Speakers:
Darin Davis
John Monteiro
Michael Le
VIDEO TRANSCRIPTION
00:01
and we are recording this
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is multi-family masters live
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from multifamilymasters.com we do this
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every two weeks our goal
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is to provide as much content as
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possible free of charge we bring on
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awesome awesome awesome guest speakers
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tonight we have a fabulous panel of
00:22
three
00:23
individuals with a ton of experience i
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00:28
introduce themselves here in a few
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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
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program
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you accountable if you’re looking for
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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
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us any of our support staff
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01:50
awesome on top of that this recording
01:53
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01:55
let me hit the admit all um this
01:57
recording will be available
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in our youtube channel tomorrow
02:03
multifamilymasters.com
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if you’re not a member of our facebook
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group get on facebook
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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
