about where else you could be investing and if your investor base would follow you there?

Yeah, we did, you know, and we talked about that, you know, putting my visionary hat on for a minute, we talk about that from a strategic standpoint. And I think where we've landed is while we can certainly have a broader footprint than Colorado, we don't want to be all things to all people. We really value and see and heard that, that our investors are looking for us to be really good at something and specialists in some area. And that doesn't have to be specifically asset class, but it ought to be thematic. So what ties our markets together is a very consistent story. People are moving to the Mountain West. There's job formation is healthy. Homeownership is increasingly out of reach. And yeah, these are markets where you look at the US News and World Reports, you know, the best state rankings, Utah, Colorado, Idaho, they're, they're always among the top for economic strength and population growth, education, quality of life. So we, we did ask questions about that and, you know, heard, hey, well, Yeah, you know, if you had an opportunity in Boston, sure, we might look at it 'cause we live here, but we already have folks that are experts in those markets. Don't try to go in and do that. And so that, we did learn something about that, and I think it helped us form our strategic decision-making.

Doug, we'd love to hear more about your background 'cause you've got very extensive experience in environmental, environmental science, in urban redevelopment. We know that prior to Trailbreak, you founded a brownfield development company. So we'd love to hear about that and kind of how that came about, how you got into real estate with, with Trailbreak and kind of lessons that you've learned from the brownfield development space and how you've sort of applied that to what we're, you're doing today with Trailbreak Partners.

Sure, sure. Well, I, I actually came into real estate from a pretty unconventional angle. So I, I graduated from the University of Georgia with an environmental health and science degree, not exactly exactly, you know, the path into investment and development. And, but it, in, in its own way, it ended up shaping my career. So my, my first job was with Zurich North America, uh, underwriting environmental risk for these really big redevelopment projects. And what happened is I found myself way more interested in the real estate as we were insuring than, than the insurance itself. I, so I'd be sitting in meetings and evaluating contaminated sites and old industrial land that had these big visions for redevelopment. And I thought, wow, this is, this is really fascinating that the people are transforming forgotten properties into like the cool, awesome places people want to live and businesses want to be. And that's really what spark happened for me. So while I was there, I, I learned a ton. I, yeah, specifically around risk and complexity and how deals can go sideways. But I also realized that, you know, my strong business instincts and, and, and, you know, really what I wanted to be doing wasn't there. So I, I went back, got my MBA to get some hard finance skills and, you know, with really with the intention of getting into the principal side of real estate investment and development.

Do you think that given your background, you, you're more conscious of the environment, environmental risk side of the business, just given what you're focused on now? Like, has that sort of enhanced?

Yeah, for, for sure. For sure. I mean, look, I, I spent, you know, more than a decade in the messy world of contaminated distressed sites, public finance, urban redevelopment, and there's a lot of brain damage that goes along with it. And at the end of the day, what I tell people is while I'm no longer squarely in the brownfield business with Trailbreak Partners, if there's a site that has environmental complexity to it that's out there, you ought to bring it to us to at least look at and give an opinion on.

And what kind of advantages are there with the cleanup? I mean, the brownfield tax credits are the, the first ones that come to mind. So maybe just for our audience that doesn't have experience with that, maybe a little overview of, of, you know, how to identify these types of opportunities and then how you monetize them.

Yeah, so when that industry began, it really began with environmental arbitrage, right? The, the fear of the prospect of environmental liability and cleanup costs drove an outsized arbitrage value to what we could really underwrite and price the risk at. But with the passage of time, I think the industry got more experienced and successful with managing that risk. Real estate got really frothy and people began to just turn their head the other way and maybe not appropriately price that risk. So we saw the margin shrinking within that space. But at the end of the day, when that industry really began, if you think about the industrial history of the US, we had waterways where commerce was, where activity, and that became the desirable real estate. So you'd find a site and say, you know, you'd be in the middle of the city and say, huh, I wonder why this donut hole is sitting here. More often than not, there was some sort of environmental history that needed to be dealt with. Once that was dealt with, it was back in, you know, as high-value real estate. So, you know, I spent my time really, I'd say we were land recyclers. We, we, and it led to me to where I am today because you had to look at any piece of real estate and say, what's its highest and best use when it's repositioned? Is it, you know, residential? Is it industrial? Is it, you know, commercial mixed use? What's its highest and best use and understanding what are the economic drivers for that type of development? Mm-hmm.

What does, can you walk us through an example of what a complex kind of site contamination would look like, and if maybe there's a recent example of a project that you've worked on where you've worked through this, this obstacle, just given your background.

Yeah, I'd say, you know, remember I, I, I've sold that business to private equity firm more than a decade ago, so I've been out of that business for quite some time. That's not really where Trailbreak Partners is focused. But from time to time we have encountered it. So more recently, We were developing a TOD, a transit-oriented development site, along the newly put-in light rail system here in Denver. It was in Lakewood. It was a site that had a lot of infrastructure complexity to it, and there had been dumping that took place there over, you know, probably 40, 50 years. And so when we went in, it was very obvious that it wanted to be developed into, you know, a multifamily and residential community. But there was uncertainty about what was going on there. And it's not just, you know, what was put there, but are there geotechnical implications to what was put there when you're going to be going and doing foundation works and things along those lines. So that was a case where we went in and what we do early is go in and meet with the state and talk about What are the potential things that we could encounter? And it's less about the fear of encountering them and more about what happens when you do. So we, we go in and effectively put into, in advance, what are the rules if we were to encounter something? Because when we're in development, what we don't want to do is have our site shut down for an extended period of time. So by going in preemptively, anticipating what you might encounter, and reaching agreement with regulatory regulatory authorities over what you will do, how you will handle certain situations, allows us to be able to move through the development process with a much higher level of conviction. Mm-hmm.

I would imagine also that there's implications in how you capitalize these deals and finance them because, and, and hopefully a lot of this is addressed upfront in, in the contract. I would imagine if, if there is an environmental contamination, you're probably getting some free time upfront you know, under diligence where you can make sure that you can address it before you move forward with the project. Is that a fair statement?

Exactly, exactly. Yeah.

So I was noticing also that you're an expert in public finance, having worked with tax increment financing, LIHTC, HUD loans, federal and local grants. So it's interesting, we've certainly had a lot of affordable developers on the show who spend their entire time there, it looks like, You've certainly done market-rate housing as well. So, you know, how are you able to effectively do both, and how do you decide whether or not you're going to go the public financing route or if you're going to handle it privately?

Yeah, no, it's a great question, and I, I think it, it really is deal dependent. So one of the things that we— I think differentiates us is our willingness to manage through complexity. So if we see a strong opportunity and we see a pathway to getting it done, we will not, you know, just turn away from it. We'll lean into it. And I think it's that background that I picked up in the brownfield space that's really lent itself here today. So an example of that is, you know, one of the early projects Trailblake Partners did was a mixed-use, mixed-income project on a full city block. It involved the, you know, acquisition and renovation of a historic building, uh, that involved tax increment financing. The historic building also involved LIHTC. It was put into 49 units of affordable, and then right next to it, we built market-rate for-sale townhomes and a couple of restaurants. And I think what we do is we're not widget makers. We, we, we do know the asset classes that we are executing in,, but in terms of, you know, determining where does the demand in any particular market meet, you know, an asset class and the needs, that's where we try to position our investments or our development opportunities for. So that's why if you look across our portfolio, we do have, you know, luxury, you know, we're building a luxury high-rise apartment building today. One of the first projects we did was a middle-income, you know, naturally attainable, not deed restricted, but a for-sale housing community. In that case, we were able to, you know, design, build, and sell homes for $100,000 less than the same home a quarter mile away by doing some really innovative things with our design and then use of a metropolitan district to, to spread the cost of infrastructure across, you know, 180 homes in over a 40-year financing instead of relying on putting it into the price of the land or the purchase price of the home on day one. So, well, in that case, we were trying to meet a demand in the market, but from an investor standpoint, we looked at it and said, hey, we're doing a very large project. If we could really create an attractive project or product and sell it at a, at a lower cost, we can increase our velocity and reduce the risk to our investors in that project. And, and that proved out to be true. We, we, we, we knocked it out of the park with that project.

Doug, what does a typical Trailbreak deal look like? Are, are they typically mixed income? And also from a design perspective, like, do you guys have a very distinct look and feel about your buildings?

We try to design for the communities that we're in. We're not, we're not brand focused. One, I'd say one thing that we do, we're very, very proud of the fitness facilities that we put into our projects. So I think those are distinctive and stand out. We found that they, they, they align with sort of our individual preferences and lifestyle here at Trailbreak Partners. But from a leasing standpoint, when we've had tenants walk through our buildings, they, they usually have a, it's a wow factor of, oh my gosh, like, you know, this, I don't need a gym membership anymore. This place is amazing. But usually the design that we put into the, you know, the exteriors and the aesthetic is intended to fit within the context of the neighborhoods that we develop in. We're not trying to come in and just print out the same building over and over again.

So maybe talk a little bit about at the same time trying to value engineer, because on one hand, you know, it's great to do something architecturally distinct, to have this incredible gym, but also you have to make the numbers work. So how do you, how do you kind of reconcile that?

Yeah, well, it's easier said than done for sure. I mean, in, in the current environment, environment, a lot of the sites that we have been successful on are highly efficient in terms of their— the site itself, meaning that we're able to design the building and the parking in such a way that we're picking up efficiency in our common areas so that those are significantly reduced. And so our cost per build on a unit tends to be a little more efficient than it would be in, I'd I'd say broader, more creative sites where perhaps you don't have as good of a rectangular setup or where you may not have the benefit of certain topographic attributes. You know, our high-rise building, we're not going below grade, we're going above grade. So certainly in today's construction cost environment, we're having to be hyper attentive to every detail that's going into it to be able to make those numbers work. And I think that's, that's just universally true. We're not expecting the cost of construction to come down in any meaningful way. And we're continuing to see, you know, the, the operating costs of our assets increase. It's really, you know, one of the reasons that we are, have a lot of conviction around the acquisition side of the business today is that, you know, we, we see those same fundamentals that are driving our development decision as supporting the reason why, hey, if you can buy at, at a strong basis today at an attractive basis today, you're going to be rewarded for that a few years from now.

So you mentioned lifestyle before, and I have to ask, because you're, you're based in Denver. I saw on your website lots of photos of you and your team going on ski trips and hikes and things like that. It's clearly very, very important to you to kind of build this culture of genuine relationship building and fun. Can you, like, why is it important to build these kinds of relationships with your team, and how, how does doing things like going on ski trips with your team kind of improve what you're focused on in the office?

Yeah, it's a great question. Well, you know, I'd say one of the, the thing we're probably most proud of here is our culture. And, and certainly it's not a requirement that you ski or hike or ride bikes or things like that to work at Trailbreak Partners. I want to be clear about that. Having said that, I, I think we do find that a lot of people that choose to work here that, that have been, have invested their careers with us enjoy those things. And it's even those that don't, I think, have a rich appreciation for the outdoors and the lifestyle that's available here in Colorado. You know, it's, it's a great place here in Denver. We have a vibrant cultural and arts scene in our downtown, but I used to live on the East Coast many, many years ago, and I'd get on a plane and I'd plan a vacation to be able to come out here to do something, and now I can do that in 20 minutes by getting in the car. I think in terms of team building and the rapport that we have with each other, you know, we work very hard. We're an institutional execution team in a very entrepreneurial environment here. And so some days that's really long and hard, and having an opportunity to get out of the office to spend time with another, with one another, to be a little bit vulnerable, whether you're suffering on a, on a hiking trail or on a bike or something like that. It knocks down barriers and you really get to know each other and develop an awful lot of trust in one another. And I think that's, that's important. We don't do it just with ourselves. A lot of our activities are also done with our investors and business partners as well. Instead of the golf trip, we host a ski trip.

That's amazing.

Wow.

Yeah, that sounds fantastic. And, and clearly the Denver business Business Journal took note because we saw that, that your company was ranked one of the best places to work there. Maybe you could give us a little bit of, you know, the org chart, you know. So, you know, what are the types of roles that you have in your company? And then again, you talk about the importance of having that, that culture and, and having, you know, that commitment to the company. And I'm curious, is that also— do you make these investments available to your team as well? Do they, they get involved in, in a principal-type capacity?

Yeah, so the company is intentionally set up— we cover a lot of different areas. We have a, you know, finance and accounting team, CFO. We have a head of development, construction management, investments in capital markets, asset management. So we, we are not in the property management business. We do use third-party property managers, but every, every Everything else is covered internally. And that was by design. And yeah, we really view our ability to execute efficiently and across the entire business lifecycle as really important. The way that we set up our investor relationships, we're not out there externalizing a lot of these features. We're not double promoting. It really is a hands-on, direct approach to investing. I, in terms of how we work with our team, when you are here, you do have an opportunity to invest in the individual investments that we make. There's certain rules around that for some employees, but as long as it's, it's legally permissible, we do make that available for folks. And then we have a long-term incentive bonus plan that allows people to participate in the upside economics that the company receives from some successful investments.

Wow, that sounds fantastic.

It would be great to talk about some of your recent development projects. We saw that you, you just completed Rydian Apartments in Denver's Highlands neighborhood, which is, you know, Class A multi, mix of kind of unit sizes and upscale amenities. Can you walk us through the thesis of this project? What drew you to this, this kind of deal profile in this submarket?

Yeah, I mean, it's, it's a, it's a, it's a great example of what we were just talking about. So the Rydian apartment site was formerly the headquarters of Habitat for Humanity for Metropolitan Denver. They had this kind of old office building located in one of the really desirable submarkets here in Denver. So there's Cherry Creek, and then there's this area up in the Highlands where it's young and hip and it's got all the cool restaurants and things like that. Super walkable. And they were sitting on this amazing site that really was not meeting its mission. So they went out and, and with a desire to unlock the value that's in that so that they could further their mission, we approached them. They, they ran a process, but we approached them having worked with nonprofits in the past and said, look, we understand you have a board that needs to make a decision here. You, you need to maximize the dollars, but you also want to carry forward your vision. So we actually entered into to a voluntary agreement with them to put in, subject to their determination, how much affordable they wanted in there. More affordable, we can give you a smaller purchase price. Less affordable, we can give you a bigger purchase price. But let's let your board decide how to approach that. What we liked about it was it's an amazing site. It's in one of the most desirable submarkets here in Denver. And then it's also super efficient. So it's a beautiful rectangular site. It's got topography so that we can put our, our below-grade parking in under a single podium and really get additional parking out of that and cost control. And it's, it's modest in size. It's 123 units, 3 stories that really fits within the context of the neighborhood. It's walkable to all the desirable restaurants and activities around there. So we're very proud of the way that project turned out. Really, you know, it was fun to be involved in and help a nonprofit meet its mission. And from our investor standpoint, it was really just a terrific project to be able to execute on.

I was looking at another one of your projects, the Kaya Residences, and it said that that was development to sell. So is the business plan there to sell the whole project, or do you actually sell out condos as well? Just curious.

Yeah, so Kaya, we broke ground on Kaya about 5 months ago. That's a 18-story, 298-unit luxury Class A building in Golden Triangle. So it's not far from the Denver Art Museum on the, you know, sort of the major gateway into the downtown CBD area. That business plan, I guess when we— when you talk about that, we look at it as, you know, effectively a merchant build. So in, in some of the projects that we've done here, for example, we were one of the first groups to do an Opportunity Zone multifamily project here in the Mountain West. We capitalized that in 2018, and that is a 10-year hold in order to maximize the compliance, the tax attributes of that. In the case of Kaya, it is designed and capitalized with the business plan that we're going to design it, build it, lease it up, stabilize it, and once stabilized, take it to market. That'll probably be 2029 is the timeframe for that, which we think, you know, just looking through our crystal ball falls should be a pretty attractive time to be back in the market with a high-quality asset in a mar— in an environment where there's been very little new supply, right?

Previously, you've described Trailbreak as finding inefficiencies in the market and creating value. I'm curious how you define inefficiencies here, especially in today's Mountain West real estate market. Are there any particular signals or red flags that you look for before jumping into a project?

Red flags for sure. We, we, we, you know, we want to be in projects where there's something that we can do that impacts the outcomes there rather than just, you know, merely waiting. So even when we're finding basis buy opportunities in the market, there's something more than just the basis of it that gives us conviction. Sometimes it is just specifically, hey, we have a, a, a a view of competitive assets or positioning within any geographic area. So an example of that might be in November of last year, we bought the Cabin Apartments in the River North submarket of Denver, and that was a basis buy opportunity. We picked up almost 200 units for a little over $200,000 a door. It was a 2020 build. They're micro units, so we would expect them on a per-unit basis to be a little bit less. But what we really liked about that was the positioning of the asset is it's a lower total cost to lease than any other property within the Rhino submarket. So everything that's being built there is new and everything is luxury and by its nature very expensive. So we, we, we recognize that there not everybody who wants to be in these areas can live there. And to be able to own the, the, the property and own the asset that gives people the choice to be able to live in a high-rent district at a low cost was attractive to us. So that's a way that we might look at not just what's happening from a macro level, from a supply-demand dynamic, but how does any individual asset fit within its competitive landscape within a submarket. So when we go to Boise, we're looking at things like, you know, hey, there's, you know, there's strong demand there. When we go to Salt Lake City, we're looking at, you know, there's— they had record delivery, but their market is stabilizing. And here in Colorado, we're saying, all right, we can see what's happening in the future. And each one of them has their own little nuance as to, you know, why and how we might choose to invest in each one of those markets.

Right. Well, with, with opportunistic investing, there's different types of distress, right? There's the market level distress, but then there's asset level distress, and then even the, the seller can be the one that's distressed.

Yeah.

Um, so it sounds like you're more focused on the asset level within a market that's performing well.

Yeah, I think that's, that's how we manage the risk. I mean, situationally, we do encounter sellers that might have a, you know, a particular financial distress that may be on them. Sometimes it's that asset, other times it may be, hey, they need to free up liquid for a different asset. And yeah, we, we try to be eyes wide open and find those opportunities as well.

Curious if you've looked at any office to resi conversions.

We have in the past, but we're not super excited about it. You know, they're— the, the projects here in Denver have largely been where we've seen those opportunities are down in the CBD and require a lot of, you know, I'd say competitive public finance to be able to support the outcomes. The floor plates for many of these buildings are not super conducive to being residential conversions. You run into issues regarding parking, although at a state level we don't require parking here in Colorado anymore. From a practical standpoint, from a, a marketability standpoint, we feel that that's a pretty important piece. And we, we just really haven't gotten strong conviction around it. We went down the path on a couple of them and usually ran into some obstacle that caused us to say the juice probably really isn't worth the squeeze on these. I would say more recently, that may have changed because there are some of these assets that have traded at effectively a giveaway. But we look at it and say, that could be a great deal, or that could be picking up a giant liability. And I'm not sure which one is right.

Right?

Yeah, sometimes you start looking at the numbers and it might be more expensive to retrofit a building as opposed to, you know, going ground up. I was going to ask before, because you have done mid-rise and high-rise construction, so clearly a different, you know, different cost considerations there. So, you know, is that really just location-specific and what kind of density that you're allowed, what kind of rents you can generate? And maybe, you know, you hear a lot about, you know, podium and, you know, with stick as opposed to concrete. How are you thinking about how you're going about building these buildings?

Yeah, I'd say that the size of the building tends to be location-specific. You know, what is the context in it? So our Golden Triangle project, for example, is, you know, 200 feet, right? It's a high-rise building. That's really what that area is seeking. In other parts of town, we have, we have a project in Lakewood, another transit area that has been designed, and in that one it's a podium product. It's 7 and 8 story. That, that's a function of the zoning that's there and the requirements for the zoning. One of the things that, that we do run into more frequently today, and it's particularly pronounced here in Colorado is the availability of insurance and its impact on the operations. So a specific example of that is the decision to do stick-built versus light gauge steel. Builders risk insurance can be hard to come by. It's a tight— it's a hard market. And, and then on the operations side, because of fire and, and hail and wind damage here in Colorado, the operating property insurance has been more difficult to come by. And so light light gauge steel buildings are— there is more insurance market available to it, and the cost of that insurance is less than a wood frame building. So we're evaluating, hey, once, you know, it might cost a little bit more on the front end, but it might positively impact our NOI once we're into operations to go with a light gauge steel.

And are you thinking about new construction techniques, whether it's, you know, mass timber or modular how much of your business, or being the visionary, is thinking about better ways to construct? Because oftentimes when you hear about the construction business, you know, it seems like we're still building buildings the same way we did, you know, over the last couple decades.

Yeah, no, I think that's right. The reality is it's probably the area where there's been the least amount of innovation in terms of its delivery. We've looked at modular in a few projects. We haven't quite gotten there yet. Either the availability of box or the transportation of the boxes or stitch crews to be able to put them together have been stopping points for us along the way. I'm very hopeful to overcome that here soon. I think where we have seen success is with some panelization and bringing in, you know, I'd say portions of the building that have been put together in advance, but we're still not quite there in terms of a full modular project.

Got it. Doug, as you continue to grow your business, what's next for Trailbreak Partners? And are there any markets that you're considering entering that you haven't been active in previously?

Well, I think we're, we're going to stick with the Rodeo region for now. Uh, we, we, we, we, we're boots on the ground. We're, we're here. We know these markets. We've built a lot of relationships there, and we think we can manage risk a lot a lot more effectively than folks that come in from other places to be able to do deals in those markets. You know, we will likely explore other markets where there may be other relationships that cause us to go into there at points in the future, but right now there's, there's more than enough activity. I think for us it really is trying to build upon the existing operating portfolio through the acquisition side of the business and selective development. You know, it is, it's, it's been a tough few years on the development side of things, but we're starting to see the fundamentals shift back towards, you know, you know, breaking ground on deals here in the next year or two. We're starting to see a shift in equity appetite moving down from, you know, hey, we're all pref equity to moving into some of the LP conviction and I think all of that will combine for our ability to do that. We're going to be breaking ground next month on a— actually later this month on a for-sale project in Boulder, Colorado. We're out there looking for our next opportunity.

Congrats. That's exciting.

Very exciting. So, Doug, as we begin to wrap up here, advice that you would give to aspiring investors, developers, and maybe this is someone who's already done some smaller investing, maybe they've done some LP investing, but they'd love to one day develop and acquire at the scale that you are. Do you think the path to do that is best to just keep kind of growing organically, or would be someone coming and working at a shop like yours and then going off on their own, or is it, you know, maybe working for one of the biggest developers out there? What's the best path, do you think, for an aspiring investor to scale?

An aspiring investor to scale. It's, it's, it's a good question. I think my personal experience was in the early days, just be willing to get your foot in the door. And what I mean by that is when we were out raising equity for our first deal to get done and trying to figure out how were we going to execute that, you know, a couple of guys with a dream.— somebody gave me strong advice that I carry to this day, which is don't be greedy.

Right.

You know, your job when you're doing those first projects and those first investments is to do well for your investors because that breeds the loyalty and the repeat relationships. And that's proven true for us. I mean, our first project we tried to raise, we were raising $5.5 or $6.5 million. It took us, oh, 6, 7 months. And I, you know, I was out there with an Excel spreadsheet and, and calling every person I knew under the sun. And, and, you know, fast forward a few years and it was, it was, you know, opportunities for $10, $12, $15, $20 million filling up within 30, you know, 2 weeks to 30 days and having to turn people away. And a lot of that was repeat investors that we, that we had done well by and treated fairly. And I think that, That to me has been the most important thing is to really be transparent, honest, available, and focused on who we are really trying to create value for. And at the end of the day, it is those investors. So whether you go and work in a big firm or not, I think some of the risk of the big firm is if you get pigeonholed into one particular role and don't have the opportunity to see the breadth of the operation. I'm an entrepreneur. Myself for over 20 years, so I, I guess I'm probably a little biased that way. But I like the small shops where you get to see and feel and touch all the different aspects of the business.

That's awesome. Well, Doug, we, we really want to thank you for joining us today and sharing your story. A lot of incredible insight here, so thank you again for taking the time.

You're welcome. Thanks for having me.

Thanks so much.

And we want to thank our audience, as always, for joining. As always, you can go to JamesNelson.com. That's where you you can find the show notes. That's where you can find out how to connect with Doug. There's also a lot of helpful resources out there. And if you haven't already, go ahead and subscribe to the, this show and give us a rating. We love the feedback. 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 @JamesNelsonNYC on LinkedIn, Instagram, and Twitter. Please also visit JamesNelson.com where you can sign up for our monthly newsletter, find the show notes, other episodes, exclusive video series, and other helpful resources so you can gain the insider's edge to real estate investing. Until next week.

This podcast is for educational purposes only and should not be relied upon for investment decisions. The opinions expressed are those of the guests and not their companies. Listeners should not act upon the information without first seeking appropriate advice from an accountant, lawyer, or other professional.