1 00:00:00,560 --> 00:00:03,240 Ladies and gentlemen, welcome to The Business BREW. 2 00:00:03,440 --> 00:00:07,240 I am your host, Bill Brewster. This episode features Darren 3 00:00:07,240 --> 00:00:10,960 Fisk. Darren is the CEO and Founder of 4 00:00:10,960 --> 00:00:14,280 Forum Investment Group. Forum does everything real 5 00:00:14,280 --> 00:00:16,600 estate related. They do credit, they do equity, 6 00:00:17,160 --> 00:00:21,200 and this conversation happens to be mostly focused on 7 00:00:21,200 --> 00:00:23,720 multifamily. I hope you enjoy it. 8 00:00:23,720 --> 00:00:26,800 I enjoyed it. It's a asset class I have an 9 00:00:26,800 --> 00:00:30,040 interest in, so there's going to be more and more of these, but 10 00:00:30,160 --> 00:00:33,320 this is a good perspective on the private side of the 11 00:00:33,320 --> 00:00:35,400 business. Additional disclosure. 12 00:00:36,040 --> 00:00:39,440 This material is provided for informational purposes only and 13 00:00:39,440 --> 00:00:44,320 is not intended as, and may not be relied on or in any manner as 14 00:00:44,320 --> 00:00:48,720 legal, tax, or investment advice, a recommendation, or as 15 00:00:48,720 --> 00:00:53,520 an offer to sell, a solicitation of an offer to purchase, or a 16 00:00:53,520 --> 00:00:57,240 recommendation of any interest in any fund or security offered 17 00:00:57,240 --> 00:01:00,720 by Forum Capital Advisors, LLC or its affiliates. 18 00:01:01,440 --> 00:01:04,519 Private market investments are complex speculative investment 19 00:01:04,519 --> 00:01:06,920 vehicles not suitable for all investors. 20 00:01:07,360 --> 00:01:10,840 An investment in a private market investment entails a high 21 00:01:10,840 --> 00:01:14,080 degree of risk and no assurance can be given that any private 22 00:01:14,080 --> 00:01:17,480 market investment objectives will be achieved or that 23 00:01:17,480 --> 00:01:20,480 investors will receive a return of their capital. 24 00:01:20,960 --> 00:01:24,800 The information contained herein is subject to change without 25 00:01:24,800 --> 00:01:27,400 prior notice and is also incomplete. 26 00:01:27,840 --> 00:01:31,720 The industry information and its importance is an opinion only 27 00:01:31,920 --> 00:01:35,360 and should not be relied upon as the only important information 28 00:01:35,360 --> 00:01:38,480 available. Information contained herein has 29 00:01:38,480 --> 00:01:42,000 been obtained from sources believed to be reliable but not 30 00:01:42,000 --> 00:01:45,600 guaranteed, and Forum assumes no liability for the information 31 00:01:45,600 --> 00:01:48,320 provided. Past performance is not a 32 00:01:48,320 --> 00:01:50,760 guarantee nor a reliable indicator. 33 00:01:50,840 --> 00:01:55,240 Future results? As always, nothing in the show 34 00:01:55,520 --> 00:01:58,640 is financial advice. Please consult an investment 35 00:01:58,640 --> 00:02:00,680 advisor before making investment decisions. 36 00:02:01,080 --> 00:02:03,480 Everything in the show is for entertainment purposes and 37 00:02:03,480 --> 00:02:06,560 educational purposes. And do your own due diligence. 38 00:02:26,480 --> 00:02:28,960 All right, ladies and gentlemen, thrilled to be joined by Darren 39 00:02:28,960 --> 00:02:30,600 Fisk today. Darren, how are you? 40 00:02:31,240 --> 00:02:33,280 Doing great. Might be a little bit too early 41 00:02:33,280 --> 00:02:34,960 to tell, but off to a good start. 42 00:02:35,720 --> 00:02:38,760 It's like 8 and you get up at what, like 4:30? 43 00:02:38,760 --> 00:02:42,760 So you've had a full day I. Know it's almost time for me to 44 00:02:42,760 --> 00:02:45,040 go to bed. Yeah, well that's a it's an 45 00:02:45,040 --> 00:02:47,120 interesting schedule. That'd be nice if you could only 46 00:02:47,120 --> 00:02:49,560 be up 4 hours a day, although you'd miss a lot, I guess. 47 00:02:49,560 --> 00:02:52,600 Anyway, it's neither here nor there, Darren, do you want to 48 00:02:52,600 --> 00:02:55,080 tell people about yourself and what you do? 49 00:02:56,200 --> 00:02:58,120 Sure. Just a little background, our 50 00:02:58,120 --> 00:03:02,920 company here Forum, we're actually the only multi family 51 00:03:02,960 --> 00:03:06,880 group in the US that has three different strategies all under 52 00:03:06,920 --> 00:03:09,720 one roof. When I say that we do debt, we 53 00:03:09,720 --> 00:03:12,720 do credit in in three different fund vehicles and then we have 54 00:03:12,720 --> 00:03:16,240 ground up development as well. So a lot of folks are investment 55 00:03:16,240 --> 00:03:19,600 managers and they allocate, we actually manufacture our own 56 00:03:19,840 --> 00:03:24,920 stuff meaning we develop our own assets, 7580% of the loans that 57 00:03:24,920 --> 00:03:27,240 we make are direct to our borrower. 58 00:03:27,240 --> 00:03:32,080 So been a unique journey over the last I would say 23 years of 59 00:03:32,080 --> 00:03:35,440 which I started off in the real estate finance business and saw 60 00:03:35,440 --> 00:03:40,240 an opportunity in the GFC in 2008 to start developing and 61 00:03:40,240 --> 00:03:43,880 buying multi family. And so Fast forward today, we 62 00:03:44,360 --> 00:03:48,400 roughly have, as I mentioned, three different strategies. 63 00:03:48,400 --> 00:03:51,080 I mean, obviously you were lending, but what specifically 64 00:03:51,080 --> 00:03:54,360 were you doing pre GFC? I knew I wanted to get into real 65 00:03:54,360 --> 00:03:56,520 estate. My mom and dad were school 66 00:03:56,520 --> 00:04:00,320 teachers and a principal, and so I was our we had about 13 units 67 00:04:00,320 --> 00:04:02,200 in the Bay Area, Northern California. 68 00:04:02,800 --> 00:04:06,360 And I always loved real estate, but I was our framer and our 69 00:04:06,360 --> 00:04:09,120 drywaller and electrician and doing all these things. 70 00:04:09,120 --> 00:04:12,360 And right after college I got a little try out with the Atlanta 71 00:04:12,360 --> 00:04:13,800 Falcons. I said well what am I going to 72 00:04:13,800 --> 00:04:15,240 do? I want to get into, you know, 73 00:04:15,360 --> 00:04:18,000 real estate. And I was tabling bathrooms at 74 00:04:18,000 --> 00:04:20,880 10:00 at night and talking to some friends. 75 00:04:20,880 --> 00:04:25,160 I realized if if I did financially how things went 76 00:04:25,160 --> 00:04:28,440 together, I could go buy things. I could hire a development 77 00:04:28,440 --> 00:04:30,360 person, I could hire property managers. 78 00:04:30,800 --> 00:04:34,600 And so we were a company that was called Johnson Capital. 79 00:04:34,880 --> 00:04:38,320 We had 17 offices and myself and a partner ran the office here in 80 00:04:38,320 --> 00:04:40,760 Denver and all of our loan servicing. 81 00:04:40,760 --> 00:04:44,720 So we represented Fannie Mae, Freddie Mac, HUD and a bunch of 82 00:04:44,720 --> 00:04:46,360 different life insurance companies. 83 00:04:46,880 --> 00:04:52,520 And so I just had this, you know I don't know it was like a pull 84 00:04:52,520 --> 00:04:55,040 towards multi family and I don't know if it was because I grew up 85 00:04:55,040 --> 00:04:59,600 in a small town and small community but really took the 86 00:04:59,600 --> 00:05:01,720 multi family. So there were a bunch of reeks 87 00:05:01,720 --> 00:05:06,680 here in Denver, Aimco, the former Archstone UDR and then 88 00:05:06,680 --> 00:05:11,080 one commercial group called Black Creek and really was just 89 00:05:11,080 --> 00:05:15,400 focused on the multi family side from large REITs to the mom and 90 00:05:15,400 --> 00:05:18,560 pops. And the lending business got me 91 00:05:18,560 --> 00:05:21,960 into buying with one of my own partners in 2003. 92 00:05:22,360 --> 00:05:25,160 And then when the GFC hit, like I mentioned, we started our 93 00:05:25,160 --> 00:05:28,280 development company. We bought about 9000 units from 94 00:05:29,600 --> 00:05:34,040 2009 to 2012. So the lending business is 95 00:05:34,040 --> 00:05:36,760 really what gave me the start to to building forum. 96 00:05:37,480 --> 00:05:40,680 It's a nice time to buy. Wish it was back. 97 00:05:40,760 --> 00:05:43,560 Wish we had more money and more opportunity. 98 00:05:43,680 --> 00:05:46,080 But there was, excuse me, there was plenty of opportunity. 99 00:05:46,360 --> 00:05:51,280 I had real, real young kids at the time and I was gone on the 100 00:05:51,280 --> 00:05:56,200 road flying around everywhere. HUD at the time had this 221D4 101 00:05:56,200 --> 00:05:59,960 program where they provide non recourse construction loans and 102 00:05:59,960 --> 00:06:04,160 they were foreclosing like a lot of lenders were on their multi 103 00:06:04,160 --> 00:06:07,120 family assets. So we were flying around the US 104 00:06:07,520 --> 00:06:11,200 look at these different properties that HUD had in these 105 00:06:11,200 --> 00:06:13,400 big pools. The problem was we didn't have 106 00:06:13,400 --> 00:06:15,760 the money. And so a lot of these larger 107 00:06:15,760 --> 00:06:18,720 groups, real estate groups that are out there, we're buying 108 00:06:18,720 --> 00:06:23,040 these pools and then we'd buy directly from them, you know, 109 00:06:23,120 --> 00:06:27,320 30-45 days after they closed and we'd go syndicate, you know, 110 00:06:27,320 --> 00:06:30,320 kind of from Oasis. We'd pass around an offering 111 00:06:30,320 --> 00:06:34,200 memorandum and bunch of folks. I had No 3 at the gym. 112 00:06:34,200 --> 00:06:39,240 The first deal we ever bought, we raised 3.3 million for a 252 113 00:06:39,240 --> 00:06:41,040 unit apartment building in Albuquerque. 114 00:06:41,440 --> 00:06:44,840 And it was folks like that that I would call on each and every 115 00:06:44,840 --> 00:06:46,760 time. And one of the things that 116 00:06:46,840 --> 00:06:49,440 ironic things about that first deal, we still own it today. 117 00:06:49,440 --> 00:06:53,840 We've refinanced our money out three times since 2003. 118 00:06:53,840 --> 00:06:58,960 So 2021 years ago we bought that property and about a year later 119 00:06:58,960 --> 00:07:01,640 we refinanced it and got 100% of our money back. 120 00:07:01,640 --> 00:07:03,800 And I thought, wow, what a racket this is. 121 00:07:03,800 --> 00:07:04,400 Yeah. Is that good? 122 00:07:04,400 --> 00:07:07,520 That seems good and. It that that seems pretty good 123 00:07:07,520 --> 00:07:11,240 to me, especially when you don't pay tax on that refinance at the 124 00:07:11,240 --> 00:07:14,400 time that you do it. So I think people think that 125 00:07:14,400 --> 00:07:18,080 real estate is a, you know, get rich thing. 126 00:07:18,080 --> 00:07:22,200 But I think with cap rates declining and interest rates 127 00:07:22,800 --> 00:07:26,160 coming down, it seemed that way and now we're back to more of 128 00:07:26,160 --> 00:07:30,640 the norm where it takes time to create value in real estate. 129 00:07:30,920 --> 00:07:32,560 And we did that and we're patient. 130 00:07:32,560 --> 00:07:37,000 And really, you know, Bill, one of the things that that I 131 00:07:37,000 --> 00:07:39,720 learned early on and it was actually saying that my 132 00:07:39,720 --> 00:07:42,560 father-in-law said to me, he said, Darren, if there's one 133 00:07:42,560 --> 00:07:44,440 thing I teach you in life, remember this. 134 00:07:44,440 --> 00:07:46,760 And I thought, oh God, don't touch your daughter or what, you 135 00:07:46,760 --> 00:07:51,000 know, what's it going to be? He said cash is king, but cash 136 00:07:51,000 --> 00:07:53,680 flow's queen. If you wake up next to Queen 137 00:07:53,680 --> 00:07:55,800 your rest of your life, you're going to be a happy man. 138 00:07:56,880 --> 00:07:59,880 And I thought about that forever. 139 00:07:59,880 --> 00:08:03,320 And so I think so many times people think about having cash. 140 00:08:04,000 --> 00:08:07,240 In my mind the secret to life was having cash flow where when 141 00:08:07,240 --> 00:08:09,400 you wake up in the morning you have a check coming and you're 142 00:08:09,400 --> 00:08:16,680 not waiting till you retire to cash in your IRA or your 4O1K. 143 00:08:17,080 --> 00:08:23,120 And so the basis of of Forum in the early years we were just 144 00:08:23,120 --> 00:08:27,840 cash flow, cash flow, cash flow. If we couldn't get 1% a month be 145 00:08:27,840 --> 00:08:30,840 nice. You know on an amortizing basis 146 00:08:31,120 --> 00:08:34,120 we wouldn't do it. And as you know interest rates 147 00:08:34,120 --> 00:08:37,919 started going down, cap rates went down and it's probably five 148 00:08:37,919 --> 00:08:42,039 years ago it was 7% a year maybe interest only. 149 00:08:42,679 --> 00:08:46,280 And so the markets definitely changed over the years and I 150 00:08:46,280 --> 00:08:49,480 think as as we'll probably talk about, we've changed with it. 151 00:08:49,880 --> 00:08:52,560 I mean, obviously cap rates have changed. 152 00:08:52,600 --> 00:08:59,560 I mean, how competitive was the market, let's say from like 2015 153 00:08:59,560 --> 00:09:02,960 to 2020? I mean, you're talking about 154 00:09:02,960 --> 00:09:05,120 buying things in the global financial crisis. 155 00:09:05,120 --> 00:09:07,680 I mentioned it on the pod before, but I I was listening to 156 00:09:07,680 --> 00:09:10,600 Steve Schwarzman talk at some lunch. 157 00:09:10,600 --> 00:09:14,040 It was just a like a lunch that UBS had and he talked about 158 00:09:14,040 --> 00:09:19,480 buying, he was buying real estate at like 6 times cash flow 159 00:09:19,720 --> 00:09:22,200 basically. And you know, he's talking about 160 00:09:22,200 --> 00:09:25,240 if you can do that and you lever it like you're always going to 161 00:09:25,240 --> 00:09:27,480 make money. And I was thinking to myself, 162 00:09:27,480 --> 00:09:30,680 OK, well that's that's like a very nice story, but where the 163 00:09:30,680 --> 00:09:32,280 heck am I going to find that now? 164 00:09:32,680 --> 00:09:37,960 And I'm just kind of curious to hear you talk a little bit about 165 00:09:37,960 --> 00:09:44,040 what it was like getting deals in the financial crisis versus, 166 00:09:44,040 --> 00:09:47,760 you know, sort of like when things normalized leading up to 167 00:09:47,880 --> 00:09:52,280 whatever 2020 and 2021 was and where you see us now and how 168 00:09:52,760 --> 00:09:56,160 over time you've sort of shifted where you're playing. 169 00:09:56,160 --> 00:09:58,400 I I think that should be a question that'll take about an 170 00:09:58,400 --> 00:10:02,680 hour to answer. Yeah, wow. 171 00:10:02,720 --> 00:10:08,400 Well, you know when the GFC hit and I was a lender, 2 of my 172 00:10:08,400 --> 00:10:12,080 clients were parted on a perspective development in 173 00:10:12,080 --> 00:10:17,080 Boulder, Co and I had arranged a HUD 221D4 loan form while one of 174 00:10:17,080 --> 00:10:22,320 them got in trouble and the other one said, hey there, I I 175 00:10:22,320 --> 00:10:27,160 can't move forward without Jim. And I said well to Lou was the 176 00:10:27,160 --> 00:10:29,520 other part. I said Lou if you get this 177 00:10:29,680 --> 00:10:32,640 property entitled in Boulder, I'll get it built. 178 00:10:33,760 --> 00:10:35,200 He said what do you know about building? 179 00:10:35,200 --> 00:10:38,760 So I said well my father's a retail developer and I can find 180 00:10:38,760 --> 00:10:40,360 a development partner what have you. 181 00:10:40,360 --> 00:10:46,800 So his 2009 we own you know 4 1/2 acres in the 29th St. 182 00:10:46,800 --> 00:10:51,280 Mall in Boulder and nothing over 50 units had been built in 25 183 00:10:51,280 --> 00:10:52,120 years. Oh wow. 184 00:10:52,480 --> 00:10:56,480 And not only were there no land comps, but there are also no 185 00:10:56,480 --> 00:10:58,960 rent comps to support it. So we actually had to go out of 186 00:10:58,960 --> 00:11:04,480 state to get comps. But I knew one thing that real 187 00:11:04,480 --> 00:11:06,960 estate in Boulder was like a piece of gold if you could get 188 00:11:06,960 --> 00:11:09,560 entitled. So we had a non recourse loan 189 00:11:09,880 --> 00:11:13,200 with HUD. All I knew is I couldn't afford 190 00:11:13,200 --> 00:11:15,200 not to get that Commission for the loan. 191 00:11:15,360 --> 00:11:17,880 So if I couldn't get the Commission, I might as well, you 192 00:11:17,880 --> 00:11:20,680 know, build this as well. Throw the Hail Mary? 193 00:11:20,680 --> 00:11:22,000 Why not? Right. 194 00:11:22,040 --> 00:11:25,480 And and look, it's easy to look back on life and tell a story. 195 00:11:25,600 --> 00:11:28,040 But back then I was like I just couldn't believe I had the 196 00:11:28,040 --> 00:11:31,680 opportunity to do it, that I actually could get this site. 197 00:11:32,440 --> 00:11:34,480 So we ended up building it. It turned out great. 198 00:11:34,480 --> 00:11:36,880 We ended up buying the property next door. 199 00:11:36,880 --> 00:11:40,200 We built Google's campus up there in Boulder as well, but 200 00:11:40,600 --> 00:11:44,080 going back to multi family, I was the only one in Colorado in 201 00:11:44,080 --> 00:11:48,080 2009 developing so I got a call from another gentleman here in 202 00:11:48,080 --> 00:11:50,960 Denver. We then had another two 203 00:11:50,960 --> 00:11:55,760 projects, 300 and 362 units going by 2010. 204 00:11:56,840 --> 00:11:59,920 Oh well, my day job, a real estate finance, I'm now a real 205 00:11:59,920 --> 00:12:04,360 estate developer at night found a wealthy partner here in 206 00:12:04,360 --> 00:12:07,240 Denver. So we had almost 1000 units 207 00:12:07,480 --> 00:12:12,160 under construction by 2010 while we're also trying to buy things 208 00:12:12,520 --> 00:12:16,000 and you ask the question, you know how it was like for me it 209 00:12:16,000 --> 00:12:18,720 was like Fred Flintstone and Rock Vegas, it was like bet, 210 00:12:18,720 --> 00:12:21,320 bet, bet, bet, bet, bet, right. Like there was just like deal, 211 00:12:21,320 --> 00:12:24,800 deal, deal, deal, deal. And as fast as we could fly 212 00:12:24,800 --> 00:12:28,640 around the US to buy these HUD loans, you know, to get these 213 00:12:28,640 --> 00:12:30,640 development going developments going. 214 00:12:31,320 --> 00:12:35,840 And if I hit the pause button, Bill and I looked, I wish I 215 00:12:35,840 --> 00:12:39,200 could write a book like the lessons Learned or what not to 216 00:12:39,200 --> 00:12:41,560 do, Not what to do, but what not to do. 217 00:12:41,960 --> 00:12:47,240 I learned through the GFC in O Eight that my friends that were 218 00:12:47,240 --> 00:12:49,360 single family home builders went bankrupt. 219 00:12:49,360 --> 00:12:53,520 They were out of business. And I realized something just 220 00:12:53,520 --> 00:12:56,960 kind of connecting the dots that if you're a one trick pony in 221 00:12:56,960 --> 00:12:59,640 the market shuts off and you could Fast forward today. 222 00:13:00,320 --> 00:13:03,320 Real estate development's really tough today if you're just a 223 00:13:03,320 --> 00:13:05,120 developer. You're either laying everybody 224 00:13:05,120 --> 00:13:08,040 off or you're going to, I don't know what you're doing and if 225 00:13:08,040 --> 00:13:12,280 you're just an acquirer of real estate and like in multi family 226 00:13:12,280 --> 00:13:14,520 right now, you're probably not doing much either. 227 00:13:15,240 --> 00:13:19,120 And so looking back, I said OK, well I want to be able to invest 228 00:13:19,120 --> 00:13:21,920 throughout a real estate cycle, not to a cycle. 229 00:13:22,840 --> 00:13:27,080 We today have debt, we have credit and we have our equity 230 00:13:27,080 --> 00:13:31,360 products and if we didn't have our debt products today, I don't 231 00:13:31,360 --> 00:13:33,160 know what I'd be doing. We haven't bought anything in 232 00:13:33,160 --> 00:13:36,400 four years. We had eight developments 233 00:13:36,400 --> 00:13:39,760 planned for 2023 and they didn't pencil, we didn't start one of 234 00:13:39,760 --> 00:13:41,600 them. We have one development we're 235 00:13:41,600 --> 00:13:45,160 working on right now in San Diego did actually pencils and 236 00:13:45,160 --> 00:13:47,080 pencils well just because the land basis. 237 00:13:47,080 --> 00:13:50,320 So going back to O 8 again what do we learn? 238 00:13:50,320 --> 00:13:53,440 We were buying as fast as we could If we you know you're 239 00:13:53,440 --> 00:13:56,600 buying stuff at such a low basis, you know 40,000 a door 240 00:13:56,600 --> 00:14:00,000 and we were in Michigan, Ohio, Indiana, Alabama, all these 241 00:14:00,000 --> 00:14:05,360 secondary and tertiary markets. Fast forward today, we sold out 242 00:14:05,360 --> 00:14:07,720 of a lot of those markets during COVID because again, there was 243 00:14:07,720 --> 00:14:11,480 another demographic shift. People that were in New York or 244 00:14:11,760 --> 00:14:14,480 that lived in Montgomery, AL like, hey, I'm going to go try 245 00:14:14,480 --> 00:14:16,720 Denver out and then their parents are saying, hey Johnny, 246 00:14:16,720 --> 00:14:19,600 when are you coming back to, you know, Montgomery and is Johnny 247 00:14:19,600 --> 00:14:21,880 says never. I'm never like I found Denver, 248 00:14:21,880 --> 00:14:25,000 this place is great or I found, you know, Austin, TX. 249 00:14:25,280 --> 00:14:30,240 And so also understanding these demographic shifts and where 250 00:14:30,240 --> 00:14:33,400 they're going has helped our awareness of where we want to 251 00:14:33,400 --> 00:14:36,200 position our portfolio moving forward. 252 00:14:36,200 --> 00:14:39,760 So we are buying a lot. You asked about 2015, it's 253 00:14:39,760 --> 00:14:42,960 really about the time we started slowing down on the acquisition 254 00:14:42,960 --> 00:14:45,400 side. We really started focusing more 255 00:14:45,400 --> 00:14:48,160 on the development side. We never did value add. 256 00:14:48,160 --> 00:14:50,920 We were either buying for cash flow or we were developing 257 00:14:50,920 --> 00:14:55,080 ground up. And so you know again cap rates 258 00:14:55,080 --> 00:14:57,320 were compressing, we weren't doing value add. 259 00:14:57,320 --> 00:15:00,320 We could get, we're not an IRR shop, right. 260 00:15:00,320 --> 00:15:04,320 Like we we create this promote structure with our investors 21 261 00:15:04,320 --> 00:15:09,280 years ago where we cash flow promote if you will, where it's 262 00:15:09,280 --> 00:15:13,280 not a GPLP structure, it's a member managers and an LLC. 263 00:15:13,680 --> 00:15:17,520 And we had a 51% vote of all of our partners, which were our 264 00:15:17,520 --> 00:15:21,080 investors, always called them partners because they were for 265 00:15:21,080 --> 00:15:23,120 major decisions like a sale or refinance. 266 00:15:23,120 --> 00:15:25,560 Because I didn't want anybody ever to say, hey, you're 267 00:15:25,560 --> 00:15:29,280 conflicted, you're doing this as the GP for your promote. 268 00:15:29,280 --> 00:15:32,120 So we wanted to have something where, you know, we weren't 269 00:15:32,120 --> 00:15:35,320 taking all the fees. And I go back to my real estate 270 00:15:35,320 --> 00:15:39,280 finance days and the lessons learned I I was able to watch 271 00:15:39,280 --> 00:15:42,320 what so many owners and operators and developers were 272 00:15:42,320 --> 00:15:46,600 doing, and I took the best of what people were doing to kind 273 00:15:46,600 --> 00:15:51,120 of create forum. What about the GPLP structure? 274 00:15:51,920 --> 00:15:56,960 You know, for those that don't know, what are some of the sort 275 00:15:56,960 --> 00:15:59,880 of adverse incentives that you've seen go on and what did 276 00:15:59,880 --> 00:16:03,000 you want to avoid when you set your structure up? 277 00:16:03,760 --> 00:16:06,160 I appreciate that. You know I think the biggest 278 00:16:06,160 --> 00:16:09,400 thing was the lack of alignment of interest in the sense that 279 00:16:09,880 --> 00:16:15,160 they were the and again this is generally most GPS have to have 280 00:16:15,160 --> 00:16:18,400 fees to keep the lights on. I was fortunate that I had my 281 00:16:18,400 --> 00:16:22,480 real estate finance business funding by keeping the lights on 282 00:16:22,480 --> 00:16:25,360 while I was building my real estate business. 283 00:16:26,080 --> 00:16:30,240 And they take, let's just say it's a 2 or 3% acquisition fee 284 00:16:30,240 --> 00:16:33,280 and then they have to have a 5 or 10% Co invest and they go get 285 00:16:33,280 --> 00:16:35,760 that from their buddies and it's like well how. 286 00:16:35,800 --> 00:16:40,120 And then they do all this work and it may be a great cash 287 00:16:40,120 --> 00:16:44,640 flowing asset, but all of their equity if you will their built 288 00:16:44,640 --> 00:16:49,440 up equity, their sweat equity is stuck in these projects until 289 00:16:49,440 --> 00:16:52,680 they sell. So their incentive is to sell 290 00:16:52,680 --> 00:16:56,880 but the best thing for the L PS might be to hold in cash flow. 291 00:16:57,320 --> 00:17:00,960 And so there was that lack of alignment that I saw where it 292 00:17:00,960 --> 00:17:04,440 was just like fee fee fee. So we never actually took an 293 00:17:04,440 --> 00:17:08,480 acquisition fee on any day. We still to this day don't 294 00:17:09,119 --> 00:17:13,160 rather we had this contingent profits interest that we would 295 00:17:13,160 --> 00:17:17,960 roll in to these deals and we wouldn't take any fees out at 296 00:17:17,960 --> 00:17:20,880 closing. Rather we'd keep 100% and it was 297 00:17:20,880 --> 00:17:24,319 contingent in the sense that let's just say that there was an 298 00:17:24,319 --> 00:17:29,800 8% preferred return and after all investors got an 8% of their 299 00:17:29,800 --> 00:17:32,240 money back, we'd get a 20% back in. 300 00:17:32,640 --> 00:17:35,840 Well, we did that. And so because we had this 301 00:17:35,840 --> 00:17:39,320 upfront cash flow promote if you will, we got cash flow and 302 00:17:39,320 --> 00:17:41,320 refinance proceeds along the way. 303 00:17:41,720 --> 00:17:46,160 But upon a sale investors had to get all their money back in that 304 00:17:46,160 --> 00:17:49,880 8% preferred return before we got anything and rarely did we 305 00:17:49,880 --> 00:17:52,200 sell right. We wanted to buy these things. 306 00:17:52,200 --> 00:17:56,120 We wanted to cash them. We we would refinance a lot and 307 00:17:56,320 --> 00:18:00,600 if we could pull 50 or 100% of our dough out, you know we would 308 00:18:00,600 --> 00:18:04,000 and we always use 10 year fixed rate debt. 309 00:18:05,760 --> 00:18:10,000 Maybe just another subject that I think people need to be aware 310 00:18:10,000 --> 00:18:12,960 of real estate. In my mind people get in trouble 311 00:18:12,960 --> 00:18:15,760 for two reasons. One their debt comes due or 312 00:18:15,760 --> 00:18:18,680 they're over levered, right and it comes down to debt because 313 00:18:18,680 --> 00:18:22,440 I've never met anybody that had no debt on a property that they 314 00:18:22,440 --> 00:18:24,520 gave back. Now I'm sure it's happened in in 315 00:18:24,520 --> 00:18:27,120 the history of of our our country, but. 316 00:18:27,640 --> 00:18:29,360 Environmental liability or something? 317 00:18:29,520 --> 00:18:31,280 That's right. Yeah, who knows what it was, but 318 00:18:31,280 --> 00:18:34,960 coming from the lending side and I had some buddies when I was 319 00:18:34,960 --> 00:18:37,200 financing for them in California, they said, oh, well, 320 00:18:37,200 --> 00:18:41,040 we use real low leverage. We're 5560% low leverage. 321 00:18:41,040 --> 00:18:43,560 And being the lender, I said, yeah, but what what's your debt 322 00:18:43,560 --> 00:18:46,280 service coverage ratio? And I said, well, we're at a 120 323 00:18:46,280 --> 00:18:49,760 in in California. I said, well look, I said I'm in 324 00:18:49,760 --> 00:18:54,600 Michigan, I've got an 80% loan to value and I'm at a 210 debt 325 00:18:54,600 --> 00:18:57,160 service coverage. They're like, well, that's way 326 00:18:57,160 --> 00:18:59,320 too much leverage. I said no, no, I don't think you 327 00:18:59,320 --> 00:19:03,120 understand. I'm at 2.1 times debt service 328 00:19:03,120 --> 00:19:07,200 coverage, you're at 1.2 times. You don't get in trouble because 329 00:19:07,200 --> 00:19:09,760 of loan to value, get in trouble because of debt service 330 00:19:09,760 --> 00:19:13,360 coverage. So now that cap rates have 331 00:19:13,360 --> 00:19:16,600 really started to squeeze and come down in all markets across 332 00:19:16,600 --> 00:19:21,680 the US you know today loans are debt service coverage 333 00:19:21,680 --> 00:19:25,120 constrained, not loan to value. So typically in the lending 334 00:19:25,120 --> 00:19:29,880 world it's the lesser of A12O or 125 or an 80% loan to value. 335 00:19:29,880 --> 00:19:33,080 Well today just given how you know where we are on the cap 336 00:19:33,080 --> 00:19:35,440 rate environment, you know you're gonna be most loans are 337 00:19:35,440 --> 00:19:39,640 price sizing in the multi family world to 60% anyways because 338 00:19:39,640 --> 00:19:41,960 they're at that 125 debt service cover. 339 00:19:42,320 --> 00:19:46,760 Yes, said slightly differently, in a market like California the 340 00:19:46,800 --> 00:19:50,280 the rent to asset value is lower, right. 341 00:19:50,280 --> 00:19:53,480 So, so your debt service coverage is tighter even though 342 00:19:53,480 --> 00:20:00,320 your LTV is lower, right. So but but banks care about cash 343 00:20:00,320 --> 00:20:02,880 flow, right. Banks care about cash flow when 344 00:20:02,880 --> 00:20:05,480 you're when when the loan is getting serviced, they don't. 345 00:20:05,960 --> 00:20:10,320 I mean you know you're the asset coverage helps your LGD but if 346 00:20:10,320 --> 00:20:12,960 you never default it's better than worrying about loss given 347 00:20:12,960 --> 00:20:15,120 default. That's right, yeah. 348 00:20:15,120 --> 00:20:19,400 Do you remember the GFC? Most people had two black eyes 349 00:20:19,400 --> 00:20:22,080 and a broken nose, right? They didn't know what happened. 350 00:20:22,480 --> 00:20:27,280 We we're in tertiary markets like you know Fort Collins Co 351 00:20:27,280 --> 00:20:32,200 and Pueblo Co and Albuquerque, NM which may not be so tertiary 352 00:20:32,200 --> 00:20:34,960 anymore, but we didn't have any problems. 353 00:20:34,960 --> 00:20:38,560 And I would say if if you're playing defense it's really hard 354 00:20:38,560 --> 00:20:41,680 to go on offense. And so like right now in today's 355 00:20:41,680 --> 00:20:44,880 environment we've just been patient, patient, patient not 356 00:20:44,880 --> 00:20:47,520 buying and shelving our developments. 357 00:20:47,840 --> 00:20:51,840 But I think that that I would say you know today's opportunity 358 00:20:51,840 --> 00:20:54,360 is dead and tomorrow's opportunities could be on the 359 00:20:54,360 --> 00:20:56,480 equity side. But I might also say that I 360 00:20:56,480 --> 00:21:00,360 think there's been capitulation. I think the equity opportunities 361 00:21:00,360 --> 00:21:02,480 right are front door right now as well. 362 00:21:03,120 --> 00:21:05,480 The interesting thing, you know I follow like the the 363 00:21:05,480 --> 00:21:08,680 multifamily Reit's, I had this guy Bill Chen on Bill if you're 364 00:21:08,680 --> 00:21:12,760 listening what up Anyway, the and the multifamily Reit's have 365 00:21:12,760 --> 00:21:17,320 not moved and the stock market has seemed to be on a quite a 366 00:21:17,320 --> 00:21:23,080 Ripper lately and it'll be interesting to see what what 367 00:21:23,080 --> 00:21:27,960 goes on in the future. Have you seen the what are the 368 00:21:27,960 --> 00:21:31,680 debt markets doing for development right now? 369 00:21:32,280 --> 00:21:34,760 I mean I noticed the the mortgage market hasn't really 370 00:21:34,760 --> 00:21:37,480 come in all that much. I don't know if it's correlated 371 00:21:37,480 --> 00:21:40,960 or not. Well, well, two things there. 372 00:21:41,360 --> 00:21:48,120 On the construction side, we have 71% less lenders from 1980 373 00:21:48,120 --> 00:21:52,280 till today, so seven, 1%. It's astronomical. 374 00:21:52,280 --> 00:21:55,600 There's a great chart I'm happy to share, McKenzie put out. 375 00:21:56,360 --> 00:22:00,000 And so I think the buzzword of the day is real estate credit, 376 00:22:00,000 --> 00:22:01,120 right? Like how do you know? 377 00:22:01,160 --> 00:22:05,680 Well I I think there's a secular and structural change in our 378 00:22:05,680 --> 00:22:09,680 banking system that has created this you know and the GFC you 379 00:22:09,680 --> 00:22:14,680 know Wamu Wachovia which they're not here they were doing 90% non 380 00:22:14,680 --> 00:22:17,960 recourse loans and it was like jokingly say you know what could 381 00:22:17,960 --> 00:22:20,400 go wrong. So you Fast forward today these 382 00:22:20,400 --> 00:22:23,680 big bulge bracket banks like Wells Fargo, I mean they're 383 00:22:23,680 --> 00:22:26,080 they're not even making construction loans, it's really 384 00:22:26,640 --> 00:22:31,520 the local or regional banks that are making the loans today. 385 00:22:31,720 --> 00:22:34,920 And again I I have a bias and a tilt towards multi family. 386 00:22:34,920 --> 00:22:38,880 So I kind of look at it you know, in a box from that, but 387 00:22:38,880 --> 00:22:40,760 you know trying to get a construction loan for an office 388 00:22:40,760 --> 00:22:42,640 building today is is extremely, yeah. 389 00:22:42,680 --> 00:22:45,240 Forget about it. Very right. 390 00:22:45,640 --> 00:22:49,280 But on the multi family side, if you can get a loan, lenders are 391 00:22:49,840 --> 00:22:52,840 only going to their best borrowers and they might give 392 00:22:52,840 --> 00:23:01,120 you 5055% loan to cost. So our credit vehicle, we being 393 00:23:01,120 --> 00:23:03,680 a developer ourselves, we get a lot of lenders that call us and 394 00:23:03,680 --> 00:23:08,160 say we've got a borrower they can't get 4550% equity together. 395 00:23:08,160 --> 00:23:10,800 Would you provide them a preferred equity slash mezzanine 396 00:23:10,800 --> 00:23:15,160 loan and take them from 5055 up to 7075? 397 00:23:15,920 --> 00:23:18,920 So for us, we've got a huge pipeline. 398 00:23:19,160 --> 00:23:21,600 We do like Unitron stuff instead. 399 00:23:21,960 --> 00:23:25,560 We do, right. We would like to do more of 400 00:23:25,560 --> 00:23:28,920 that. A year, year and a half ago we 401 00:23:28,920 --> 00:23:32,480 could do note on note financing and just structure a whole loan 402 00:23:32,480 --> 00:23:35,600 and we'd bifurcate the A note, the B note or sell off the A 403 00:23:35,600 --> 00:23:41,120 note to a pack West or you know Bank of the Ozarks really, 404 00:23:41,120 --> 00:23:43,160 really tough today. It's just gotten even tighter 405 00:23:43,160 --> 00:23:46,240 just given all the commercial real estate loans that are out 406 00:23:46,240 --> 00:23:49,880 there, the ones that aren't paying off if you will, but huge 407 00:23:49,880 --> 00:23:53,040 opportunity going away. The debt markets are a great 408 00:23:53,600 --> 00:23:56,360 place to be. We're, you know, in that. 409 00:23:56,800 --> 00:23:58,440 I could just stop you. I don't, I don't mean to stop 410 00:23:58,440 --> 00:24:02,000 you, but what is going on in multi family debt service 411 00:24:02,000 --> 00:24:05,400 coverage? It seems to me from the outside 412 00:24:05,400 --> 00:24:08,760 that the debt service coverage pieces is pretty OK, but am I 413 00:24:08,760 --> 00:24:11,960 reading that incorrectly? No, I think you're right. 414 00:24:12,000 --> 00:24:14,640 It depends on the existing construction. 415 00:24:15,000 --> 00:24:18,040 I think some of the issues if is that where you're going, what 416 00:24:18,040 --> 00:24:20,040 are we seeing, kind of what are the issues we're dealing? 417 00:24:20,040 --> 00:24:22,120 With well, sort of what I'm really thinking of is it's 418 00:24:22,120 --> 00:24:25,760 interesting just hearing you talk about the lack of appetite 419 00:24:25,960 --> 00:24:28,840 potentially from banks. It's somewhat interesting to me 420 00:24:28,840 --> 00:24:33,080 how the, I think some of their commercial exposure might be 421 00:24:33,080 --> 00:24:35,360 tainting some of their willingness to touch 422 00:24:35,360 --> 00:24:38,600 multifamily, but I think multifamily is fairly healthy at 423 00:24:38,600 --> 00:24:40,160 the moment. But maybe maybe I'm wrong? 424 00:24:40,160 --> 00:24:44,760 It is across the nation. I think we're 94 and a half, 95% 425 00:24:44,760 --> 00:24:48,520 occupied. There are markets where we have 426 00:24:48,640 --> 00:24:52,400 oversupply, you know, the Phoenix Metro, Austin, TX, the 427 00:24:52,400 --> 00:24:58,960 Southeast, but given the lack of new construction starts, so. 428 00:24:59,160 --> 00:25:02,000 We're. Predicting in 2024 we're going 429 00:25:02,000 --> 00:25:06,800 to see 10 to 15% of normal construction starts. 430 00:25:07,600 --> 00:25:12,480 So as we the the demand side of multi family is unassailable 431 00:25:12,480 --> 00:25:15,920 right, They're just more more needed. 432 00:25:15,920 --> 00:25:18,920 It's 50 more expensive for monthly mortgage payment today 433 00:25:18,920 --> 00:25:20,720 than it is the monthly rental payment. 434 00:25:21,440 --> 00:25:23,880 So you look at that, we're not building enough single. 435 00:25:23,880 --> 00:25:25,880 We're not building enough housing as it is. 436 00:25:25,880 --> 00:25:28,760 You know I was reading the economic report yesterday from 437 00:25:29,240 --> 00:25:34,440 you know the president's office and you know there's just I 438 00:25:34,440 --> 00:25:41,560 think the statistic was that between 2020 twenties housing 439 00:25:41,560 --> 00:25:46,080 prices have tripled while household income has doubled. 440 00:25:46,600 --> 00:25:50,160 So in other words the price of housing rose by 50% more than 441 00:25:50,160 --> 00:25:52,600 household income has in the last 20 years. 442 00:25:53,080 --> 00:25:56,320 So it's the renter nation right in the in some people it's OK 443 00:25:56,320 --> 00:25:58,520 that it's just they actually prefer renting. 444 00:25:59,400 --> 00:26:04,360 But from a from multi family fundamentals, if you Fast 445 00:26:04,360 --> 00:26:07,720 forward two years and we absorb through this product because the 446 00:26:07,720 --> 00:26:11,200 lack of new that's coming, I think we're going to see another 447 00:26:11,200 --> 00:26:14,160 run and inflationary pressure in multifamily. 448 00:26:14,160 --> 00:26:16,920 It's it's like if there are two seats left on a Southwest 449 00:26:16,920 --> 00:26:20,400 flight, what happens to the price of those seats, They go up 450 00:26:21,480 --> 00:26:24,560 where we're starting to see or where we see the stresses in 451 00:26:24,560 --> 00:26:28,720 multifamily. On the value add kind of you 452 00:26:28,720 --> 00:26:32,480 know depth we're going to go do the value add in our interest 453 00:26:32,480 --> 00:26:36,200 rate takeouts going to be 4% now it's five and a half 5 3/4 454 00:26:37,000 --> 00:26:42,840 people are just I think the hope of rates coming down has in the 455 00:26:42,840 --> 00:26:48,800 last probably four to six weeks gone away because if somebody's 456 00:26:49,520 --> 00:26:55,040 it sofer plus say 303 twenty you're at an 8 1/2 percent rate. 457 00:26:55,040 --> 00:27:01,880 Today that if the Fed funds rate goes from down 50 or 75 basis 458 00:27:01,880 --> 00:27:07,240 points and that's what my index I was borrowing against. 459 00:27:08,200 --> 00:27:10,880 It's just like my line of credit if I have a home equity line of 460 00:27:10,880 --> 00:27:14,160 credit and goes from 8 1/2 to 8 it really doesn't make a bit of 461 00:27:14,160 --> 00:27:18,040 difference or or the seven three course it really needs to go 462 00:27:18,040 --> 00:27:22,840 down to like 5 1/2. But the other thing I think that 463 00:27:23,840 --> 00:27:28,120 the construction and value add world is based off of short term 464 00:27:28,120 --> 00:27:32,120 floating rate. So the Fed funds or SOFR long 465 00:27:32,120 --> 00:27:35,480 term real estate debt permanent financing is based off the 10 466 00:27:35,480 --> 00:27:38,360 year treasury. So we could have a scenario 467 00:27:38,360 --> 00:27:41,240 where and I don't know necessarily believe this where 468 00:27:41,240 --> 00:27:44,560 the Fed funds and SOFA comes way down but the 10 year treasury, 469 00:27:44,560 --> 00:27:46,920 the take out the permanent debt market stays high. 470 00:27:47,600 --> 00:27:52,360 So for a 10 year Fannie Mae Freddie Mac loan today, you're 471 00:27:52,360 --> 00:27:56,000 probably in the five six to five 8 range. 472 00:27:56,600 --> 00:28:00,600 For a construction loan, you're probably sofa Plus. 473 00:28:01,360 --> 00:28:03,120 Yeah, you're at 8 1/2. Cool. 474 00:28:03,120 --> 00:28:06,400 So I'm borrowing at 8 1/2 and then I'm exiting into a market 475 00:28:06,400 --> 00:28:10,680 that's got higher than than his at least recent history 476 00:28:11,120 --> 00:28:15,120 borrowing costs, right? So my my exit value is lower 477 00:28:15,120 --> 00:28:18,920 than it used to be, and my cost to construct from a financing 478 00:28:18,920 --> 00:28:22,360 perspective is higher. Not to mention whatever 479 00:28:22,360 --> 00:28:24,120 inflation's done to my building costs. 480 00:28:25,040 --> 00:28:27,000 That's right. But I think the way that 481 00:28:28,080 --> 00:28:32,400 developers think about it versus you know existing value add is 482 00:28:32,560 --> 00:28:36,400 hey the interest reserve is built in my total cost. 483 00:28:36,520 --> 00:28:40,320 I've got an interest reserve to cover this now a lot of folks 484 00:28:41,200 --> 00:28:45,480 behind schedule you know blew through their interest reserve 485 00:28:45,480 --> 00:28:48,640 have to rebalance their loan that's some of the stress and I 486 00:28:48,640 --> 00:28:51,960 would like to delineate. I don't think multi family, it's 487 00:28:51,960 --> 00:28:55,360 not distressed, it's stressed because the financing on it. 488 00:28:55,360 --> 00:28:59,320 But when you're 94 and a half, 95% occupied, you're fully 489 00:28:59,320 --> 00:29:01,120 occupied. I would argue that your rents 490 00:29:01,120 --> 00:29:04,280 are, you know, if you're not, your rents are too low, right? 491 00:29:04,280 --> 00:29:06,520 Like we always think about. Your rent a little bit, yeah. 492 00:29:07,200 --> 00:29:08,120 Right. Push your rent. 493 00:29:08,520 --> 00:29:13,520 But the stress is there where, you know, people are saying, 494 00:29:13,520 --> 00:29:15,040 hey, I've been feeding this thing. 495 00:29:15,240 --> 00:29:17,320 I thought we were going to have a takeout loan. 496 00:29:17,640 --> 00:29:22,400 And I think the capitulation has actually hit where it's like, 497 00:29:22,400 --> 00:29:25,080 hey, interest rates are not going to save us this year. 498 00:29:25,080 --> 00:29:26,680 We're actually going to have to sell. 499 00:29:26,960 --> 00:29:28,760 And I've got examples of it like real life. 500 00:29:28,760 --> 00:29:32,440 And I think that I think when Chairman Pal came out a few 501 00:29:32,440 --> 00:29:35,120 weeks ago and he was on 60 minutes, maybe it was a month 502 00:29:35,120 --> 00:29:38,600 ago, it. I think what's happened is we've 503 00:29:38,920 --> 00:29:41,800 now that we know rates are probably not going up and I'm 504 00:29:41,800 --> 00:29:47,400 talking about Fed funds, there's a floor on values and then 505 00:29:47,400 --> 00:29:51,240 people can say, OK now we know where the floor is, but how much 506 00:29:51,240 --> 00:29:54,160 are rates going to come down? That's the $1,000,000. 507 00:29:54,160 --> 00:29:59,360 And when and again inflation is stubborn, the Fed's knocking all 508 00:29:59,360 --> 00:30:02,720 of a sudden just like hey we're dropping 100 basis points to you 509 00:30:02,720 --> 00:30:04,920 know that could be over a two or three-year period. 510 00:30:04,920 --> 00:30:07,440 Now when your debt comes due and you can't refinance out, your 511 00:30:07,440 --> 00:30:09,160 debt comes due and you can't refinance out. 512 00:30:09,680 --> 00:30:13,440 So I guess the question becomes, why would you build the day if 513 00:30:13,440 --> 00:30:14,840 you can go buy? Yeah. 514 00:30:14,880 --> 00:30:18,320 The interesting thing to me is if you Fast forward this 515 00:30:18,320 --> 00:30:22,200 discussion, like I I think if it is true, like you said, 516 00:30:22,200 --> 00:30:25,240 inflation sticky, I think true inflation would disagree. 517 00:30:25,240 --> 00:30:27,720 But I think that some of the recent numbers are sort of 518 00:30:28,360 --> 00:30:30,720 appear to be getting hotter. Maybe I'm misreading that, maybe 519 00:30:30,720 --> 00:30:35,360 not. If if the Fed short term rates 520 00:30:35,360 --> 00:30:40,240 stay higher, I I I don't know what conversation we're having 521 00:30:40,240 --> 00:30:43,840 in 2027 'cause it feels like a big shortage is on the com. 522 00:30:45,000 --> 00:30:49,000 Right Big Shortage of Housing, 100%. 523 00:30:49,000 --> 00:30:52,440 A single family homes, the home builders, they seem to be as 524 00:30:52,440 --> 00:30:54,680 well positioned as anybody because they can buy down 525 00:30:54,760 --> 00:30:58,560 mortgage rates and have sort of a financing arbitrage there. 526 00:30:58,880 --> 00:31:01,520 But man, I I don't know. It's going to be very 527 00:31:01,520 --> 00:31:05,800 interesting to watch. When I I I'm not leaving my 3% 528 00:31:05,800 --> 00:31:08,320 mortgage for a 7% mortgage as a home owner. 529 00:31:08,320 --> 00:31:11,320 Yeah. Interestingly though, I've just, 530 00:31:11,560 --> 00:31:14,800 I mean, I've just transactioned on 2 houses and I'd argue both 531 00:31:14,800 --> 00:31:17,000 the values that I got were very fair. 532 00:31:17,400 --> 00:31:19,960 I don't know that, you know, I mean, obviously if I sold them 533 00:31:19,960 --> 00:31:23,280 two years ago, 2021 or whatever 2022, they'd probably be a lot 534 00:31:23,280 --> 00:31:26,080 better. But like, it was not terrible by 535 00:31:26,080 --> 00:31:29,200 any stretch. So values don't seem to be 536 00:31:29,200 --> 00:31:32,600 coming down. And that to me is sort of 537 00:31:32,600 --> 00:31:36,600 anecdotal evidence of what appears to be a shortage in the 538 00:31:36,600 --> 00:31:39,920 data. Yeah, they're just not a lot of 539 00:31:39,920 --> 00:31:41,840 trades. And to your point about single 540 00:31:41,840 --> 00:31:45,960 family home builders, some investors with us are partners 541 00:31:45,960 --> 00:31:48,920 here in Denver. They enlarge you know publicly 542 00:31:48,920 --> 00:31:51,880 traded single family, you know they're buying, they're like 543 00:31:51,880 --> 00:31:53,560 it's it's as good as it gets right now. 544 00:31:53,560 --> 00:31:57,400 You know they're buying that 7% mortgage down to five, you know 545 00:31:57,640 --> 00:32:01,640 existing home you you can't do that and even in multi family 546 00:32:01,640 --> 00:32:07,520 you know we can buy our rate down to 100 basis points and in 547 00:32:07,520 --> 00:32:11,280 fee meaning it might save us 2530 basis points and overall 548 00:32:11,280 --> 00:32:13,640 rate. So it's meaningful, but it's not 549 00:32:13,640 --> 00:32:18,240 like we can buy it down 2% and we can't go from 5 1/2 to 3 1/2 550 00:32:18,240 --> 00:32:21,200 or everybody would be doing it. That would change things 551 00:32:21,240 --> 00:32:25,160 overnight. But I agree the lack of housing 552 00:32:25,480 --> 00:32:29,520 that we're producing, most of the developers that were 553 00:32:29,520 --> 00:32:32,600 financing today are vertically integrated. 554 00:32:32,600 --> 00:32:37,240 They're AGC, they're a developer and they're squeezing things on 555 00:32:37,320 --> 00:32:40,560 all sides. Like for us at Forum outside 556 00:32:40,560 --> 00:32:44,200 this one project in San Diego that took through a rezone, our 557 00:32:44,200 --> 00:32:48,200 basis is so low, we can build to just over a six on cost, which 558 00:32:48,200 --> 00:32:52,160 is unheard of in California. It's if we can't get to 6 and a 559 00:32:52,160 --> 00:32:56,240 quarter 6 1/2 on costs. So the unlevered return on 560 00:32:56,240 --> 00:32:59,080 development, we're not doing it now. 561 00:33:00,000 --> 00:33:03,600 There's a project in Glendale, AZ we've been watching. 562 00:33:04,000 --> 00:33:09,160 We actually had under contract for 105 million three years ago 563 00:33:09,280 --> 00:33:14,160 was the first deal we were going to buy kind of at at Co and we 564 00:33:14,160 --> 00:33:17,280 dropped it. Offers are due next week and I 565 00:33:17,280 --> 00:33:22,600 think it's going to trade around 72 to 75,000,000, so a $30 566 00:33:22,600 --> 00:33:25,960 million drop over the last three years. 567 00:33:25,960 --> 00:33:29,200 Now that market's a little over built today, ton of job growth, 568 00:33:29,200 --> 00:33:32,240 they'll work through it, but it's hard to want to go build 569 00:33:32,240 --> 00:33:34,480 when you can buy. And we're finally starting to 570 00:33:34,480 --> 00:33:39,680 see a decrease in construction costs here and subcontractors as 571 00:33:39,680 --> 00:33:42,440 they're getting done with work are finally calling saying, hey, 572 00:33:43,320 --> 00:33:46,680 do you have any work for us. So we estimate costs or down 573 00:33:46,680 --> 00:33:51,880 come on wood construction here in Colorado around 1011%, but 574 00:33:51,880 --> 00:33:54,040 we're also pricing. So insurance, we should talk 575 00:33:54,040 --> 00:33:55,680 about insurance. I mean, you want to talk about 576 00:33:55,680 --> 00:33:57,360 wild? Card dude, I'm in Florida. 577 00:33:57,360 --> 00:33:58,960 You want to have an insurance conversation? 578 00:33:58,960 --> 00:34:02,080 I'm happy to have it. I think that's actually the 579 00:34:02,080 --> 00:34:05,600 opportunity to buy in all these developers in Florida like as 580 00:34:05,600 --> 00:34:10,199 they under wrote 600 a unit and it's coming out at 1200 a unit, 581 00:34:10,199 --> 00:34:13,320 you know stabilize. I don't know how they make any 582 00:34:13,320 --> 00:34:15,440 money or that maybe they get their money back on a 583 00:34:15,440 --> 00:34:17,080 development that if they're selling it. 584 00:34:17,080 --> 00:34:19,000 But you know what's kind of interesting about that 'cause 585 00:34:19,000 --> 00:34:20,800 you, you're talking about the opportunity of it. 586 00:34:21,520 --> 00:34:24,080 I just got on the House. I just sold. 587 00:34:24,199 --> 00:34:26,639 We had to to. Well, we didn't have to, but I 588 00:34:26,639 --> 00:34:29,880 provided alternative quotes to the buyer. 589 00:34:31,080 --> 00:34:35,840 And I think it was 2 new insurers entered and DeSantis 590 00:34:35,840 --> 00:34:39,400 finally got off his ass and somewhat addressed the insurance 591 00:34:39,400 --> 00:34:42,080 problem down here. I I don't think it's a full 592 00:34:42,080 --> 00:34:43,800 address, but it's the beginning of one. 593 00:34:44,159 --> 00:34:48,000 And it appears as though we might be having insurers enter 594 00:34:48,000 --> 00:34:49,920 the market again. I talked to my insurance 595 00:34:49,920 --> 00:34:51,560 brokerage. You know, just like retail 596 00:34:51,560 --> 00:34:53,400 people, it could be getting better. 597 00:34:53,400 --> 00:34:57,400 And it would be interesting to see, to your point, if people 598 00:34:57,400 --> 00:35:00,840 are capitulating at Max Payne and this actually is kind of a 599 00:35:00,840 --> 00:35:04,320 good opportunity to buy into the fear cause 'cause. 600 00:35:04,320 --> 00:35:08,120 Until then, there has been no indication that insurance is 601 00:35:08,120 --> 00:35:12,840 going anywhere but up. In the state of Louisiana you 602 00:35:12,840 --> 00:35:15,960 cannot get insurance right now for multi family. 603 00:35:16,120 --> 00:35:20,040 We own 1 legacy deal there that got hit by two named hurricanes 604 00:35:20,040 --> 00:35:24,400 within like 18 months, you know had and we actually got forced 605 00:35:24,400 --> 00:35:27,560 placed insurance from Fannie Mae because we just could not get 606 00:35:27,560 --> 00:35:30,080 it. So I think from a legislative 607 00:35:30,440 --> 00:35:34,080 standpoint when California is no better, we have a house up in 608 00:35:34,080 --> 00:35:38,520 Lake Tahoe and you know the fear of wildfires, I think nationwide 609 00:35:38,520 --> 00:35:41,680 pulled out Allstate and and you want to talk about upside down 610 00:35:42,720 --> 00:35:45,400 the government there or the government, you know they 611 00:35:45,400 --> 00:35:48,120 basically said you can only raise rates 3%. 612 00:35:48,120 --> 00:35:51,200 So these people are taking huge losses meaning the people, the 613 00:35:51,200 --> 00:35:53,400 insurers, they're just backing out. 614 00:35:53,600 --> 00:35:58,480 So I think now but we actually in Louisiana this year, you know 615 00:35:58,480 --> 00:36:02,000 we're actually starting to see some insurers and it look it's a 616 00:36:02,000 --> 00:36:05,440 cycle just like everything, couple of seasons without 617 00:36:05,440 --> 00:36:10,040 catastrophic wind claims or fire claims, things like that, 618 00:36:10,320 --> 00:36:13,240 they'll pop, you'll see people starting to pop back in. 619 00:36:13,840 --> 00:36:20,360 But our insurance in Louisiana went from $50,000 per year when 620 00:36:20,360 --> 00:36:24,480 we bought it seven years ago to $850,000 per year. 621 00:36:25,120 --> 00:36:28,920 So if you if you did a six cap on that or a set, I forget what 622 00:36:29,120 --> 00:36:32,320 it was like a $13 million in value, we lost just an 623 00:36:32,320 --> 00:36:34,840 insurance. Yeah, that's wild. 624 00:36:35,800 --> 00:36:39,320 So. We, we've got a legacy. 625 00:36:40,240 --> 00:36:41,440 We've got to push the rent. There's. 626 00:36:41,560 --> 00:36:44,880 I mean, it's like it's the way the math works, right? 627 00:36:45,360 --> 00:36:48,280 Well, and look, I'm not going to get into politics and rental 628 00:36:48,280 --> 00:36:51,880 control, but you you go to markets where, like I've always 629 00:36:51,880 --> 00:36:55,200 said, I will take market risk, but I won't take political risk. 630 00:36:55,600 --> 00:36:58,280 As soon as, like St. Paul MN said, OK, you can only 631 00:36:58,280 --> 00:37:02,440 raise rents, you know, 3% whether it's a new tenant or 632 00:37:02,440 --> 00:37:04,360 existing. Well, my insurance just went up 633 00:37:04,360 --> 00:37:07,320 50%, My real estate tax, it just went up 40%. 634 00:37:07,840 --> 00:37:10,320 I'm underwater. And the gap between income and 635 00:37:10,320 --> 00:37:13,760 expenses is going like this, where all of a sudden the 636 00:37:13,760 --> 00:37:17,240 government's forcing and creating foreclosures and 637 00:37:17,240 --> 00:37:20,720 negative debt service coverage covenants and things like that 638 00:37:20,880 --> 00:37:24,520 while they're trying to solve an affordable housing crisis or 639 00:37:24,520 --> 00:37:26,840 issue. This is, this is when I start 640 00:37:26,840 --> 00:37:29,560 thinking like how can I get bearish multifamily. 641 00:37:29,880 --> 00:37:33,120 This is the scenario. I've I've had them because I I 642 00:37:33,120 --> 00:37:38,080 worry that if if there's not construction soon, in three to 643 00:37:38,080 --> 00:37:42,040 five years, we're going to have such a shortage that it's going 644 00:37:42,040 --> 00:37:46,000 to be like on the top of every rent specifically is going to be 645 00:37:46,000 --> 00:37:48,160 on the top of a lot of political minds. 646 00:37:48,160 --> 00:37:51,920 And then if you start to get into rent control, then I don't 647 00:37:51,920 --> 00:37:54,160 know, all bets are off for a little while, although that's 648 00:37:54,160 --> 00:37:57,440 when I I would actually consider making like a real bet. 649 00:37:57,440 --> 00:37:59,640 If you start to see values, adjust on that. 650 00:37:59,720 --> 00:38:01,920 Yeah, I know governments are trying. 651 00:38:01,920 --> 00:38:05,280 And look, we we really focus on the renter by necessity. 652 00:38:05,280 --> 00:38:08,440 Like not the renter by choice. The runner by choice is somebody 653 00:38:08,440 --> 00:38:10,240 who's like living in the penthouse over here across the 654 00:38:10,240 --> 00:38:12,320 street from where we're standing for 13,000 a month. 655 00:38:12,320 --> 00:38:16,840 I'm talking about the blue the kind of Gray collar it's nice 656 00:38:16,840 --> 00:38:19,760 product in San Diego that that renter by necessity makes 657 00:38:19,760 --> 00:38:23,600 150,000 a year but it's those folks that don't they they make 658 00:38:23,600 --> 00:38:26,000 a little bit too much to get truly affordable housing. 659 00:38:26,000 --> 00:38:29,320 You know the with a capital A we're trying to provide that 660 00:38:29,320 --> 00:38:34,480 that small A and if you had told me going back you know bill to 661 00:38:34,480 --> 00:38:36,800 in three years if we don't know saying we won't. 662 00:38:37,600 --> 00:38:40,840 I think the only reason why folks like ourselves are 663 00:38:40,840 --> 00:38:47,440 hesitant is that you can't, we see the data, but it's really 664 00:38:47,440 --> 00:38:51,880 hard to prove out and say, hey, in 36 months or 24 months rents 665 00:38:51,880 --> 00:38:55,160 are going to start going up five or 10% a year, just trust us, 666 00:38:55,920 --> 00:38:58,120 right. Otherwise we'd all be firing up 667 00:38:58,120 --> 00:39:00,880 the, you know, tractors again and building like crazy. 668 00:39:00,880 --> 00:39:03,840 But when you look at, hey, we can build in Denver to a 5 1/2 669 00:39:03,840 --> 00:39:08,360 on cost, you know, finance it with 8 1/2 percent construction 670 00:39:08,360 --> 00:39:12,200 debt in the takeout loan, you know, let's just say it's 5 1/2. 671 00:39:12,200 --> 00:39:14,360 We're pro forma. You know, it's kind of neutral 672 00:39:14,360 --> 00:39:16,680 leverage. It's like why don't we just go 673 00:39:16,680 --> 00:39:19,640 buy something where we have more upside and rents. 674 00:39:19,640 --> 00:39:22,640 Why are we going to take the risk to go put a shovel in the 675 00:39:22,640 --> 00:39:27,160 ground and what have you? So I don't have the answer. 676 00:39:27,360 --> 00:39:30,280 By the time it's really evident everybody will be doing it. 677 00:39:30,280 --> 00:39:35,360 Again, we do own some A+ plus sites that we're just not moving 678 00:39:35,360 --> 00:39:37,760 forward on and they'll never be bad locations. 679 00:39:38,360 --> 00:39:42,400 But I'm never going to go do a bad or make a bad investment 680 00:39:42,400 --> 00:39:44,600 just for the sake of doing. I think we've proved that over 681 00:39:44,600 --> 00:39:44,880 the. Years. 682 00:39:44,880 --> 00:39:46,840 Well, I'm going to take something that you said earlier, 683 00:39:47,000 --> 00:39:51,440 if cash is king and cash flow is queen, having nice sights is a 684 00:39:51,440 --> 00:39:54,600 hell of a Rook, right? I mean it's it's a feather in in 685 00:39:54,600 --> 00:39:56,520 whatever. However I want to say it it's 686 00:39:56,520 --> 00:39:59,840 it's a nice way to play offense once the opportunity becomes 687 00:39:59,840 --> 00:40:02,000 clear, and it's a nice thing to be able to wait with. 688 00:40:03,000 --> 00:40:05,560 Right. And it's in my career. 689 00:40:05,560 --> 00:40:07,400 There have been times where I said you can give me the lamp 690 00:40:07,400 --> 00:40:10,960 for free and it doesn't change this deal, penciling or not. 691 00:40:10,960 --> 00:40:15,760 And there's times where the land does make a big difference, like 692 00:40:15,760 --> 00:40:18,520 I mentioned in our San Diego project. 693 00:40:18,520 --> 00:40:20,720 But today you can give me the land for free and it doesn't 694 00:40:20,720 --> 00:40:24,080 move the needle. It doesn't make a 5 1/2 go to a 695 00:40:24,080 --> 00:40:29,800 6 1/2 or 6 1/4 where you know you really, really are trying to 696 00:40:30,120 --> 00:40:35,040 create value in development. When so just my brain is not 697 00:40:35,040 --> 00:40:36,720 picking up exactly what you're saying. 698 00:40:36,720 --> 00:40:38,440 So do you? Do you mind explaining why the 699 00:40:38,440 --> 00:40:42,200 land doesn't make a huge difference right now? 700 00:40:42,960 --> 00:40:44,840 Sure. I'll just give round numbers. 701 00:40:44,840 --> 00:40:49,240 Let's just say that we could build a garden style three story 702 00:40:49,240 --> 00:40:53,520 walk up lump stick frame, you know lumber framed asset for 703 00:40:53,520 --> 00:41:00,320 $350,000 a unit and let's just say that the land underneath 704 00:41:00,320 --> 00:41:05,320 that was $30,000 a unit. So basically it cost us 200 and 705 00:41:05,480 --> 00:41:08,040 it's it's 10% of the whole project. 706 00:41:08,440 --> 00:41:13,400 It's not going to move the needle 50 or 75 basis points as 707 00:41:13,400 --> 00:41:17,400 far as being a creative to the overall development. 708 00:41:17,400 --> 00:41:22,440 Yeah, that makes sense. Meaning $270,000 or $300,000 per 709 00:41:22,440 --> 00:41:26,880 unit isn't going to change. Now I mentioned like in Phoenix 710 00:41:27,200 --> 00:41:29,400 that asset that we were looking at, you know we were going to 711 00:41:29,400 --> 00:41:33,320 buy that for north of 300 when we were under contract and now 712 00:41:33,920 --> 00:41:40,600 it'll trade for less than 250 and you can't build it for 250. 713 00:41:41,520 --> 00:41:45,040 So you have all this product coming online, but a lot of 714 00:41:45,040 --> 00:41:49,200 folks are betting on you know, neutral or negative leverage 715 00:41:49,200 --> 00:41:52,360 where they're buying a cap rate less than their debt and that 716 00:41:52,360 --> 00:41:54,320 there are very little or low rent growth. 717 00:41:54,320 --> 00:41:59,760 But it's all basis play for the future, which is I guess one way 718 00:41:59,800 --> 00:42:02,600 of looking at it. Yeah, it's a way. 719 00:42:02,600 --> 00:42:06,440 How do you look at it? So for us, you know in our 720 00:42:07,240 --> 00:42:10,200 credit, well we're making mezzanine preferred equity loans 721 00:42:11,080 --> 00:42:15,640 from a risk adjusted return. If we have somebody that's 722 00:42:15,640 --> 00:42:19,440 putting 30% equity ahead of our loan, let's just say it's 723 00:42:19,440 --> 00:42:25,120 300,000 per unit all in. So our last dollars at 210,000, 724 00:42:25,560 --> 00:42:29,600 their last dollars 300,000. And look, I've never been in my 725 00:42:29,600 --> 00:42:32,400 life, I never had to take a property back, never been a loan 726 00:42:32,400 --> 00:42:34,720 to own. But if there ever was an issue, 727 00:42:35,200 --> 00:42:40,840 I our theory is we'd love to own that project at 210,000 a unit. 728 00:42:40,840 --> 00:42:45,160 Now we're getting paid so far and I'm glad you're sitting down 729 00:42:45,400 --> 00:42:52,200 South for plus 10 to 12%, right. So we're getting 1718% with a 730 00:42:52,200 --> 00:42:56,520 net of let's just say 16. So we're getting equity returns 731 00:42:56,520 --> 00:42:58,120 and debt. So why are we going to go do 732 00:42:58,120 --> 00:43:00,880 equity, same returns with less risk and debt. 733 00:43:00,880 --> 00:43:04,320 Now again, I think that's going to change here. 734 00:43:04,320 --> 00:43:06,840 I think this is a year where people are going to capitulate. 735 00:43:06,840 --> 00:43:08,320 We're starting to already see it. 736 00:43:08,320 --> 00:43:12,720 And remember, within any market, the first deals you start seeing 737 00:43:12,720 --> 00:43:14,800 when the market changed, probably the ones you don't want 738 00:43:14,800 --> 00:43:19,720 to do, but we're not far away of seeing the ones you know that we 739 00:43:19,720 --> 00:43:20,880 do want to do. Huh. 740 00:43:20,920 --> 00:43:21,840 That's interesting. Why? 741 00:43:21,880 --> 00:43:23,160 Why? They're the first ones. 742 00:43:23,160 --> 00:43:25,320 I think I know what you're saying, but I'm I'm just 743 00:43:25,320 --> 00:43:27,840 curious, why are the first ones the ones you probably don't want 744 00:43:27,840 --> 00:43:30,360 to do? You know, like there's an office 745 00:43:30,360 --> 00:43:34,400 conversion to multi family in the Arizona market. 746 00:43:34,400 --> 00:43:37,400 You know that's just a 30 million over budget on a night. 747 00:43:37,840 --> 00:43:41,520 You know, just things like that, just maybe a different like 748 00:43:41,880 --> 00:43:44,680 those those were just bad, those are distressed, they aren't 749 00:43:44,680 --> 00:43:47,240 stressed, they're distressed. So those are the ones there. 750 00:43:47,240 --> 00:43:50,960 There's an opportunity here in in Denver it's been all over the 751 00:43:50,960 --> 00:43:52,960 news and but you know you're going to have to take all the 752 00:43:52,960 --> 00:43:57,040 siding off all the windows off. There's mold like out of state 753 00:43:57,040 --> 00:43:59,000 developer. It's just I'm not getting 754 00:43:59,000 --> 00:44:02,400 anywhere near that there that you couldn't pay me to to do 755 00:44:02,400 --> 00:44:04,080 that. And by the way, this reminds me 756 00:44:04,080 --> 00:44:08,320 of something that I learned in the GFCI actually think 757 00:44:08,320 --> 00:44:10,520 properties can have negative value. 758 00:44:11,000 --> 00:44:14,680 Meaning you could give me AI wouldn't take it and we were 759 00:44:14,960 --> 00:44:18,680 looking at a property in Houston and and we could have bought 760 00:44:18,680 --> 00:44:20,680 this thing for. I'm going off a memory, let's 761 00:44:20,680 --> 00:44:23,520 say it was 20, five, $30,000 a unit. 762 00:44:24,640 --> 00:44:27,800 It actually had negative value because it had mold. 763 00:44:27,800 --> 00:44:30,920 It had everything that was wrong like if you gave it to me or 764 00:44:30,920 --> 00:44:33,600 'cause like it was worth less than replacement cost. 765 00:44:33,600 --> 00:44:36,440 So you so I didn't even want it and I don't know that we're 766 00:44:36,440 --> 00:44:39,440 going to see that again. It just jogged my memory of I 767 00:44:39,440 --> 00:44:43,960 never thought that somebody giving me you know 10 acres with 768 00:44:43,960 --> 00:44:46,520 multi family on it. I wouldn't take like there's a 769 00:44:46,520 --> 00:44:49,080 value for everything. In that case it was actually 770 00:44:49,080 --> 00:44:50,960 negative value. Yeah. 771 00:44:51,160 --> 00:44:53,120 Well, that's the issue with replacement costs. 772 00:44:53,120 --> 00:44:55,680 The natural question is, is it worth replacing, right? 773 00:44:56,840 --> 00:45:01,360 Right well not I agree because talking to a friend of mine from 774 00:45:01,360 --> 00:45:04,440 a multi family re yesterday here in Denver and he said you know 775 00:45:04,880 --> 00:45:08,040 replacement cost story. I don't know what's what like if 776 00:45:08,040 --> 00:45:11,960 it's a high rise the exterior is always going to look good and 777 00:45:11,960 --> 00:45:14,280 you can redo the you know, interiors, he said. 778 00:45:15,240 --> 00:45:18,480 Older product at stick frame, you know the exteriors can get 779 00:45:18,480 --> 00:45:23,720 worn like and and and I haven't really fully digested or agreed 780 00:45:23,720 --> 00:45:25,760 with. I I do agree that you know high 781 00:45:25,760 --> 00:45:30,040 rising is not really something we do but the replacement cost 782 00:45:30,200 --> 00:45:36,040 is a fair is a fair argument. But for folks like us that need 783 00:45:36,080 --> 00:45:40,040 current cash flow or want current cash flow and if it's 784 00:45:40,760 --> 00:45:44,600 very, very little, you know when I say very little below say 5%, 785 00:45:44,920 --> 00:45:48,760 probably not worth us waiting for two or three years or at 786 00:45:48,760 --> 00:45:50,800 least we haven't seen those opportunities yet. 787 00:45:51,000 --> 00:45:56,120 Yeah, that's interesting. If I heard you correctly and 788 00:45:56,120 --> 00:46:00,000 remember correctly, you said that right now is sort of the 789 00:46:00,000 --> 00:46:03,720 opportunities are in debt. You think that the opportunities 790 00:46:03,720 --> 00:46:08,400 for equity are are maybe on the near horizon if I if I asked you 791 00:46:08,400 --> 00:46:10,800 to put your fortune teller hat on, how do you think this all 792 00:46:10,800 --> 00:46:12,280 plays out? I think you've been talking 793 00:46:12,280 --> 00:46:14,480 about it, but I I'd like to hear you like sort of. 794 00:46:14,800 --> 00:46:19,600 Specify, I think we'll be active buyers the second-half of this 795 00:46:19,600 --> 00:46:21,280 year. I think we'll probably tie 796 00:46:21,280 --> 00:46:24,600 something up in the second quarter, but I think we'll be 797 00:46:24,600 --> 00:46:28,600 active buyers and there's just such a, you've seen the charts 798 00:46:28,720 --> 00:46:31,560 I'm sure 2024 and all the debt that's coming due. 799 00:46:32,040 --> 00:46:34,760 And so because we've got different vehicles which we can 800 00:46:34,760 --> 00:46:38,240 provide different whether it's for ourselves or to third 801 00:46:38,240 --> 00:46:40,880 parties, there are a lot of loans that are just out of 802 00:46:40,880 --> 00:46:42,480 balance. There are a lot of interest rate 803 00:46:42,480 --> 00:46:45,280 caps where people were hoping that the cap costs would come 804 00:46:45,280 --> 00:46:48,440 down to re up. There are folks that lenders are 805 00:46:48,440 --> 00:46:52,600 saying hey, time's up, we give you enough extensions or pay us 806 00:46:52,600 --> 00:46:55,880 down or so whether it's a bridge loan that we can provide, 807 00:46:55,880 --> 00:46:59,160 whether it's equity and we're going out you know and buying. 808 00:46:59,560 --> 00:47:03,200 I think the opportunities, again, the capitulation is there 809 00:47:03,200 --> 00:47:07,000 where folks know crossing their fingers or hoping. 810 00:47:07,000 --> 00:47:09,600 I always say hope's not a strategy, their rates are going 811 00:47:09,600 --> 00:47:11,720 to come down. I think the capitulation is 812 00:47:11,720 --> 00:47:14,240 there. So the question now is how much 813 00:47:14,240 --> 00:47:16,120 more time do I have before my dad comes doing? 814 00:47:16,120 --> 00:47:18,920 What can I do to solve that problem? 815 00:47:18,960 --> 00:47:22,120 Yeah, interesting. You know one of the things I was 816 00:47:22,120 --> 00:47:25,400 chatting with my dad about and maybe maybe it came up when you 817 00:47:25,400 --> 00:47:29,280 and I talked the first time. But one of the interesting sort 818 00:47:29,280 --> 00:47:33,880 of dynamics that I've I've been thinking about with multifamily 819 00:47:34,280 --> 00:47:39,920 is as people live longer older people that are choosing to move 820 00:47:39,920 --> 00:47:44,840 back into multi family. Now some are obviously nursing 821 00:47:44,840 --> 00:47:46,600 homes but some aren't ready for that. 822 00:47:46,600 --> 00:47:48,400 They don't want to take care of a house anymore. 823 00:47:48,400 --> 00:47:52,280 And this is kind of a segment of the population that I have not 824 00:47:52,280 --> 00:47:56,200 historically associated with renting that that may be looking 825 00:47:56,200 --> 00:47:58,600 to rent more. Is that are you seeing any of 826 00:47:58,600 --> 00:48:02,600 that in what you own? We are actually our, our CIO 827 00:48:02,600 --> 00:48:05,480 moved here from San Francisco, lived there for 30 years. 828 00:48:05,480 --> 00:48:10,360 He was portfolio manager with a $25 billion fund and he's an 829 00:48:10,360 --> 00:48:12,520 empty nest for now. And he rents, he said. 830 00:48:12,520 --> 00:48:14,600 One of the things and moving to Denver, I wanted to be able to 831 00:48:14,600 --> 00:48:19,120 walk to work and he loves locking and leaving, right? 832 00:48:19,120 --> 00:48:21,160 They eat out a decent amount, they cook at home, he said. 833 00:48:21,160 --> 00:48:24,600 The only downside is like when we have, you know, a bigger 834 00:48:24,600 --> 00:48:28,000 group of people come over, it's hard to kind of host like we 835 00:48:28,000 --> 00:48:31,280 would at our house, but they just love the flexibility. 836 00:48:31,280 --> 00:48:34,160 They're one of their kids in Southern California, the other 837 00:48:34,160 --> 00:48:36,920 in New York, so they're gone a lot as well. 838 00:48:37,320 --> 00:48:40,760 So I think that's actually just been a shift in our culture that 839 00:48:40,800 --> 00:48:43,000 it's OK to rent. Yeah, and you don't have to 840 00:48:43,000 --> 00:48:46,640 manage a house. Managing a House of pain can be. 841 00:48:47,680 --> 00:48:49,560 You aren't. Yeah, you aren't. 842 00:48:49,600 --> 00:48:52,200 Couldn't. Especially when you don't live 843 00:48:52,200 --> 00:48:54,520 there, right? And he's, you know, letting 844 00:48:54,520 --> 00:48:56,360 friends stay there. Do we rent it out? 845 00:48:56,360 --> 00:48:58,120 Do we put some of our stuff in storage? 846 00:48:58,320 --> 00:49:00,560 Again another thing from my father-in-law, he said you know 847 00:49:00,560 --> 00:49:04,000 nothing in life stays the same, your friends, your family, your 848 00:49:04,000 --> 00:49:06,840 health, your business. And I think that's one of the 849 00:49:07,080 --> 00:49:10,000 things that formed that we've done a good job and we have 850 00:49:10,000 --> 00:49:12,240 signs around like connecting let's say it's connecting the 851 00:49:12,240 --> 00:49:14,360 dots like where's the market going. 852 00:49:14,360 --> 00:49:18,720 You know 8-9 years ago we built, I mentioned Google's campus, we 853 00:49:18,720 --> 00:49:20,360 did a million square feet of retail. 854 00:49:20,360 --> 00:49:25,720 We would do non multi family here only in Colorado, but it 855 00:49:25,720 --> 00:49:28,240 was really hard for a guy like myself who's you know more of an 856 00:49:28,240 --> 00:49:33,520 entrepreneur and a deal junkie to say OK no more we're only 857 00:49:33,520 --> 00:49:37,800 doing multi family. We're doing the entire capital 858 00:49:37,800 --> 00:49:42,840 stack in multi family and turning our entire business 859 00:49:42,840 --> 00:49:48,360 around like for for real estate people like myself that like I 860 00:49:48,360 --> 00:49:51,080 said are deal junkies. It was like a tree with a lot of 861 00:49:51,080 --> 00:49:53,760 limbs but no roots. It's always about the next deal. 862 00:49:53,760 --> 00:49:57,400 It's like a I I probably shouldn't use this analogy, so I 863 00:49:57,400 --> 00:49:59,000 won't. But you know somebody who's 864 00:49:59,000 --> 00:50:01,400 addicted to something, it's like, hey, I'm just going to to 865 00:50:01,440 --> 00:50:03,240 ease my pain. I'm going to go do this. 866 00:50:03,720 --> 00:50:05,760 Well for real estate folks. It's like, hey, I'm just going 867 00:50:05,760 --> 00:50:07,720 to go to the next deal. We're going to make more money 868 00:50:07,720 --> 00:50:10,240 on the next deal. So one of the hardest things in 869 00:50:10,240 --> 00:50:12,960 my careers was turning the whole shit and say I'm going to build 870 00:50:12,960 --> 00:50:16,920 a foundation and we're going to stop and and the market timing 871 00:50:16,920 --> 00:50:20,600 was OK because as I mentioned cap rates are going down and you 872 00:50:20,600 --> 00:50:24,880 know we stopped buying a lot and but now I've built a foundation 873 00:50:25,240 --> 00:50:29,200 where in roots in the ground where we could add as many limbs 874 00:50:29,200 --> 00:50:32,160 on that tree as we want and it won't fall over. 875 00:50:32,600 --> 00:50:37,560 But I was at the point where if I just kept adding limbs the 876 00:50:37,560 --> 00:50:39,320 tree was going to fall over at some point. 877 00:50:39,320 --> 00:50:42,560 We just couldn't keep growing without the foundation. 878 00:50:43,320 --> 00:50:46,200 I like that. I I I like that a lot. 879 00:50:46,600 --> 00:50:50,360 I wrote it down I so. Yeah. 880 00:50:50,720 --> 00:50:53,600 I may, I may. My dad often says like look 881 00:50:53,600 --> 00:50:55,560 down, where are you? And he he's sort of saying 882 00:50:55,560 --> 00:50:58,120 something similar but different. He's like just pay attention to 883 00:50:58,120 --> 00:51:01,880 where your feet are and and execute what's in front of you 884 00:51:01,880 --> 00:51:04,960 and maybe slow down a little bit rather than like spreading out 885 00:51:04,960 --> 00:51:08,280 the focus. And seeing where life is going, 886 00:51:08,280 --> 00:51:11,960 like COVID was a huge shift, right? 887 00:51:12,040 --> 00:51:16,040 That again had the chance to move from someone to go to Vail, 888 00:51:16,040 --> 00:51:20,840 Co and they never left. Or they, you know, we look at EU 889 00:51:20,840 --> 00:51:23,600 Haul, you know, trucks or just just open your eyes and see 890 00:51:23,600 --> 00:51:27,240 where like all people are moving to and and not going back to. 891 00:51:27,240 --> 00:51:30,200 And it was pretty easy to see that this wasn't really a 892 00:51:30,200 --> 00:51:33,520 transitory change, it was a structural change. 893 00:51:34,040 --> 00:51:37,200 The interesting thing and I I may be mistaken but I haven't 894 00:51:37,200 --> 00:51:40,240 the Midwestern and Northeastern markets actually been like 895 00:51:40,240 --> 00:51:43,920 relatively stronger. Now they probably took a right 896 00:51:43,920 --> 00:51:46,200 down. So it's strong off a lower base, 897 00:51:46,200 --> 00:51:50,480 but is that is that accurate it? It it depends on where. 898 00:51:50,840 --> 00:51:54,440 So we were in Saginaw, MI. He probably never heard of 899 00:51:54,440 --> 00:51:57,320 Saginaw and a lot of people from Michigan go back to Michigan 900 00:51:58,120 --> 00:52:00,960 junior college like, but people were leaving there like there's 901 00:52:00,960 --> 00:52:04,720 just not a lot of growth but like Kalamazoo with Pfizer with 902 00:52:04,720 --> 00:52:09,040 Merck, you know Ann Arbor, like Detroit, you know area. 903 00:52:09,040 --> 00:52:13,520 There were just certain areas or Columbus OH right, where you all 904 00:52:13,520 --> 00:52:17,360 of a sudden start getting tech you get biotech in these markets 905 00:52:17,840 --> 00:52:22,400 that yeah they're strong and and rents haven't skyrocketed and 906 00:52:22,400 --> 00:52:25,920 costs. A friend of mine from Iowa City. 907 00:52:25,920 --> 00:52:27,960 He's a single family home builder and he told me about 908 00:52:27,960 --> 00:52:31,920 this house that he built on. He I I said what like you live 909 00:52:31,920 --> 00:52:37,680 on 63 acres and I I couldn't believe, you know he said I 910 00:52:37,680 --> 00:52:43,200 couldn't build a house for 2 1/2 or $3,000,000 like it's I could 911 00:52:43,200 --> 00:52:46,120 build like 100,000 square foot home or you know something huge 912 00:52:46,520 --> 00:52:50,360 but just a cost differential. But market like Iowa City, 913 00:52:50,360 --> 00:52:53,160 right, the university, the medical. 914 00:52:53,320 --> 00:52:57,320 There's a lot of wealth in Iowa City and Des Moines, you know 915 00:52:57,320 --> 00:53:00,320 South in Indiana, you've got you know in Indianapolis and Carmen 916 00:53:00,320 --> 00:53:02,520 like there's some great Midwest markets. 917 00:53:02,520 --> 00:53:07,160 It's some of these smaller markets that you know, we owned 918 00:53:07,160 --> 00:53:11,120 in Jackson, Ms. and and glad we did and glad we sold out of 919 00:53:11,120 --> 00:53:12,360 there. But they're just not. 920 00:53:12,800 --> 00:53:14,640 I jokingly say to people, I'm like, do you know what's going 921 00:53:14,640 --> 00:53:15,720 on in Jackson? I say no. 922 00:53:15,720 --> 00:53:17,680 What I said nothing. Absolutely nothing. 923 00:53:17,680 --> 00:53:23,600 Like there's no economic driver to help really grow that market. 924 00:53:23,600 --> 00:53:26,680 Now, I'm not saying it's not a nice place to live or or not, 925 00:53:26,680 --> 00:53:29,680 but for an apartment owner there's just, it's like 926 00:53:30,400 --> 00:53:33,040 apartment stocks getting older and the only thing new that's 927 00:53:33,040 --> 00:53:36,560 getting built is capital. Affordable, like light tech type 928 00:53:36,560 --> 00:53:40,040 stuff if anything. So they're just not a lot of 929 00:53:40,040 --> 00:53:42,840 growth in that market. Not the best place to own an 930 00:53:42,840 --> 00:53:45,600 equity asset in, right? I used to have a guy. 931 00:53:45,600 --> 00:53:49,360 I was a trainer at a gym. He was sort of a abusive to me, 932 00:53:49,360 --> 00:53:51,480 but I liked it for some reason. I should probably sit on the 933 00:53:51,480 --> 00:53:53,800 couch and figure that out. He used to call me Muffin Top 934 00:53:54,360 --> 00:53:57,320 and and he'd be like, Top Top. You got to buy in Kalamazoo 935 00:53:57,320 --> 00:53:59,640 because Pfizer's going there. Turns out he was right. 936 00:54:00,520 --> 00:54:01,480 Right. We own there. 937 00:54:01,480 --> 00:54:04,920 Yeah, there you have it. Oh well, sometimes the abusive 938 00:54:04,920 --> 00:54:07,320 are right. He was something, anyway. 939 00:54:07,480 --> 00:54:09,360 It's my old joke. If I ever get the urge to 940 00:54:09,440 --> 00:54:12,160 exercise, I just set back down the couch and it goes away. 941 00:54:13,400 --> 00:54:15,040 I don't know man. I've I've had good. 942 00:54:15,040 --> 00:54:17,720 I've had good luck with trainers, but not not on my own. 943 00:54:17,720 --> 00:54:20,360 I'm not. I'm not good at self motivating 944 00:54:20,360 --> 00:54:22,320 in the gym. You said you had a tryout for 945 00:54:22,320 --> 00:54:25,880 the Falcons. Yeah, a long time ago I played 946 00:54:25,880 --> 00:54:29,320 at Colorado, played linebacker. I was our fullback for short 947 00:54:29,320 --> 00:54:32,000 yardage and goal line. And so yeah, I was built like a 948 00:54:32,000 --> 00:54:36,120 linebacker, not like a fullback. So that was back in 98, our 949 00:54:36,120 --> 00:54:38,640 Super Bowl year. Unfortunately, I blew out my 950 00:54:38,640 --> 00:54:41,200 neck and know why? Most fullbacks have retired from 951 00:54:41,200 --> 00:54:42,800 the NFL because of a neck problem. 952 00:54:42,800 --> 00:54:44,240 So that sucks. There we go. 953 00:54:44,600 --> 00:54:46,120 Is it still? Playing great experience. 954 00:54:46,120 --> 00:54:49,720 We met some great people, met some stuff, great friends, 955 00:54:49,720 --> 00:54:51,360 investors. Yeah, it's been great. 956 00:54:51,520 --> 00:54:54,520 I've been teaching my kids to respect the full back position. 957 00:54:56,000 --> 00:54:58,720 It's hard to find these. Days when I see him, though, I'm 958 00:54:58,720 --> 00:55:02,200 like watch this guy block because my my youngest, all he 959 00:55:02,200 --> 00:55:05,440 wants to do is talk about quarterbacks and you know he, 960 00:55:05,440 --> 00:55:07,480 but he learns. You know what's helped him a lot 961 00:55:07,480 --> 00:55:10,120 is Madden. Oh yeah. 962 00:55:10,120 --> 00:55:12,400 Like, they actually understand football. 963 00:55:13,440 --> 00:55:15,600 We were watching the playoffs. I was asking them about calling 964 00:55:15,600 --> 00:55:17,800 defenses and stuff and like, they get it. 965 00:55:17,960 --> 00:55:20,160 It's kind of cool. So. 966 00:55:20,440 --> 00:55:25,600 Yeah, we've got a dozen or so a more at, you know, athletes and 967 00:55:25,600 --> 00:55:28,320 not that I'm looking for them, but it's typically the wealthier 968 00:55:28,320 --> 00:55:32,000 ones that have the capacity to make the investments. 969 00:55:32,000 --> 00:55:35,600 And I I found that athletes like real estate because they can see 970 00:55:35,600 --> 00:55:38,880 it and touch it and really understand it versus being in a 971 00:55:38,880 --> 00:55:41,000 private equity fund or something that they don't. 972 00:55:41,360 --> 00:55:44,680 No, But it was always a joke. You know what? 973 00:55:44,680 --> 00:55:47,080 What's the next deal in the locker room that's coming, you 974 00:55:47,120 --> 00:55:52,160 know, being passed around so? Well, better that than than 975 00:55:52,160 --> 00:55:56,160 spending it, right? Yeah, well, many, many of 976 00:55:56,160 --> 00:56:00,400 stories about people spending it and you know, you're you're one 977 00:56:00,400 --> 00:56:02,240 play away from the end of your career. 978 00:56:02,360 --> 00:56:03,600 Yeah. And. 979 00:56:04,040 --> 00:56:06,360 And especially NFL. And that's not guaranteed money 980 00:56:06,360 --> 00:56:07,360 either, right? That's right. 981 00:56:07,360 --> 00:56:12,680 So it's different, interesting. So when you were in college like 982 00:56:12,680 --> 00:56:15,960 how did you start, I know you said you got into financing real 983 00:56:15,960 --> 00:56:20,360 estate like how, how do you go about building 1,000,000 square 984 00:56:20,360 --> 00:56:23,560 foot facility and protecting your own risk, like how do you 985 00:56:23,560 --> 00:56:26,520 structure that deal and where do you learn to structure those 986 00:56:26,520 --> 00:56:28,560 kind of deals? I assume it was on the debt side 987 00:56:28,600 --> 00:56:31,960 mitigating risk, but. When I was in college I was 988 00:56:31,960 --> 00:56:34,800 doing landscaping and decks and fences and stuff like that in 989 00:56:34,800 --> 00:56:36,320 the summer. So I was hiring all my football 990 00:56:36,320 --> 00:56:39,240 buddies to help me out on the on the labor crew. 991 00:56:39,760 --> 00:56:44,800 But there's nothing like real life experience. 992 00:56:45,160 --> 00:56:48,080 You know, my wife was at the University of Denver and a 993 00:56:48,080 --> 00:56:50,880 master's in real estate and when I was in finance and the 994 00:56:50,880 --> 00:56:53,600 professor asked me to come in and talk and my wife's got her, 995 00:56:54,080 --> 00:56:56,600 you know, book and trying to write down like do all and I 996 00:56:56,600 --> 00:57:00,280 said hey, this is an HP12C. This is all you need. 997 00:57:00,640 --> 00:57:03,360 You don't need to memorize just like the Pythagorean theorem or 998 00:57:03,360 --> 00:57:05,920 whatever. You don't need to memorize any 999 00:57:05,920 --> 00:57:10,680 of this stuff, but maybe to answer your question to me, 1000 00:57:11,760 --> 00:57:15,360 experience in the number of transactions you do. 1001 00:57:15,360 --> 00:57:18,800 So like for me on the real estate finance, the number of 1002 00:57:18,800 --> 00:57:23,280 transactions was more powerful than the years in the business. 1003 00:57:23,440 --> 00:57:25,880 It's not about how many years you've been doing something. 1004 00:57:25,880 --> 00:57:28,640 It's about the number of transactions or investments or 1005 00:57:29,000 --> 00:57:31,000 loans that you've made and underwrite. 1006 00:57:31,000 --> 00:57:34,440 Because if it quacks like a duck, it walks like a duck. 1007 00:57:34,440 --> 00:57:38,040 It's probably no No2 deals are ever the same, but there's a lot 1008 00:57:38,040 --> 00:57:41,640 of similarities. And so I've always looked at 1009 00:57:41,640 --> 00:57:44,520 things more in the sense of like, how do we get in trouble? 1010 00:57:44,520 --> 00:57:46,120 Not how much money are we going to make? 1011 00:57:46,760 --> 00:57:50,760 Because I think as soon as folks starts looking at, like, licking 1012 00:57:50,760 --> 00:57:52,760 their chops and saying, hey, here's how much money we're 1013 00:57:52,760 --> 00:57:56,640 going to make, the game's over. It's how do we get in trouble. 1014 00:57:57,080 --> 00:58:00,000 The last thing you ever want to do in one of the most, one of 1015 00:58:00,000 --> 00:58:02,280 the things I'm most proud, we've never done a capital call 1016 00:58:02,280 --> 00:58:04,360 outside of like a fund where you have drawdowns yet. 1017 00:58:04,640 --> 00:58:08,320 But like where a deal was over budget, like we've never had a 1018 00:58:08,320 --> 00:58:11,480 development over budget or we had to do a capital call or 1019 00:58:11,480 --> 00:58:14,280 anything like that. Because again we use lower 1020 00:58:14,280 --> 00:58:17,160 leverage. And I would rather take the risk 1021 00:58:17,240 --> 00:58:20,920 say on a development once we build it and stabilize it on the 1022 00:58:20,920 --> 00:58:24,040 permanent loan and leverage using more leverage there if we 1023 00:58:24,040 --> 00:58:26,800 were going to do it then leveraging up on the 1024 00:58:26,800 --> 00:58:32,040 construction side. So again you get in trouble for 1025 00:58:32,040 --> 00:58:35,440 two reasons, You you're over leveraging your debt comes due. 1026 00:58:35,440 --> 00:58:38,360 So it always comes back down to debt. 1027 00:58:38,360 --> 00:58:43,360 But just observing a lot of folks, developers, you know my 1028 00:58:43,360 --> 00:58:47,320 father-in-law was a huge he doesn't know it but a mentor to 1029 00:58:47,320 --> 00:58:50,960 me in a way and it was his name is Dick Landon I call him the 1030 00:58:50,960 --> 00:58:53,600 Dickisms. He he has these sayings. 1031 00:58:53,600 --> 00:58:55,680 Darren, when the ducks quack feed them, It's like when the 1032 00:58:55,680 --> 00:58:59,200 market's hot sell right, you never get go broke taking a 1033 00:58:59,200 --> 00:59:00,880 profit, you know, things like that. 1034 00:59:00,880 --> 00:59:03,840 And so he'd been through it all. He moved down from Canada in 1035 00:59:03,840 --> 00:59:08,200 1980 with Pat Bolton, the former owner of the Denver Broncos. 1036 00:59:08,200 --> 00:59:11,360 And they were 30 years old, didn't go to high school, he 1037 00:59:11,360 --> 00:59:16,040 didn't had a $5,000,000 in the bank, a $30 million line of 1038 00:59:16,040 --> 00:59:17,880 credit from one of the Canadian banks. 1039 00:59:17,880 --> 00:59:21,680 And they said, hey, pick Denver, Santa Barbara and go work out 1040 00:59:21,680 --> 00:59:23,560 all of our problems in real estate. 1041 00:59:24,000 --> 00:59:28,400 And so he helped me because they were Wheeling and dealing in 1042 00:59:28,400 --> 00:59:31,160 real estate, and then they got in the banking business and the 1043 00:59:31,160 --> 00:59:35,200 SNL crisis hit and then they took their lumps. 1044 00:59:35,400 --> 00:59:40,120 And so he learned a lot and just talking to me at the dinner 1045 00:59:40,120 --> 00:59:42,240 table. And he lives in Denver with his 1046 00:59:42,240 --> 00:59:46,560 wife here as well where where my wife Blake grew up for most of 1047 00:59:46,560 --> 00:59:48,480 her life. And just, you know, just those 1048 00:59:48,480 --> 00:59:51,680 lessons learned from him just talking like the the Dick ISM. 1049 00:59:51,680 --> 00:59:54,520 See, he doesn't realize how many of those sayings like stuck with 1050 00:59:54,520 --> 00:59:56,600 me. I got that cash flows queen from 1051 00:59:56,600 --> 00:59:59,840 him, right. And to this day, I'm always 1052 00:59:59,840 --> 01:00:03,160 focused on how much you you got to have cash as well. 1053 01:00:03,160 --> 01:00:05,880 And like, I wish there were some developments that we didn't 1054 01:00:05,880 --> 01:00:09,280 sell, but it also helped me grow my business more. 1055 01:00:09,280 --> 01:00:12,840 But the cash flow, if there are goals for me, I've always had 1056 01:00:12,840 --> 01:00:14,960 goals around cash flow, not about cash. 1057 01:00:15,560 --> 01:00:18,840 Interesting. So on the Google campus or the 1058 01:00:18,880 --> 01:00:20,920 how like how did you mitigate your risk? 1059 01:00:20,920 --> 01:00:25,640 Do you subcontract all that out? So we have never been a 1060 01:00:25,720 --> 01:00:29,280 contractor ourselves. We thought we were. 1061 01:00:30,160 --> 01:00:33,480 We were going to entitle more residential land and maybe a 1062 01:00:33,480 --> 01:00:37,320 hotel, maybe retail, and we got a call from Google. 1063 01:00:37,760 --> 01:00:42,600 It was like this top secret, you know, it's almost like the US 1064 01:00:42,600 --> 01:00:44,400 government, right? They don't want you to know. 1065 01:00:44,960 --> 01:00:48,840 We ended up signing a a long term lease with them. 1066 01:00:49,400 --> 01:00:50,960 So we did a build a suit for them. 1067 01:00:50,960 --> 01:00:54,560 So with our contractor we had a what's called a GMPA guaranteed 1068 01:00:54,560 --> 01:00:57,640 maximum price. They guarantee a price, they buy 1069 01:00:57,640 --> 01:01:00,240 out the Subs. And one of the things we do a 1070 01:01:00,240 --> 01:01:05,120 little different, a lot of folks, developers don't buy out 1071 01:01:05,120 --> 01:01:07,840 all their subcontracts, they do it over the project. 1072 01:01:07,840 --> 01:01:10,440 Well, if there's a cost inflation you get stuck. 1073 01:01:11,120 --> 01:01:17,840 So we always want to buy out 75 to 80% of our subcontract before 1074 01:01:17,840 --> 01:01:20,640 we break ground. And we actually do the same when 1075 01:01:20,640 --> 01:01:24,640 we make loans to our developers because we don't want them to be 1076 01:01:24,640 --> 01:01:28,880 over budget or get low cost. We also rather than just having 1077 01:01:28,880 --> 01:01:32,280 a lender contingency, we have a lender contingency, we have an 1078 01:01:32,280 --> 01:01:34,760 owners contingency and then we have a contractor as a 1079 01:01:34,760 --> 01:01:37,880 contingent, then we have a joint contingency with our contractor 1080 01:01:38,200 --> 01:01:40,920 that we can agree upon. So if there's cost savings on 1081 01:01:40,920 --> 01:01:43,680 time, so one of the reasons again we always want a cash 1082 01:01:43,680 --> 01:01:49,080 cushion just in case, just just be safe and some people say well 1083 01:01:49,080 --> 01:01:51,880 there's a drag you you raised you know or have more equity 1084 01:01:51,880 --> 01:01:54,040 that's just sitting there. Yeah, but never done it. 1085 01:01:54,120 --> 01:01:58,280 I'm sure if that same person I said hey, I'm you know doing a 1086 01:01:58,280 --> 01:02:00,800 capital call because we're over budget would say gosh, I wish 1087 01:02:00,800 --> 01:02:02,680 you had more contingency or something. 1088 01:02:02,680 --> 01:02:07,120 So we've always again rather play it safe and but that Google 1089 01:02:07,240 --> 01:02:11,720 development, I'd do it again. We sold it to Google. 1090 01:02:11,720 --> 01:02:14,600 There's a whole nother story for another time, but that was an 1091 01:02:14,600 --> 01:02:17,000 interesting process selling to them. 1092 01:02:17,080 --> 01:02:19,480 As well the cat makes sense, right? 1093 01:02:19,960 --> 01:02:24,120 I mean that's I'd I'd built this house and I'd I'd made I was 1094 01:02:24,120 --> 01:02:26,920 really worried about inflation and I signed fixed price 1095 01:02:26,920 --> 01:02:29,840 contracts because I was like look I I'm not I got to know 1096 01:02:29,840 --> 01:02:32,240 what I'm going to spend like I can't just it's an insurance 1097 01:02:32,280 --> 01:02:35,000 policy and and then the roofer came back and he didn't procure 1098 01:02:35,000 --> 01:02:37,840 his stuff and I said, look man I'm not trying to be a Dick but 1099 01:02:38,640 --> 01:02:40,120 we signed a fixed price contract. 1100 01:02:40,120 --> 01:02:41,760 That's your business problem, not mine. 1101 01:02:42,680 --> 01:02:45,680 Well, and you know how many people my sisters, you know, 1102 01:02:46,160 --> 01:02:49,480 hired a contractor and you know they over. 1103 01:02:49,480 --> 01:02:53,320 But I people just aren't. They just don't know. 1104 01:02:53,640 --> 01:02:57,680 But even on a remodel, because it's like, well, until we open 1105 01:02:57,680 --> 01:03:00,480 the walls up, we don't know what we're going to find. 1106 01:03:00,480 --> 01:03:04,200 OK, well, give me a budget and before you go and do the work, I 1107 01:03:04,200 --> 01:03:05,760 need to sign off on it. Right. 1108 01:03:05,840 --> 01:03:10,200 A change order. Like if you give folks, you know 1109 01:03:10,200 --> 01:03:12,960 an open budget, they'll spend it because there is none. 1110 01:03:13,440 --> 01:03:16,440 There's no budget. Yeah, well, I heard a story. 1111 01:03:16,440 --> 01:03:18,880 It's either it's somebody that lives around here, somebody that 1112 01:03:18,880 --> 01:03:21,600 knows lives around, you know, whatever the boat's name is. 1113 01:03:21,600 --> 01:03:25,200 Change order. So I like that, yeah. 1114 01:03:26,000 --> 01:03:27,920 All right, cool, man. Well, is there anything that I 1115 01:03:27,920 --> 01:03:30,520 haven't asked you that you'd like to to talk about? 1116 01:03:30,520 --> 01:03:34,120 And regardless of the answer to that question, if if this is 1117 01:03:34,120 --> 01:03:36,720 close to the end, let people know where they can find you and 1118 01:03:36,720 --> 01:03:39,120 how they can contact you and I'll put it in the show notes. 1119 01:03:39,120 --> 01:03:41,160 Too. Oh, I appreciate. 1120 01:03:41,160 --> 01:03:48,600 Yeah, we're forumre.com happy to help any way I can with folks as 1121 01:03:48,600 --> 01:03:50,520 they're going through their journey in real estate. 1122 01:03:50,520 --> 01:03:54,440 But you know, one of the things that that I was thinking about, 1123 01:03:54,440 --> 01:03:58,360 what would be one wish I had in commercial real estate or 1124 01:03:58,360 --> 01:04:01,560 commercial real estate finance today. 1125 01:04:02,200 --> 01:04:07,480 And Debbie Jenkins who's at Freddie Mac, I have a decent 1126 01:04:07,480 --> 01:04:12,000 relationship with her. And every time I see her in DCI, 1127 01:04:12,000 --> 01:04:16,000 say, Debbie, if there's one thing you guys ever do, please 1128 01:04:16,000 --> 01:04:20,600 come out with a construction to perm financing program for 1129 01:04:20,600 --> 01:04:22,640 Freddie Mac. And I would say the same thing 1130 01:04:22,640 --> 01:04:25,840 to family. If I had a wish construction 1131 01:04:25,840 --> 01:04:30,320 Ware that's one way where I think you'd really get more 1132 01:04:30,640 --> 01:04:35,880 housing built and housing started where where we knew 1133 01:04:35,880 --> 01:04:39,400 where our our insurance policy just like you said about AGMP 1134 01:04:39,400 --> 01:04:43,000 you know locking in those prices if I knew you know and life 1135 01:04:43,000 --> 01:04:45,720 insurance companies do some of that where they can do like a 10 1136 01:04:45,720 --> 01:04:49,480 or 12 year construction perm. But if you had the agency 1137 01:04:49,480 --> 01:04:53,520 backing because it's, you know, let's just face it, we have 1138 01:04:53,840 --> 01:04:56,360 twice as many lenders and multifamily than we do in 1139 01:04:56,360 --> 01:04:58,360 commercial real estate just because we have Fannie Mae, 1140 01:04:58,360 --> 01:05:01,440 Freddie Mac and HUD supported by the US government. 1141 01:05:01,440 --> 01:05:05,240 So HUD is an arduous process to get through on the construction 1142 01:05:05,240 --> 01:05:07,920 side. But if I had one wish for 1143 01:05:07,920 --> 01:05:11,160 multifamily today, it'd be that Fannie Mae and Freddie Mac could 1144 01:05:11,160 --> 01:05:16,560 provide 7 plus year construction perm financing because it really 1145 01:05:17,120 --> 01:05:21,280 it'd provide more lending options to our space and it 1146 01:05:21,280 --> 01:05:26,000 would provide you know lower cost financing to our space as 1147 01:05:26,000 --> 01:05:28,520 well. So that that that's what I would 1148 01:05:28,520 --> 01:05:31,080 probably leave with is my. Wish you may have said this, and 1149 01:05:31,080 --> 01:05:34,320 I apologize if my mind drifted while you're talking, but I was 1150 01:05:34,320 --> 01:05:37,360 thinking like if you had what you're asking for, you could 1151 01:05:37,360 --> 01:05:40,000 almost have like a yield the worst on your project, right? 1152 01:05:40,640 --> 01:05:42,560 That's right. You nailed. 1153 01:05:42,560 --> 01:05:44,040 It yeah, that would be nice then. 1154 01:05:44,040 --> 01:05:47,200 Then you can sort of pencil things out and know where you 1155 01:05:47,200 --> 01:05:50,480 stand. One and look the regulators are 1156 01:05:50,480 --> 01:05:55,120 hammering the banks for you know reserves and what have you and 1157 01:05:55,120 --> 01:05:57,280 so they're just out of the market like the big bulge 1158 01:05:57,280 --> 01:06:00,280 bracket banks are just out. So you have a way for the 1159 01:06:00,280 --> 01:06:04,480 government to get involved and not make it a negative 1160 01:06:04,480 --> 01:06:07,200 involvement, a positive involvement to create more 1161 01:06:07,200 --> 01:06:10,760 housing whether it's the capital A affordable or the little a 1162 01:06:10,760 --> 01:06:12,440 affordable. We're providing more multi 1163 01:06:12,440 --> 01:06:16,000 family housing through these construction programs and 1164 01:06:16,400 --> 01:06:21,120 hopefully somebody from back east is listening and we can get 1165 01:06:21,120 --> 01:06:24,200 something going because it really would make a huge dent in 1166 01:06:24,200 --> 01:06:25,400 providing more housing. Yeah. 1167 01:06:25,400 --> 01:06:27,760 Well, if they don't, then it's up to the private markets and 1168 01:06:27,760 --> 01:06:28,800 the pricing is going to be higher. 1169 01:06:28,800 --> 01:06:30,000 That's right. That's what's happening. 1170 01:06:30,720 --> 01:06:33,400 Yeah, the golden age of private credit, as they say. 1171 01:06:34,760 --> 01:06:36,600 All right, cool. Thank you so much for stopping 1172 01:06:36,600 --> 01:06:37,840 by. It was a great conversation. 1173 01:06:37,840 --> 01:06:38,840 It's been nice getting to know you. 1174 01:06:38,840 --> 01:06:41,240 It was a nice, nice pre call conversation too. 1175 01:06:41,240 --> 01:06:43,760 So when I'm out in Denver, I'm a hit. 1176 01:06:43,760 --> 01:06:46,200 You up? I know you're investing with 1177 01:06:46,200 --> 01:06:49,960 some some local friends here, so congratulations, great group and 1178 01:06:50,400 --> 01:06:53,120 if you ever have time when you're in Denver, I'd love to 1179 01:06:53,120 --> 01:06:54,800 get together with you. So thanks for including. 1180 01:06:54,800 --> 01:06:55,120 Me. Yes. 1181 01:06:55,280 --> 01:06:56,440 Thank you. Have a good one. 1182 01:06:56,440 --> 01:06:58,040 Take care. You too. 1183 01:06:58,360 --> 01:06:58,440 Bye.