MFM Live: New Construction Panel

Listen in on an expert panel of investors who know all the ins and the outs when it comes to building multifamily projects from the ground up. Find out how they tackle the current economic environment, how has the recent increase in building material prices affected them, what are they see in terms of opportunity and much more.

Speakers:
Darin Davis
John Monteiro
Michael Le

VIDEO TRANSCRIPTION

00:01
and we are recording this
00:03
is multi-family masters live
00:06
from multifamilymasters.com we do this
00:10
every two weeks our goal
00:13
is to provide as much content as
00:15
possible free of charge we bring on
00:18
awesome awesome awesome guest speakers
00:20
tonight we have a fabulous panel of
00:22
three
00:23
individuals with a ton of experience i
00:26
will let them
00:28
introduce themselves here in a few
00:29
minutes we are multifamilymasters.com
00:33
what are we we are in the process of
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have is hong kong
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old us and that’s the majority of them
01:00
covet threw a little bit of a wrench
01:02
into that um we came up with this online
01:05
platform it’s worked out really well
01:06
every two weeks we do this um
01:09
me and my two business partners i’m very
01:12
fortunate where i have the best business
01:13
partners in the world mr ferris moosa mr
01:16
pal
01:16
chi together we have a combined 3000
01:19
apartments or so that we
01:21
own and control and have approximately
01:23
30 years of experience
01:24
we want to help you learn share network
01:26
and grow this business
01:28
as best as we can we have a mastermind
01:31
program
01:32
if you are looking to have someone hold
01:34
you accountable if you’re looking for
01:35
someone to look over your shoulder who
01:37
has been there done that
01:38
does it every day all day awesome um
01:41
we want to help you reach out to one of
01:43
us any of our support staff
01:45
can check on our website
01:47
multifamilymasters.com tell us you want
01:49
info on the mastermind
01:50
awesome on top of that this recording
01:53
will be available
01:55
let me hit the admit all um this
01:57
recording will be available
01:59
in our youtube channel tomorrow
02:03
multifamilymasters.com
02:05
if you’re not a member of our facebook
02:06
group get on facebook
02:09
hit the little search on the top type in
02:11
multifamilymasters.com search for our
02:13
facebook group hit
02:14
enter um that’s pretty much all i have
02:17
mr powell mr ferris my name is garrison
02:21
a little bit about me 20 years of
02:22
experience i’m from baltimore maryland
02:26
just trying to learn this business
02:28
trying to grow my portfolio right now
02:29
i’m into about 600 apartments i would
02:31
like to get to 10 000 apartments
02:33
and i come here tonight to learn from
02:35
this expert panel and see how i can grow
02:36
my
02:37
inventory to get on their level bears
02:39
and powell feel free to take it away
02:42
awesome great intro there garrison hey
02:45
uh everybody how you doing my name is
02:46
powell tree
02:47
um i live in los angeles i’m a
02:50
real estate entrepreneur real estate
02:52
investor um all of my investments have
02:54
been
02:54
out of state uh so i started this group
02:57
about three years ago
02:58
and really was it was because i was
03:01
going to a lot of meetups but i wasn’t
03:03
meeting the same people
03:04
that i was i wasn’t meeting the same
03:06
people who had the same interest that i
03:07
had which was really
03:08
investing in multi-family but then also
03:10
investing out of state of california
03:12
and um so formed this group about three
03:15
years ago with about eight people
03:17
and out of that it certainly just
03:20
started blowing up and got got a lot of
03:21
interest got
03:22
regional interest at first in southern
03:24
california then started blow up into
03:26
um into the united states and now
03:28
globally so
03:29
uh super excited about running this and
03:31
having this and the business partners we
03:33
have and the speakers that we’re able to
03:34
bring on
03:35
uh basically every couple weeks and
03:37
where we think we’re going right now
03:40
with multi-family masters so a little
03:42
about me investing wise
03:44
i started investing in multi-family
03:45
about 2017 right the very beginning of
03:47
2017.
03:49
uh there was a small 40 unit building
03:51
that i got by myself it’s in
03:52
indianapolis
03:53
and from there it took me about a year
03:56
later to get my next property which was
03:58
a
03:59
joint venture with about 61 people i’m
04:01
61 61 units and then six people in it
04:04
and um that was also in indianapolis and
04:06
that was in 2018
04:09
and soon after that 2019 was able to
04:12
jump into syndications uh jumped into
04:15
about five syndications on the general
04:16
partnership side so
04:18
a little over a thousand units uh total
04:20
and
04:21
also like right now i just got under a
04:23
contract for another deal
04:25
so super happy about that as well so
04:27
okay that’s cool
04:29
first all right so hello everyone for
04:32
those of you who don’t know me
04:33
my name is ferris moussa a company
04:34
called disrupt equity we primarily buy
04:37
assets throughout texas and georgia
04:38
currently we have about 1500 units that
04:40
we own and operate we’ve sold a few
04:42
um in addition to that we are vertical
04:44
integrated we have a company called
04:45
disrupt management
04:46
we do manage properties kind of
04:47
throughout texas and soon atlanta as
04:49
well so
04:50
that business is continuing to grow and
04:52
um you know for me
04:53
my background software so i used to work
04:54
on microsoft kind of left that had a
04:57
tech company and really
04:58
spent the past several years really
04:59
figuring out how do we apply more tech
05:01
into real estate how do we rethink
05:02
all the norms and kind of disrupt it so
05:04
to speak but
05:06
that’s enough about me you know today
05:07
for those of you that don’t know right
05:09
we’re doing a construction
05:10
panel so definitely excited about this
05:11
one and you know i think a lot of people
05:14
on this call
05:14
usually come from kind of a traditional
05:16
syndication model right
05:18
buying cb value ad properties money’s
05:20
going into them
05:21
you know raising money based on that it
05:23
was obviously the goal of getting
05:24
distributions implementing a business
05:25
plan doing distributions or making an
05:26
exit
05:27
and construction is kind of the the
05:29
scary thing to most people on here so
05:31
we figured you know back to garrison’s
05:33
point about how do we continue to
05:34
educate people how do people continue to
05:36
educate themselves
05:37
well construction is you know i’ve been
05:38
something i’m not an expert in
05:40
learning a lot more in so i was
05:42
personally looking forward to having
05:43
this one
05:44
but it’s you know something that i think
05:45
doesn’t get enough attention because
05:46
everyone thinks it’s the big
05:48
institutional companies that only know
05:51
how to do that right
05:52
where i think you know this call people
05:53
learn that it’s really not just that
05:55
just like apartments right you know
05:57
it’s a group of people doing things
05:58
together kind of with a common goal
06:00
and so with that said we figured you
06:01
know who who not better than
06:03
having john michael and darren come on
06:06
board and so
06:07
maybe i’ll let each of you introduce
06:08
yourself i know michael and john are
06:10
uh what’s the word i’m looking for re
06:12
recurring guests of the show so excited
06:14
to have them
06:15
participate but darren is a newcomer but
06:17
darren comes with a
06:18
wealth of information so very excited to
06:20
have him participate so
06:21
thank you all three for for
06:23
participating and before we kind of kick
06:25
it off right for those of you looking
06:26
for the first time
06:27
right we’ll kind of host it it’s going
06:28
to be very casual so we’ll do that we’ll
06:30
do about another
06:31
30 45 minutes of just open q a i have
06:34
questions and people are welcome to ask
06:35
questions as well so if you have
06:36
questions go ahead and leave them in the
06:37
chat and i’ll go ahead and ask them to
06:39
the audience
06:39
and then um you know after that right
06:42
once we get kind of closer to about 8
06:44
20 central we will basically you know
06:47
kind of wrap up and break out the
06:48
audience into breakout rooms right
06:49
that’s something we’ve been
06:50
doing the past several shows it’s gone
06:52
very well and really the idea is to
06:54
break it out into smaller groups of
06:55
about you know
06:56
seven eight people or you can get to
06:58
know one on one with some of these
06:59
people hopefully some of the guests
07:00
right real estate is absolutely a
07:02
relations business and so something
07:04
where
07:04
you know a big goal of multi-family
07:06
masters in general is to help network
07:08
people help connect people
07:09
how do you connect with that guy with
07:11
the glasses over in maryland how do you
07:12
connect with that guy over that lives in
07:14
l.a that thinks he’s in san francisco
07:16
right so you know getting to know these
07:18
people and kind of networking with them
07:19
and that turns into
07:20
opportunity in relationships and
07:22
hopefully you know growth together
07:24
so with that said that was a long one
07:26
that i totally just kind of thought of
07:27
all that on the spot
07:28
but let’s go ahead and introduce our
07:30
guest so john i want you to go first do
07:32
you mind just kind of giving everyone a
07:33
quick
07:33
just one minute background about who you
07:35
are and
07:36
what you you know who you are where
07:38
you’re located and what you’re currently
07:39
doing
07:40
on the new construction site and i know
07:41
that what you’re currently doing can be
07:43
long
07:43
but just very high level then we’ll
07:44
start to dig into it questions
07:47
yeah before i do i want to know where
07:48
powell got his tan
07:51
it was a bottle orange bottle that’s a
07:54
that’s what happens when you play beach
07:55
volleyball and you sit on the sun too
07:56
long so you could
07:58
that sun just hit you it doesn’t so for
08:00
those who don’t you know you’re nothing
08:02
i think almost every saturday right pal
08:04
saturday and sunday
08:05
we have a saturday morning call and
08:07
after that he gets tired of talking to
08:09
me and garrison and then he goes off and
08:11
see ya time to go play volleyball anyway
08:14
i’m jealous
08:15
um my name is john montero thank you
08:18
garrison powell and
08:19
ferris and the rest of the team to
08:22
have me on excited to be here
08:26
i’m based here in frisco texas which is
08:28
a northern suburb of dfw
08:30
uh moved here in 2009 uh
08:34
in the depths of the last recession so
08:36
here we are again
08:38
we actually moved here for exactly uh
08:40
this type of opportunity in real estate
08:42
um we took a bet on we being my family
08:46
and i
08:46
took a bet on texas and then dfw um
08:50
to uh to take advantage of what we
08:53
thought was going to be a big run-up in
08:55
population and job growth we’ve
08:57
definitely seen that over the last 11
08:59
years that we’ve moved here
09:00
we’re going to continue to see it moving
09:02
forward i’ve been
09:04
in in the multi-family space for about
09:07
six years
09:08
now 3100 doors with other partners and
09:12
investors
09:13
about two years ago
09:16
i started to kind of see that cap rate
09:19
continue to compress between the
09:20
different classes and the cost to build
09:22
versus the cost to buy continue to
09:24
narrow
09:25
so at that point i pivoted and still do
09:28
value-add multi-family in texas but
09:32
also now have pivoted into the new
09:34
construction space
09:36
where we’ve got a couple of projects
09:38
working two of them
09:39
in the dfw area and one down in the
09:42
houston area
09:44
awesome thank you very much john
09:47
always want the knowledge and mr
09:50
michaels so michael’s over here in our
09:51
backyard so
09:52
it doesn’t come out to our office enough
09:54
but michael you want to go ahead and
09:55
introduce yourself as well
09:57
sure hey everyone and thanks again for
09:59
the invite um
10:00
michael lee i’m out of houston as far as
10:03
mentioned uh
10:04
we are local buddies here and and um
10:08
a group here in houston my background is
10:11
in i.t
10:12
um for about 12 13 years i had
10:15
a consulting company here and then about
10:18
six years ago
10:20
started making uh the pivot um
10:23
into real estate uh started out like
10:25
most people
10:26
into the single family side uh quickly
10:30
decided it wasn’t quite for me
10:31
and then jumped onto the commercial side
10:34
uh
10:34
so to date um you know in partnership
10:38
uh from both the gp and lp investment
10:41
side in about 4 500 units i still
10:44
manage uh asset manage uh five uh
10:46
properties right now
10:48
uh and similar to as john said you know
10:51
just
10:51
seeing the the compression between the
10:53
different asset classes and and seeing
10:55
that there’s opportunities
10:57
available on the construction side and
11:00
the deal that john mentioned down in
11:02
houston is a deal that me and him
11:04
are in partners on and so we’ll be
11:06
talking about that a little bit more
11:07
um but it’s a fun space and and uh
11:11
definitely uh eager to share with you
11:13
guys what we’ve learned some
11:16
all right thank you michael and last but
11:19
not least darren you want to go ahead
11:20
and kind of introduce yourself
11:22
again if you guys haven’t noticed all
11:23
those speakers are based in texas i’m
11:24
just going to leave it at that
11:27
hey thank you guys very much for having
11:28
me on um started
11:30
out in real estate and i’ll uh
11:34
differentiate differentiate the two here
11:35
shortly but in 2001
11:37
i was living out in california had a
11:40
couple of
11:41
uh life events that happened we had the
11:44
dot-com crash and i said you know what
11:46
it’s time to go back home and go back to
11:47
texas
11:48
and there was a few events that happened
11:50
and what it did is it put me over to the
11:52
real estate space and then from there we
11:54
started learning
11:55
the upside and value of commercial real
11:56
estate so
11:58
in 2010 we did our first ground up
12:00
development
12:01
and if i can tell you guys anything i
12:03
had never done one before
12:04
didn’t know what i was doing made every
12:07
mistake i could have possibly made
12:09
and i will share a few of those with you
12:10
guys tonight but
12:12
here we fast forward 10 years later we
12:14
still have that asset that’s one of our
12:16
best performing assets today
12:18
so i can’t say enough good things about
12:21
the development space there is
12:23
opportunities there
12:25
talking about what happened in 2008 9-10
12:28
and we’re kind of seeing some of the
12:29
same things happening here
12:30
uh there is i still think there’s a lot
12:32
of great opportunity and i look forward
12:34
to sharing that
12:35
through the q a and what we’ve
12:37
experienced and
12:38
what you should do in my opinion and
12:40
things you should absolutely avoid
12:43
awesome thank you darren and any
12:44
question aaron maybe did kick it off
12:46
darren
12:47
have you done i don’t want to call
12:49
traditional syndication have you done
12:51
value ad syndication before or only kind
12:54
of new construction
12:55
yeah good very good question um and
12:57
there was no really method to the
12:59
madness but
13:00
it we did not do value-add construction
13:02
um
13:03
we kind of went into this not knowing
13:06
what we were doing
13:07
if you can imagine in 2009 when we were
13:09
searching for debt
13:10
nobody was lending okay we could i had a
13:13
term sheet from a very large institution
13:16
to do it to do our first multi-family
13:18
deal and they just called up and said
13:21
sorry withdrawing the term i said
13:23
well you you can’t withdraw the term
13:24
we have a deal
13:25
said kay suess and i said okay what do
13:27
we do
13:28
and at the time and they didn’t really
13:30
say that but that’s kind of the attitude
13:31
that we got
13:33
but at the time a good friend of mine
13:35
said hey have you ever looked into
13:37
hud and i said i don’t even know what
13:39
you’re talking about
13:40
and hud has a development program that
13:43
has
13:44
pretty good leverage and if many of you
13:46
guys will maybe talk about this a little
13:48
bit later
13:49
but that leverage component can be 80 20
13:52
on a new construction project well back
13:54
then
13:55
in 2010 when we were trying to get our
13:57
loan closed 2009 10
13:59
uh hud was the only person lending so we
14:02
packaged up our asset package up the
14:04
details
14:05
actually hired a developer hired a
14:07
general contractor that was
14:08
and both of these guys were more
14:10
qualified
14:11
um and we put it in front of hud and we
14:13
actually received our loan did the asset
14:16
made a few mistakes like i said i’ll
14:18
share some of those with you but
14:19
that put us into the ground up
14:21
development and that’s just kind of what
14:23
we started doing so there was no
14:25
you know conscious decision it’s just
14:27
that was our roots and we felt good
14:28
about it we knew we could do it again
14:29
and again
14:31
awesome and so maybe on that note i mean
14:34
you know to me it’s almost crazy to
14:36
think you know construction was kind of
14:37
the first thing right and so
14:40
i mean maybe my question i don’t know
14:41
how to ask it but really
14:43
why did you think that was a smart
14:45
decision at the time
14:46
versus you know something to me that’s a
14:48
little easier right which is
14:50
something that already exists well think
14:52
about let’s go back to the debt
14:53
the debt answer okay i couldn’t we
14:56
couldn’t
14:57
get debt there was nobody lending and we
15:00
had no choice
15:01
we had almost a million dollars tied up
15:03
into the asset into the property
15:05
of raw dirt architectural plans
15:07
engineering plans
15:09
uh consultants attorneys and and and
15:12
and i think we just looked at it and
15:14
said we have to figure this out
15:16
uh now is it the greatest example i’ll
15:18
share with you tonight
15:19
absolutely not but did we learn a lot on
15:22
that
15:22
and i you know we didn’t really have a
15:24
choice at the time i mean
15:26
there wasn’t if you some of you guys um
15:28
aren’t even old enough to
15:29
i think we’re you know you were still
15:31
doing it 10 years 11 years ago okay
15:33
i mean people were not even the equity
15:35
side of the deal
15:36
i mean it was tough to raise equity just
15:38
common equity
15:40
so we were like raising common equity
15:42
from our friends and family
15:44
trying to secure a debt loan when hud
15:47
was just about the only person lending
15:48
back there all the banks were frozen
15:51
everybody stopped no i i totally agree
15:53
but i guess my question was
15:55
what let you even get to the point where
15:57
you already had a million wrapped up in
15:58
it right that’s maybe
15:59
you know what i’m talking about even
16:00
though let’s take that one out yeah yeah
16:02
um
16:03
you know what we’ve decided to do is
16:07
somebody mentioned it was john mentioned
16:08
cap rates you know i think it’s a great
16:10
example
16:11
if you look today at buying an asset
16:14
in the in the dfw area you guys are
16:17
paying i think
16:18
on an acquisition of a nice b product
16:20
you’re probably paying
16:21
a five cap i i would think we don’t
16:23
really look at the b space that much
16:25
but what we see come across our desk we
16:27
see a lot of four seven
16:28
fives four five five one five two
16:31
depending on the primary tertiary market
16:33
and kind of it’s in frisco versus you
16:35
know somebody
16:36
way far west of weatherford or something
16:38
like that
16:39
but we started looking at that and we
16:41
just decided that you know what
16:43
if we can if we can build if we can
16:46
build it
16:46
and a ca we can build it at a 6’5
16:50
sell it at a 5 on the uh on the yield
16:54
and if we’re competing against a four
16:56
and a half to a five cap rate
16:58
we’d rather get a great location we’d
17:00
rather build a class a
17:01
asset institutional quality and
17:03
something we can hold on for the next
17:05
five to ten years
17:06
uh should we want to we’re a little more
17:08
longer term we never did get into the bc
17:10
space and really
17:12
do the rehabs and the flips uh that
17:14
wasn’t us and again
17:15
that’s just coming back to where our
17:16
first deal was yeah you got to keep your
17:18
hair man you didn’t have to do the cb
17:20
value address
17:21
trust me i know i know you guys a very
17:23
different kind of play
17:24
you guys do the bc’s i i’m i’m amazed at
17:27
how well y’all
17:27
have done and it’s it’s fantastic what
17:29
you guys have done the guys that work in
17:31
it but a lot of what you said resonates
17:33
a lot to me personally right now and
17:34
just in terms of
17:35
you know we’ve been looking at a lot
17:36
more a and b plus assets i mean the c
17:39
value add the cap rates are getting just
17:40
so tight and you’re buying
17:42
really some of these deals are trading
17:43
at four and a half caps right on the
17:45
assumption that you can do the value add
17:47
to get it to a six right and it’s a lot
17:48
of assumptions it’s exhausting so i’ll
17:50
leave it at that
17:51
okay so so really i think the answer to
17:53
my question is just that
17:54
returns wise right it just didn’t make
17:56
sense to you right so you kind of
17:58
pivoted
17:59
yeah if we just we just had a longer our
18:02
investors more
18:03
long term and we looked at cap rates we
18:05
looked at control
18:06
and to us development is not risky okay
18:09
it’s just
18:10
we have a great development team we have
18:12
a great general contractor team
18:14
the general contractor we have ample
18:16
reserves
18:17
general contractors that’s a gmax
18:19
contract the contract is bonded
18:22
um you know we just have a lot of safety
18:25
nets and insurance policies
18:27
in the whole process that allows us to
18:30
feel really comfortable going through
18:31
that process and if you get a good
18:32
development partner
18:33
and a good gc uh they get it done you
18:36
know you’re
18:37
i would never ever encourage anybody to
18:39
try to go off
18:40
and do development construction on their
18:43
own
18:44
the first time unless it’s you know
18:45
something real small and simple
18:47
but small and simple is a four plex okay
18:50
and that’s not what we’re talking about
18:51
here
18:52
you know i there are some really good
18:54
development teams uh
18:55
gc teams all over texas and that’s where
18:57
we that’s where we pretty much stay in
18:59
in the texas market and actually sorry
19:00
and one quick question then i’ll move on
19:02
just so people know what size units or
19:04
properties are you talking about
19:06
so most of our properties and we kind of
19:09
work off anything 200 units or north
19:13
and i’d say 40 million to 55 million
19:16
uh debt and equity through the whole
19:18
thing so we have two projects right now
19:20
that are north of 300
19:22
uh but most of them are in that two not
19:25
low tooth more than the 240 and 280
19:27
range
19:28
perfect thank you very much so maybe
19:30
let’s move on so
19:31
so michael i want to ask you and john
19:34
both of you kind of a different question
19:35
right which is
19:36
obviously both of you came out of kind
19:38
of this the value add space right so to
19:40
speak
19:42
what led you to kind of want to go into
19:44
construction
19:45
and i mean how’s it been right so far or
19:47
is it too early to know right so for
19:48
both
19:49
that’s kind of the question don’t ask so
19:50
michael you want to go first
19:52
yeah sure i mean a a lot of what’s
19:55
already kind of been discussed but
19:57
you know as as darren mentioned you’re
19:58
looking at a b products you know
20:01
80s 90s plus build
20:04
especially in the you know you mentioned
20:05
frisco hot area like that i mean a lot
20:07
of times now
20:09
you’re probably looking at you know
20:10
roughly uh 150 160
20:13
plus a door even uh for these units
20:16
um and so it got to the point where
20:19
you’re beginning to realize on a price
20:20
per square foot
20:22
level um that you’re you’re paying
20:25
uh you know at the same as what you
20:27
could build for
20:28
and it’s a 40 50 year old product versus
20:31
something that’s going to be brand new
20:33
uh so once you start doing that math and
20:35
putting two to two together it’s like it
20:37
just makes sense to at the very least
20:39
explore that so we started exploring it
20:40
more and more
20:42
and seeing that it was still very uh
20:44
viable option for us and it
20:46
you know it wasn’t as you mentioned at
20:47
the beginning it wasn’t as scary as
20:48
maybe we had thought
20:50
initially right got it and then so so so
20:54
far
20:54
right i know you’re earlier in the
20:56
journey how’s it going going is it
20:57
as expected better than expected harder
21:00
than expected
21:02
uh it’s i think it’s uh it’s better than
21:05
expected i think it’s
21:06
uh you know just what we find out is
21:09
finding the right partners as darren
21:11
said you don’t want to come in here
21:13
uh just trying to do it by yourself uh
21:15
bringing in the right teams
21:17
you know we’ve got a good team uh uh
21:20
architects or our civil engineers we
21:22
have
21:22
uh a you know construction uh management
21:26
consultant that’s helping us out
21:28
making sure that we’re doing some value
21:30
engineering where we’re making the
21:32
product looks
21:33
a good a class product but at the right
21:35
pricing right to keep things in order
21:37
uh you know so you just having the right
21:39
team on board will help
21:41
guide you in the right way right yeah
21:45
cool well then john i want to ask you
21:47
the same questions and i’m going to yin
21:48
gang back to mine
21:49
i’m going to ask you another question
21:50
john then go back to michael’s because
21:52
i’m in my head i’m building up kind of
21:53
the pathway for the questions that all
21:55
ties together so
21:56
sure i mean if you look at uh
22:00
you know like a c-class cap rate you
22:02
know call it
22:03
six to eight years ago i mean you can
22:05
get a c-class for a nine to ten cap
22:08
back then uh
22:11
now the c-class and dfw is probably a
22:14
five and a half
22:15
which is which is crazy right and uh to
22:18
darren’s point i mean you could
22:20
basically build
22:21
something for pretty much that that cap
22:23
rate or or even better
22:25
uh and so that that was really what
22:27
caused the pivot
22:29
for for me a couple years ago um
22:32
you know i took a lot of time uh in a
22:35
lot of uh
22:36
research before i jumped in uh just like
22:39
in the value-add space you got to build
22:41
the right team around you like michael
22:43
mentioned
22:44
um and and so that’s what i that’s what
22:46
i did
22:47
um and and with regards to darren’s
22:50
point around
22:50
risk i am extremely
22:54
low risk tolerant in in anything that i
22:56
do
22:57
uh probably because of my age i just
22:59
can’t afford to
23:01
to make bad mistakes yeah you too darren
23:05
and so you know i always kind of think
23:07
about how do i de-risk every deal that i
23:09
get involved in
23:11
and i know that isn’t really answering
23:13
your question
23:14
directly ferris but i think it’s it’s an
23:16
important point
23:18
where um you know i basically look at
23:20
four
23:21
very important risk points in in
23:24
new development and if i can’t check the
23:26
box on all four of those risk points i’m
23:28
not
23:29
i’m not doing the deal and i’ll just
23:31
quickly run through those the first one
23:32
is entitlement risk and i think that’s
23:34
the biggest risk in new development to
23:36
be honest with you
23:37
uh is kind of getting your project
23:39
getting your land through entitlements
23:40
the second one is
23:42
once you’re at entitlements what does
23:43
that capital stack risk look like
23:45
darren mentioned that in his debt
23:47
conversation earlier
23:49
the third one is execution risk and
23:51
that’s really you know making sure
23:52
you’re executing the project as planned
23:55
and finally if you’re going to exit what
23:56
does that exit risk look like
23:58
because you’re going to be delivering
24:00
product three years from now
24:02
uh and and what’s that market gonna look
24:04
like you know none of us know but you
24:06
gotta you gotta take a bet on those four
24:07
items and so
24:08
if you’re able to really kind of de-risk
24:10
the deal really understand your numbers
24:13
build your team around you and just
24:15
heads down execute um
24:18
for us it’s it’s a good opportunity got
24:21
it
24:21
and so then john and then michael do you
24:24
guys mind going through kind of that
24:25
first deal
24:26
right that you did how you found out
24:28
about it right
24:29
obviously you guys had partners how you
24:30
met them and kind of what they look like
24:34
not the partners what the deals look
24:35
like
24:37
yeah michael michael why don’t you go
24:38
ahead and start since you’re the one
24:40
that
24:41
found the deal yeah so um
24:44
yeah so i found the deal probably about
24:46
going on the two years ago now
24:48
uh i think i think uh talking about it
24:52
in
24:52
in this setting is actually very
24:54
appropriate i found the deal by going to
24:57
a networking event and meeting with some
24:59
people
25:00
and actually uh met the son of one of
25:03
our business partners there
25:05
and he introduced me to his father who’s
25:07
now our partner
25:08
and uh this gentleman uh owned this land
25:12
and he’s owned it for i guess five years
25:14
now which kind of goes back to what
25:16
john had mentioned about entitlement
25:18
risk he had
25:19
he bought the land and went through the
25:21
entire process of
25:22
getting the entitlements done getting uh
25:25
utilities and stuff like that approved
25:27
for the
25:28
the property working with the the city
25:30
and the county and whatnot
25:32
so it got to a point where uh
25:35
he had done a lot of the hard work he
25:37
had done a lot of the brain damage
25:38
involved in
25:39
getting all that achieved and we were
25:42
able to come in and kind of get him
25:44
across
25:44
that hump he needed uh he needed someone
25:47
to kind of bring some fresh capital to
25:49
the group
25:50
buy out some minority partners that he
25:51
had and so
25:53
at that point i had reached out to john
25:56
to kind of help me come in and kind of
25:57
vet this deal
25:59
that kind of comes from in john i’ve
26:01
known john for i guess
26:03
four going on five years now too just
26:05
from previous networking events and
26:07
keeping in touch
26:08
uh and and building relationships over
26:10
time so that
26:12
once again being in in a situation like
26:14
we are right here in this
26:16
meet up i think is very appropriate
26:18
because this is kind of where it kind of
26:19
starts and it might
26:20
happen four or five years later you
26:22
don’t know i mean when i first met
26:24
john i didn’t think that this would
26:25
happen but we built that relationship
26:27
over the years
26:28
so i reached out to john um hey john
26:31
come down i’ve got to steal
26:33
i knew that john had already started
26:34
pivoting towards
26:36
development development about a year
26:38
prior to that and so he had a head start
26:40
and so
26:41
john uh you know come in and and use
26:44
your big brain and help me vet this and
26:45
see if this is a good deal or not
26:47
so john i’ll let you take over from
26:48
there
26:50
yeah so so you know we uh we met with
26:53
the developer
26:54
uh and literally
26:57
uh five months of due diligence checking
27:00
the boxes de-risking the deal
27:02
we were able to come up with the right
27:04
structure in the right terms
27:06
to take out the exiting partners to keep
27:08
the
27:09
the developer in the deal and at that
27:12
point where we were in the land was
27:15
you know pretty much close to full plans
27:17
and entitlements
27:19
we had a little bit more engineering
27:20
work to do uh
27:22
and some permitting and so we we
27:25
basically closed the deal
27:27
last september so just over a year ago
27:30
and
27:31
uh one year later we’ve already gotten
27:33
our permits we’re already pushing dirt
27:35
we’re already doing all of our
27:36
horizontal development we can talk about
27:37
what that means
27:38
in a little bit but do all doing all of
27:40
our horizontal development
27:42
and hopefully putting sticks in the air
27:45
in q1 of next
27:46
next year so that’ll be a 302
27:49
unit a-class multi-family property
27:53
in katy texas which is a growing suburb
27:56
west of houston right off of frye road
27:59
46 000 cars passed by the site a day so
28:02
we love the site we love the cost spaces
28:04
that we are in
28:06
uh the deal at and uh we got a great
28:09
deal our great partner
28:10
uh with uh with the group and and
28:13
looking forward to uh
28:14
getting this project rolling and how did
28:17
you guys structure that and syndicate it
28:21
yeah so we uh it was a combination of uh
28:24
a bank a bank loan as well as uh
28:27
friends and family uh syndication to
28:30
finish off the capital
28:31
stack to basically
28:35
take down the land and then kind of get
28:37
us through
28:38
up to this point which is full of full
28:40
horizontal development completion
28:43
where at that point we will convert that
28:45
land loan
28:47
into a uh vertical construction loan
28:50
we we’re not using uh hud as darren
28:53
mentioned uh we’re using a probably a
28:56
bank loan
28:58
we’re using a probably a bank loan we’ve
29:00
got a couple
29:01
uh lenders that we’re talking to right
29:03
now but but just based on where we are
29:05
in the development cycle
29:07
it just made more sense for us to uh to
29:10
move forward with the bank loan
29:11
versus the longer lead times associated
29:13
with hud
29:15
all right yeah for for we looked into
29:18
the hud but the hud
29:19
at the time that we started on it we
29:21
wouldn’t really be ready to
29:23
start going vertical until at the very
29:26
earliest
29:26
july august uh of next year
29:30
and we felt we were ready to kind of go
29:33
now
29:33
and so we didn’t want to wait you know
29:35
save that extra five six months
29:37
uh i mean the terms as darren that
29:40
darren mentioned the terms on the hud
29:42
side are extremely attractive but there
29:45
are some
29:46
some minor downsides to it primarily one
29:48
is just the timeline
29:50
up front if you know if you already
29:52
already
29:53
targeting a piece of land and you know
29:56
um
29:56
that you have a good feeling that you’re
29:58
going to go forward with that that’s the
29:59
time for you to kind of reach out
30:00
without already we were
30:02
a bit too far in the process and weren’t
30:04
well in the way
30:06
all right and so so y’all’s play really
30:08
is rather than do kind of slow drawn out
30:10
how to approach right yours is very much
30:12
fake term short long during development
30:14
then you can either kind of exit the
30:15
asset entirely or
30:17
do a refi into a firm right something
30:19
you know fannie
30:21
right right yeah but yeah but yeah
30:23
believe me the the
30:25
85 loan to cost and the 40 year
30:28
uh amortization on the huds is very very
30:31
attractive we looked at it long and hard
30:33
it just decided not to go that way
30:35
i prefer 90 you know percent
30:37
construction
30:38
uh the value and then i prefer you know
30:40
full term ios but uh i’ll leave it at
30:42
that
30:43
non-recourse uh-huh no yeah for sure you
30:46
know hud is a triangle so
30:47
so darren that’s probably a good kind of
30:50
segue to you right
30:51
the question that i had for you next is
30:53
really
30:55
what are you the deals that you’re doing
30:56
today right
30:58
how do you typically structure them what
31:00
are your equity groups
31:02
you know kind of what do they look like
31:03
right are they friends and family or are
31:05
they not are they mixed right
31:07
and then the third piece is and this is
31:09
where i’m gonna get back to michael and
31:11
and john is you know what you know what
31:14
are their expectations of returns right
31:17
obviously it’s a development play you
31:19
know the land doesn’t produce money
31:20
right for a while so what are you know
31:23
what does that kind of look like to them
31:24
well let me uh share this so we
31:27
typically have
31:28
three major players in every deal
31:32
we typically have a lead developer which
31:34
we will
31:35
co-develop and do a support role there
31:38
we typically have a general contractor
31:40
who um has quite a bit of experience we
31:43
wouldn’t be using
31:44
somebody that didn’t have big
31:46
multi-family experience
31:48
and then we have the equity side and
31:50
that’s really the component where we fit
31:52
in
31:52
so we’ll typically bring 90 100
31:56
50 of the equity rarely do we need less
31:59
than 50
32:01
but what the deals look like is the
32:02
developers
32:04
are the sponsor and we’ll co-develop
32:06
with them typically the gcs are hired
32:09
and then we come in as the equity
32:11
sponsor and
32:13
not much different than what we’re doing
32:16
five years ago what a lot of you guys
32:17
are doing
32:19
um but we focus more on multiple and
32:22
cash flow
32:22
versus irr so when we’re structuring our
32:25
deals
32:27
you know we’re really looking at from
32:29
the equity side
32:30
we’ve got to make sure our equity is
32:32
hitting a a certain
32:33
pref uh and then we typically have
32:36
performance splits after that
32:38
now i will tell you one thing that has
32:39
changed over the last
32:41
seven eight nine nine years uh we
32:43
started making this change a couple
32:45
years ago
32:46
and i think all investors should be
32:48
aware of this
32:49
going into it and i’m not speaking for
32:51
everybody here i’m just talking about
32:52
us because we’re longer terms we used to
32:55
do
32:56
a in in the vc world when you’re
32:58
flipping out of it i think you’ll see
33:00
the
33:00
the difference here but we used to do a
33:03
prep
33:03
plus 100 percent capital um we are now
33:07
doing a prep
33:08
and then we do a split with the sponsor
33:10
and the equity after that
33:12
so we’re no longer structuring our deals
33:15
where all the capital gets paid back
33:17
because if we’re holding a
33:18
longer term and we’re into that fourth
33:20
fifth sixth seventh year
33:22
it may be a long time before the
33:24
sponsors get rewarded for their work
33:27
uh because if we’re so we started making
33:29
that that’s one of the changes we
33:30
started doing on the capitals back
33:32
the other thing we’re seeing quite a bit
33:34
i understand it you’re
33:36
you’re only doing a return of capital
33:38
event on a just on a basically just
33:40
position right on a side
33:41
position right yeah but i mean the ones
33:43
we’re holding you know
33:44
we and all of our investors would go we
33:46
get it we understand we know the model
33:47
we know what you’re doing
33:48
and we want you guys to get compensated
33:50
for what you’re doing the other thing
33:52
we’re seeing a lot of out there and i’d
33:53
like to
33:54
hear from john and michael on this um
33:56
the
33:57
there’s a lot of prep equity out there
33:59
and prep equity
34:00
in the capital stack you know it’s bank
34:02
debt
34:03
prep equity common equity we pretty much
34:05
play in the common equity world
34:07
we do prep equity every now and then but
34:10
we’re seeing a
34:10
ton of prep equity um and the terms are
34:15
fairly egregious but i know people need
34:17
that money the other thing that we’re
34:19
seeing a lot for
34:20
a lot of right now is that we’re getting
34:22
more calls today for common equity
34:24
than i had in the in the four years
34:26
prior um and i think what’s happened
34:29
because of
34:29
uh because of coven is that the common
34:33
equity
34:34
so much of that has either sitting on
34:36
the sideline
34:37
or the um higher net worth people
34:41
um are not as willing to i guess pony
34:45
or come into deals i think they’re still
34:46
kind of waiting to see what happens
34:48
but we’re getting we’re getting really
34:50
good really good opportunities with
34:52
common equity
34:53
and we’re getting better terms with the
34:55
developer of the gc than we got
34:56
two or three years ago and just to
34:58
clarify that you’re getting
35:00
more calls for you to place comedy
35:03
correct
35:03
we’re getting there before you’re able
35:04
to negotiate better deals in general
35:06
correct
35:07
and we’re still and i love john’s point
35:09
i mean you got to do risk these things
35:10
and we’re we’re getting to be a little
35:12
bit selective right now
35:14
which that hasn’t been the case always i
35:16
mean we were hustling
35:17
two or three years ago pretty hard to
35:19
get good terms
35:20
um we’re not so much now we’re getting
35:23
we’re not having to hustle as much
35:25
and we’re getting better terms yeah and
35:28
then maybe
35:28
it’s kind of the last one of my
35:29
questions is your equity
35:31
friends and family private equity family
35:34
office
35:35
institutional everything under the sun i
35:37
mean
35:39
no we we started out with friends and
35:42
family
35:42
then we got into referrals and high net
35:44
worth so we we’ve been tom and i
35:46
by the way my business partners tom
35:48
barnes who
35:50
some maybe most of you have met at some
35:53
of the networking events but
35:54
tom and i started off in the i’ll call
35:56
it the retail space friends and family
35:59
we have migrated to higher net worth and
36:02
referral
36:03
so we have you know we have not gone
36:06
into institutional
36:07
uh we’ve tested the waters with it a few
36:10
times but it’s just
36:11
seemed our model works better with the
36:13
friends and family high net worth
36:15
investors accredited investors
36:17
and tom being a physician he has a lot
36:19
of doctor friends
36:21
that are looking for somebody they trust
36:23
to invest into commercial real estate so
36:26
that network has worked out his 30 years
36:29
and being a physician
36:30
has helped us out quite a bit got it
36:33
awesome
36:34
um so kind of maybe transitioning over
36:36
so
36:38
one of you three who wants to explain
36:39
the life cycle of uh of uh
36:41
of a deal really going from you know la
36:44
you know i have land out in the middle
36:45
of nowhere
36:47
what are the phases that kind of it
36:48
takes right and the reason that’s in the
36:50
middle of nowhere because assume there’s
36:51
no utilities right
36:52
better the people can understand and
36:54
then and then what you know and each
36:55
time
36:56
you’re improving the land right you’ve
36:57
added value but just people can
36:59
understand
37:00
maybe the life cycle and then from that
37:02
maybe
37:03
understanding where you guys typically
37:04
come into that life cycle well here
37:06
i want to say one thing on that i’m
37:08
going to turn it over those guys but
37:09
i’ll i’ll chime in
37:11
here’s one of those mistakes that i made
37:12
that i think john was talking about on
37:14
the d-risk
37:15
uh in today’s world
37:19
we will and i think they have a partner
37:20
like this on the land
37:22
if you can find the right land seller
37:24
that will stay in the deal until you get
37:26
all the entitlements done
37:28
or until you can get to the construction
37:29
loan or the closing
37:31
that’s fantastic i can’t tell you how
37:33
much pressure that takes off of you
37:35
in the beginning of looking at a deal
37:37
one of the biggest mistakes that i made
37:39
on that first one that we did not
37:41
knowing what i was doing
37:43
i got all excited to control the land so
37:44
i went in and bought the land
37:46
so here i am holding a piece of dirt and
37:49
then bam
37:50
2008 2009 hits and i’m sitting there
37:52
going
37:53
what do i do and part of that million
37:55
dollars we were talking about
37:57
was money i had on the land already you
37:59
know it was it was architecture
38:01
engineering land i mean
38:02
interest carry there was a lot on there
38:04
so that’s if i can encourage anybody at
38:06
the beginning of that process
38:08
and that’s just one of the parts in the
38:10
beginning find that right
38:12
land partner it will make your life so
38:14
much easier so
38:15
i’ll turn it over to you guys yeah i i
38:19
100 agree when i was talking about those
38:22
four risk points the first one being the
38:24
riskiest and that’s entitlement risk
38:26
um a lot of people that wanted to get
38:29
into new development
38:31
uh you know buy the land first like
38:33
darren said
38:35
and and hope that you know their master
38:38
vision of of doing
38:39
300 multi-family units uh is something
38:43
that
38:43
city council or or whoever the
38:46
developing
38:47
uh the developer uh you know whether
38:50
it’s the county of the city
38:52
they may not agree with your vision and
38:54
so a lot of people will buy the dirt and
38:57
and get their plans turned down and now
38:59
you know they’re they’re stuck
39:00
so uh i completely agree darren if you
39:03
can partner with either a landowner
39:06
and or a developer that already has
39:08
control of the land
39:09
that is either you know shovel ready
39:11
permit ready or kind of
39:13
on the path to full entitlement uh
39:16
for us that’s what we like to get into
39:18
that’s what michael
39:20
uh brought to the table with this deal
39:22
and katie
39:23
uh and and uh you know that’s that’s
39:25
really where
39:26
uh most of the risk lies in new
39:29
development so
39:30
if you can get past that first risk
39:32
bucket
39:33
the rest of it is is relatively less
39:36
risky
39:37
um but michael i’ll let you talk answer
39:39
the question on the development
39:41
cycle michael they’re they’re hot
39:42
potatoing the question of the life cycle
39:44
of land man you know they’re setting
39:45
up for either success or failure here
39:49
yeah i mean as i said it can be it takes
39:52
a long time and you really have to kind
39:53
of know i guess the jurisdiction
39:55
um you know and all the related uh
39:58
red tape that can be involved you know
40:00
i’ve i’ve spoken
40:02
i was at at a conference i guess a
40:04
couple years ago
40:05
in santa monica talking with a developer
40:07
there
40:08
and he says it takes two years for them
40:10
to get
40:11
uh permits if not more that’s a minimum
40:14
and so there’s businesses of around just
40:17
that where they get landed
40:19
and they’ll they’ll work through that
40:21
two three year period of entitlement
40:23
and then sell it to the developer you
40:25
know at a multi-million dollar
40:27
markup and the developers would do that
40:29
because that does take the risk out of
40:30
the picture
40:31
um in in our particular um
40:35
piece of property um and as i mentioned
40:38
you know our partner had had bought that
40:41
land five years ago
40:42
and at that time there was no
40:44
entitlement there was no utilities
40:46
uh this land was uh infill in the in the
40:49
sense that there are like you know a
40:51
couple thousands houses all
40:53
around it already but uh you know the
40:56
water and sewage plant
40:58
for for those houses were already built
41:00
to suit
41:01
they were built to support exactly what
41:03
you know they already had there
41:05
and now you go and you’re gonna put
41:06
another 500 people that are going to be
41:09
taking showers and flushing
41:10
toilets all day um they didn’t have the
41:14
ability to
41:15
to do that so they had to go through a
41:16
whole process where they
41:18
worked with the local municipal
41:21
municipal utility district
41:23
to actually sell bonds so they could
41:26
raise money
41:27
and expand uh the water and and sewer
41:30
plant
41:31
and as you can imagine that’s a a
41:33
process that’s a long process that takes
41:35
in terms of having to
41:37
put out for vote uh you know from the
41:40
people
41:40
that live there that they’re willing to
41:42
sell the bonds which
41:44
you know which raises their taxes and
41:46
whatnot and then
41:50
yeah it’s a mud yeah so right so this is
41:53
and
41:53
and uh that’s obviously things work
41:56
differently in other locations in texas
41:57
this is the way it works we have muds
42:00
that there are like texts there they are
42:03
entities that can
42:04
tax um for these purposes
42:07
um but yeah it’s a long process uh
42:10
unfortunately for us by the time that we
42:12
got involved
42:13
we got involved one of the reasons we
42:15
did get involved was because
42:17
that was already approved by the local
42:20
mud district
42:21
um and and they even had money assigned
42:24
uh for us in an agreement that
42:27
any money any thing that we put in on
42:30
the property that would be considered
42:32
public works uh to that they would
42:35
reimburse us
42:37
for the cost of those uh those
42:40
sewer lines and water lines that we put
42:42
into the property so
42:44
so those are all things that factored
42:45
into why um
42:47
we felt the the deal was de-risked right
42:50
it was approved and not only that but
42:51
there was money that would cover a lot
42:53
of our costs
42:54
associated with it a million dollars
42:56
worth of mud
42:58
money is coming back to us once we
42:59
finish up the all the public works
43:02
um but to finish off the the question uh
43:05
ferris so the big buckets are you buy
43:07
the land
43:08
you get it entitled then once you have
43:11
it entitled
43:12
you do all your horizontal development
43:13
or some people call it dirt work
43:15
that’s where uh you know you do all of
43:17
your grading
43:19
uh of the land uh that’s where you you
43:21
pull in all your utilities
43:23
uh you build your interior roads and
43:26
then once all of that is completed
43:28
then you get a a construction loan
43:32
where you then go vertical so you go
43:34
horizontal development
43:35
then vertical development then all the
43:38
way up through certificate of occupancy
43:40
and then you go into lease up once you
43:42
go to lease up and get through
43:43
stabilization then you convert from a
43:45
construction loan into a permanent loan
43:48
those are the big buckets all right
43:51
thank you guys very much um and then
43:53
maybe also a dumb question for people
43:55
but i know people probably
43:56
want to know this what does it entitle
43:57
what does entitlements mean
44:01
it basically just means that the
44:04
authority whether that’s the city or the
44:06
county has approved
44:09
uh you know basically your plans
44:13
which includes all of the the vertical
44:16
as well as the horizontal as well as the
44:18
use
44:20
and issues you know permits for you to
44:22
be able to
44:23
to start you know doing your development
44:27
yeah and let me let me add to that i
44:28
mean there’s there’s there’s pseudo
44:30
entities out there too that you have to
44:32
worry about there’s a lot of
44:33
uh you know nimbyism in america not in
44:36
my backyard so
44:38
uh in our case uh we we talked with a
44:41
lot of civic
44:42
groups uh we talked with the local where
44:44
we’re
44:45
we’re a budding right next to an
44:47
elementary school so we talked to
44:48
adisd uh we’ve talked we talked to
44:51
churches we talked to hoas we talked to
44:53
the mud
44:54
board so there’s a lot of groups that
44:57
don’t have direct influence
45:01
but they have indirect influence if you
45:03
have someone loud enough and scares
45:05
enough of
45:06
the politicians involved then that might
45:08
give you trouble too
45:09
so those are all things that can factor
45:12
in into this
45:13
um entitlement piece right
45:17
and so then maybe kind of continuing on
45:19
so if anyone has any questions go ahead
45:20
and dump them i have a million more but
45:22
i want to make sure i get
45:22
people ask questions so we’ll maybe do
45:24
another like seven minutes of let’s just
45:26
say fire round of questions right we’ll
45:27
see how many we get
45:29
and so i’m just going to ask the
45:30
questions either of you three more than
45:32
welcome and hop on and answer it or um
45:34
if not i can pick someone and so uh with
45:37
that said let’s see so
45:39
first question and if you guys have a
45:41
crystal ball go ahead and get it ready
45:42
but do you have any idea when building
45:44
materials will come back to normal
45:45
prices
45:48
i’ll take that one because we’re going
45:49
through it right now so we have a
45:50
project
45:51
down in san antonio that we were just
45:53
about to lock in on
45:55
lumber okay let’s use lumber because i
45:57
think everybody’s when the development
45:59
space is aware of that
46:00
on a three and a half million dollar
46:03
lumber
46:03
contract that we were expecting it went
46:06
up a million eight
46:08
so it is slowed down our process and
46:11
that’s
46:12
a little painful right now so uh that
46:15
million eight
46:15
is now in the last four weeks come down
46:17
to a million four
46:19
and we expect it over the course of the
46:20
next four to six weeks come down even
46:23
more
46:23
but it stopped our project because
46:26
throwing a million eight of additional
46:28
hard costs onto the project um just said
46:31
numbers don’t work can’t taste that
46:33
can’t take that additional risk right
46:34
now
46:35
now we didn’t have any land pressure you
46:37
know from the backside
46:38
uh because we already own the land with
46:40
our development partner so we have a
46:42
little bit of time
46:43
but it is a little painful waiting for
46:45
these prices to come back down but
46:47
they are coming back down on that lumber
46:48
side yeah different scale
46:50
i was at home depot yesterday buying
46:52
some two by fours and i was surprised
46:54
how expensive they had gone i had
46:55
noticed that myself too
46:57
so um went from five dollars to nine
46:59
dollars right
47:00
no i mean i i remember them being like
47:02
you know like less than four bucks and
47:04
they were like five and a half a piece
47:05
and i’m like okay man you know
47:07
anyway so now i feel darren’s pain just
47:10
uh
47:10
not as much pain as he does our estimate
47:14
was like from
47:15
uh something like 2 million up to 4
47:17
million but by the time that we’re ready
47:18
to go vertical we do expect it to be
47:20
back to normal so yeah all right so
47:24
continuing on i’d like to develop in my
47:25
small community we have a housing
47:27
shortage but we don’t have a good pool
47:28
of rental comp
47:29
any suggestions also in general how do
47:31
you figure out if a market is close to
47:33
being oversupplied
47:38
we always start with a market study um
47:42
just to make sure that you know we we’ve
47:44
got the uh
47:46
the demand and the supply you know
47:49
balanced
47:49
in the in to our favor so um
47:53
you know we’ll spend the four to five
47:55
thousand dollars
47:56
uh two to three weeks of wait time for
47:59
us to get a good market study
48:01
uh and that’ll allow us to to make a
48:03
better decision and
48:04
for the most part most lenders and
48:06
preferred equity will require that
48:08
market study as well
48:11
all right and i know we got a lot of
48:13
questions so i’m going to start to blow
48:14
through these so
48:15
um next question what could you what
48:17
sorry what criteria do you have for your
48:19
gc
48:22
for the general contractor yeah would
48:24
you say yeah
48:26
for us we want to know because of the
48:28
size of our projects and
48:30
whether we’re doing conventional hud hud
48:34
hud requires that the contractor can
48:36
bond
48:37
ensuring that they can complete the job
48:39
and that they have a maximum
48:41
amount of the contract so that that’s
48:43
big for us because we’re getting into
48:45
30 million dollar you know construction
48:47
contracts
48:48
on that um so those are the two things
48:50
we really look for
48:52
if it was smaller you know bonding may
48:54
not be as as important
48:56
uh but i you know that that’s just for
48:58
us that’s one thing that we look at
49:00
all right um continue on where are you
49:03
building state and city so
49:05
i’m just going to answer this one really
49:06
quick combination of houston
49:08
austin san antonio dallas where i think
49:11
kind of all speakers are only doing in
49:12
texas any of you guys doing anything
49:14
outside of texas
49:16
just texas all right um so let’s see so
49:19
i’m building in manchester new hampshire
49:21
i have 11 acres under contract in hudson
49:23
new hampshire working on a variance for
49:25
that piece
49:25
okay sorry that wasn’t a question
49:28
how long did the permitting process take
49:30
into the county have limitations on what
49:32
you can build
49:38
say again first uh how long did the
49:40
permitting process usually take and
49:41
are there limitations from the county
49:43
that’s maybe the question
49:46
we i’ll tell you what we do we and these
49:49
guys have actually gone through
49:51
the process more than we typically would
49:53
we find the developers that have
49:55
or the landowners that have already gone
49:57
through that that process of entitlement
50:00
and that process can take years i mean
50:03
it can take a year it can take two or
50:05
three so
50:06
from the beginning if you’re starting on
50:08
your own i would be very cautious about
50:11
expecting it to happen in a few months
50:13
or more um
50:14
if you’re taking a raw piece of land and
50:16
you’re taking it all the way through the
50:17
entitlement process
50:19
depending on which city which county um
50:22
you know what neighborhood associations
50:24
have to say what demand is
50:27
all kind of things it could take up to a
50:28
couple of years
50:30
yeah i mean in our case are our
50:33
properties
50:34
out of the city limits is in the county
50:36
the county has less
50:38
restrictions in that regards even though
50:40
we try to kind of stick to
50:42
the guidelines of the city uh for the
50:44
office chance at some point the city
50:46
might annex for a piece of land you know
50:48
houston is
50:49
known to do that um but yeah i mean the
50:52
the process could be
50:53
involved multiple things i mean we had
50:56
to work with the uh
50:58
you know being in houston we had to work
50:59
with the harris county flood control
51:00
district to make sure
51:02
that the land met all of the uh
51:05
requirements that came about from fema
51:08
after hurricane harvey happened so
51:12
a lot of the the flood zones were were
51:15
redrawn a lot of the requirements of
51:18
getting you know your land outside the
51:21
100 year
51:22
flip plane and and your actual pad sites
51:25
you have to build you feed above the 500
51:27
year floodplain
51:28
so all of those things we had to get
51:29
with our civil engineer who had to bring
51:31
in their
51:32
special hydrologists who then would work
51:34
with the counties
51:36
the flood control districts uh engineers
51:38
to kind of
51:39
get everybody to agree on it um how much
51:42
you know we had to build a two and a
51:44
half acre detention
51:46
pond uh that you know that required us
51:48
to
51:49
get 5 000 truckloads of dirt out there
51:51
and these are all numbers
51:53
uh that that both our field engineer has
51:56
to agree with on their side and and it’s
51:58
not a black and white there was a lot of
52:01
uh you know you know give and take you
52:04
know we would we would
52:05
they would they wanted to take whole
52:06
slaws of land for right-of-ways
52:08
uh that that would have cut right down
52:10
in the middle of some of our buildings
52:12
and so we had to push back on that they
52:14
agreed so
52:16
it’s not like they just come in there
52:17
and making unilateral decisions there’s
52:19
a lot of back and forth
52:21
in that regards and that goes to having
52:23
the right partner
52:24
we had uh you know our civil engineer
52:27
who
52:27
who used to work in in the flood control
52:30
district and was very familiar with that
52:32
uh and and knew a lot of the people on
52:34
that side of it so there’s some politics
52:36
you know that comes into play in that
52:38
sense too of just
52:39
uh trusts and and understanding how to
52:42
work the system
52:44
all righty so let’s keep going then so
52:46
here’s a question that i think that
52:47
darren this is uh for you this
52:49
interesting question but since you kind
52:50
of do more on just the
52:53
the just the equity piece uh what are
52:55
the typical negotiation deal points you
52:57
negotiate in the developer slash gc
52:59
contracts
53:00
oh for the developer and the gc so i
53:03
guess you know the gc contract well
53:05
so one thing that we always
53:08
so the general we have a gmax that’s you
53:10
know guaranteed maximum contract so we
53:12
know that the general contractor is not
53:15
going to spend more than that and if
53:16
they do they’re responsible for it
53:18
contractually
53:19
okay and and there’s things that i think
53:22
people
53:23
should always consider there’s a thing
53:25
called retainage okay
53:26
holding money back until the actual
53:29
architect
53:30
the lender uh has all verified that the
53:33
work has been
53:34
uh the materials were bought and the
53:36
materials were
53:38
put on site and they were applied
53:39
correctly you know there’s little little
53:41
checks and balances like that
53:43
on the developer side if the developer
53:45
feels to say is a million dollars on one
53:47
of our projects
53:49
there’s part of it that comes up at
53:50
closing of the contract
53:52
and then at certain percentages of
53:54
construction completion you have these
53:56
stages where you pay them
53:58
so you may have four or five where you
53:59
got a big a big piece of it at the end
54:02
when you actually go through um like a
54:04
certificate of occupation
54:06
you know when you do the co uh something
54:08
like that so you know we put all these
54:10
little milestones in all the contracts
54:13
to ensure performance uh so and there’s
54:16
all different ways to structure
54:17
on there now we also will look at a
54:20
development team
54:21
and when i mentioned we make codevelop
54:24
the development team may not be as
54:26
robust as we think they should be
54:28
and we will actually interject ourselves
54:30
into the development
54:32
team contract with one of our people for
54:35
roles and responsibilities
54:36
and it may be something as simple as um
54:40
we have one as simple as uh quarterly i
54:43
mean a monthly reporting
54:44
you know and that costs us to do that uh
54:47
and we have another one that
54:48
is reporting and we do all the
54:50
accounting uh this team we didn’t think
54:52
had a strong enough accounting team
54:54
and we wanted to make sure that we were
54:56
bringing all the equity that we were
54:58
accounting for all the numbers on on a
55:00
weekly basis
55:01
so there’s a lot there’s a lot of little
55:03
things you can put in there but those
55:04
are a few of them interesting
55:05
all right all right i know i’m running
55:07
short on time so we’ll only do a few
55:08
more questions so i’m going to
55:10
skip over some questions that i think
55:12
we’ve either answered or kind of
55:14
don’t apply but um here’s probably a
55:15
good one how do you find a land partner
55:17
other than just going to networking
55:18
events and hoping one attends and what
55:20
percent
55:20
of the returns for the deal should you
55:22
expect to give the land partner
55:24
right so really it’s how do you find a
55:26
land partner and how do you structure
55:27
them into the deal
55:31
not all at once okay we’re doing one
55:34
right now okay
55:35
i’ll give a quick example maybe maybe
55:37
yeah two people can answer this one so
55:38
all right there you go i’ll make it
55:40
quick because i want these guys to
55:42
share about theirs i’m curious to theirs
55:44
so
55:45
we have a gentleman that is putting in
55:48
the land
55:49
the land is valued at 3.4 million
55:51
dollars he brought it all the way to
55:53
entitlement
55:54
he’s now handing it off to us he’s
55:56
bringing his 3.4 million
55:58
is an lp position and it’s going to sit
56:01
in the deal and we’re going to it’s
56:02
going to earn
56:03
the same amount of money that all the
56:05
rest of the new money coming in the deal
56:07
will earn
56:07
he wanted long-term cash flow uh he’s in
56:10
his 60s he’s going man i want to set it
56:12
and forget it
56:14
he knows the area really well so he did
56:16
entitlement
56:17
contributing the land that’ll act as
56:19
part of the lp contribution
56:21
he’ll get the same returns as everybody
56:23
else and third party appraisal
56:25
yes yeah and he probably bought it for
56:27
half that but he did all the entitlement
56:29
work yes
56:31
after he got entitled to argue
56:34
is that usually just straight up it’s
56:36
what the number says or is there a
56:37
little bit of negotiation because i was
56:38
actually wondering
56:39
there’s a little bit of negotiation yeah
56:40
but i mean it’s pretty you’ve got to
56:41
keep it pretty real
56:43
is a third party you know appraisal says
56:45
it’s worth 3.5 look we’ll give you three
56:47
you know
56:47
we’ll bring you in at three point seven
56:49
and call today right kind of
56:50
right yeah i mean because of the amount
56:53
of time that extra hundred and two
56:54
hundred grand for us
56:55
and not having to do all that work for
56:57
two years worth every day of it
56:59
awesome all right and john you wanted to
57:01
change that too
57:02
yeah i would say it’s the same structure
57:04
so again the developer
57:06
or the landowner we always want to keep
57:08
them in the deal
57:09
so they have skin of the game and again
57:12
depending upon
57:13
their uh experience they either come
57:15
across
57:16
uh as co-partners co-gps or in a limited
57:20
uh partner capacity and same thing their
57:23
their contribution is typically the the
57:26
the value-added land as part of their uh
57:29
as part of their ownership
57:31
and in terms of finding deals uh you
57:34
know
57:35
michael said it early you just never
57:37
know what conversation
57:38
what meeting what what networking event
57:41
is going to lead to a deal
57:43
um yeah you know you just kind of put
57:46
yourself out there
57:47
you know i’m and that’s what it works
57:52
i’m in texas i don’t do deals outside of
57:54
texas
57:55
if you got a deal let’s have a
57:57
conversation that’s why john’s here
57:59
right so i thought john was here because
58:00
he wanted to talk to me pal and garrison
58:02
but i think
58:03
you’re looking for developers and land
58:05
owners so
58:07
yeah awesome guys well i think you know
58:09
i want to be respectful of everyone
58:11
everyone’s time so we’ll go ahead and
58:12
call it a wrap there for those of you
58:13
that ask questions i didn’t answer i
58:14
apologize
58:16
you uh probably you know click on it for
58:18
a little bit longer but
58:19
you know thank you guys very much really
58:21
appreciate it i mean
58:22
great information i learned a lot
58:24
usually i don’t learn as much and this
58:25
one i think is probably learned more
58:26
than any other panel so
58:28
darren michael john thank you guys very
58:30
much you guys are welcome to stick
58:31
around
58:32
um can you guys go ahead and leave your
58:33
contact information into yeah michael’s
58:35
already michael’s on his a-game go ahead
58:37
and leave your contact information in
58:38
the chat
58:38
you know in case you want to shout out
58:39
to you guys i mean i’m sure people might
58:41
be interested in
58:42
you know you guys are welcome to stick
58:43
around we will do breakouts now where
58:45
we’ll break out the audience into
58:47
you know groups of about i don’t know
58:49
powell what do you think says let’s do
58:50
eight
58:50
people sell let’s actually just through
58:53
six people
58:54
so groups are about six seven people and
58:57
you know people can kind of network it
58:58
to know each other maybe you run into
58:59
one of these guys maybe
59:01
one of you guys are a land developer and
59:02
you run into these guys you never know
59:04
right and if a deal does happen
59:05
mfm you know basically would like to
59:07
take about ten percent of the net
59:08
profits after you guys have done no i’m
59:10
kidding
59:10
but you know we hope you guys meet
59:11
someone interesting somewhat exciting so
59:13
definitely i didn’t know the m it was
59:15
standard for multi-level marketing
59:17
that’s
59:17
actually right awesome
59:21
thank you guys so much real quick we’re
59:23
about to enter breakout rooms
59:25
we are multi-family masters live if
59:27
you’re interested in learning sharing
59:28
networking
59:29
growing this business reach out to
59:31
ferris powell myself
59:32
bethany smith anyone on our team check
59:34
out our website
59:36
multifamilymasters.com for information
59:38
on our mastermind
59:40
we do this every two weeks if you’re
59:42
interested in becoming a local expert
59:44
if you’re interested in hosting your own
59:46
meetup reach out to us we would love to
59:49
help you
59:50
we have a turnkey system for meetups we
59:52
have 70
59:54
or so meetups across the globe
59:57
we definitely want to have one in your
59:59
town in your city i just hit
60:01
uh the breakout rooms we will be doing
60:03
that in about 50 seconds or so
60:06
if you missed any of this recording
60:09
wealth of information
60:10
feel free to check us out on our youtube
60:12
channel multi-family
60:13
multifamilymasters.com check out our
60:15
facebook group
60:16
multiple garrison real quick how long
60:19
are we going to be in the breakout rooms
60:20
for so that people know
60:21
five eight minutes we’re running a
60:23
little bit late and then i’m gonna let
60:24
the channel open
60:25
and you guys can network together
60:27
afterwards one two
60:28
three hours five minutes however long
60:30
you want this is all about
60:32
networking we are a meetup organization
60:34
that knows everything and anything about
60:36
multi-family real estate awesome
60:51
you