Loading summary
Transcript113 lines
- [00:02]
A
Welcome to Real Talk Real Estate discussions with Andrew Kirsch. In each episode, Andrew interviews industry leaders. We'll hear their real time opinions on today's market, their background and unique career highlights and guidance for newcomers to the industry. You can find this show at www.sklarcirsch.com and on YouTube, LinkedIn, Apple Podcasts, Spotify, Google podcasts and more. Now here's the host of Real Talk, Andrew Kirsch. On the next episode of the Real Talk, we have a fantastic discussion with Bill Shop off, the founder of Shop Off Realty. In an era of ultra specialization, Shop off bucks the trend by finding value across all asset classes, from hospitality to multifamily to office to retail to everything in between. It's a great discussion that I had with Bill not too long ago and I know you'll enjoy it. Hello, welcome to another episode of Real Talk. Today, I'm here with my good friend and client, Bill Shop Off. Bill, thanks for joining us. Right, on the first question, I get a wi Fi snag. Bill's in the DFW Airport lounge. So can you hear us, Bill?
- [01:25]
B
I can hear you. Sorry about that.
- [01:27]
A
Hey, that's okay. You know, it's live, it's live podcasting in 2022, so I know that. So thank you for joining us here in DFW Airport lounge. Where, where are you headed?
- [01:42]
B
Headed back to John Wayne Airport, back home. So that's great. Just had a, had a day trip over here for some business.
- [01:50]
A
Quick day trip. I know, not as glamorous as where you've been for the last six to eight weeks. Right.
- [01:56]
B
Far less glamorous, but always happy to come back to Texas.
- [02:03]
A
Fantastic. Well, Bill, I don't think you need any introduction. Founder of Shop Off Realty Investments and one of the largest developers who's based in California. I know your reach is, is, is even wider than California doing deals throughout the United States. And I always like to say that there isn't an asset class that you won't pursue. From land development to vertical construction to, you know, large infill office buildings, retail apartments, you do it all. I mean, how. I guess my first question is really, how do you, with such a wide scope, how are you able to assess what deals and how is there enough time in the day to evaluate all the deals that come into your inbox?
- [02:54]
B
It's a great question, Andrew. I think if I had it over again, I'd probably be like a lot of other people and specialize and just do multifamily or just do Office, but it's how I cut my teeth in the business. When I started the firm 30 years ago, we were buying pools of assets from the Resolution Trust Corporation, the rtc, when they were cleaning up the savings and loan debacle. And I tell people we literally owned everything from churches to synagogues to bowling alleys. And we own a very broad geography. I learned how to understand markets and value. I think at a very quick pace that I, and I got a good intuition for going to places, but now I do it a little bit different. I've got market specialists, you know, I've got people who know certain product type better than other, you know, than other things they do. So if I'm doing a mall conversion, I've got a guy in my firm and he's done that for other, you know, you know, in other points in his career. I've obviously got people who are specialist in the, in the land entitlement business, but construction specialist. So it's now, you know, the firm's gotten, you know, larger in scale. We're, you know, we're 70, 75 people today. And as you said, we do work, you know, heavily concentrated in the, in, in the west and Southwest, but we literally own properties coast to coast. I mean, we own everything from, you know, California, quite a bit in Nevada, you know, up into the Midwest and, and over to Charlotte, North Carolina. So, so you're broad reach.
- [04:32]
A
You must get flooded with emails from brokers across every asset class across every market in the country.
- [04:42]
B
I don't even know. I mean, I get four or 500 emails a day and probably 200 of those are property opportunities. And I, you know, I don't spend a lot, as much time as I used to on that. You know, I've got a couple of acquisition folks and they, they filter through a lot of it. If I see something interesting, I'll, I'll push the email over. The majority of opportunities that we really pursue are story opportunities. And I think the, the, the, the brokers that we do business with understand that that will tackle things that are a little bit different. We tend to do more challenging assets where our pay is better if we can solve a problem. And we've gotten a bit of a reputation for that. I, I guess that's a good reputation, but sometimes it's, you know, gives us pause because we can solve a lot of problems. I'm not sure today we want to solve as many problems. Yeah, we'd like to hit the easy button once in a while, but it doesn't really Happen much.
- [05:45]
A
I don't even think the word easy is in your vocabulary, but what is in your vocabulary is the word yes where you always feel like you can solve problems. Like you said, there's always a. You don't accept no from, from my interactions with you. And you're very creative. And so in doing so many different types of transactions, from development, from value add, from retail to hotel to industrial. Is there a common theme that you see in all of these deals? Is it just the, the, the value that you can create and that's the common theme?
- [06:26]
B
Well, I think, like I said, I think we're a bit of a story buyer. If we, if we see a unique opportunity, I think that's one thing. In the last, you know, probably decade, we've also taken our focus to what I would consider to be better quality assets. You know, probably in, early in my career, I might have followed the early days and I'll, I'll flatter myself to say that I could be anything like him. But, you know, when, when Warren Buffett and Charlie Munger got started, you know, they used to call it their cigar butt theory. You know, they, they buy a, a company at a good price and get the last few puffs out of the cigar butt. And, you know, what they've done is they've changed their theory over time and realized buying better assets and better quality with, with longevity and, you know, some brand awareness that had, you know, what they call a moat around it. And I would say that's a little bit more of what we're trying to do today, where we're looking for very unique assets that we can do something with them that others can't, and they're irreplaceable. Like I've told my team, if I want to buy a stock, I can wait for the entry point. I may never get there. But each. There's no. The share of stock's not unique. There's millions and millions of shares of Tesla, for example, and every share is the same, and whether you buy it on Tuesday or Wednesday, it doesn't matter. But if I want to go buy a redevelopment site, we just bought the Westminster Mall in North Orange County. There's one of them. So if you want to buy that opportunity, there's one of that opportunity, and you have to strike while the iron's hot. And you know, people are like, well, you know, you could have waited. Maybe you bought it cheaper. I said, yeah, maybe I would have bought it cheaper, but maybe I wouldn't have bought it at all. And If I'm buying an asset, in that case, I'm buying an asset that potentially could have a lifetime value to me that we would redevelop and hold in perpetuity. You know, kind of missing it is you can't replace it. So I think we look at different, different investments we make. We look at a little bit differently, but we are, we are value driven. And because we do so many other, so many different property types, one of the things I tell, you know, people that are trying to sell to me or not really the sellers, but the brokers is, look, we're not as smart as some of the other guys because they're specialists. So we just have to buy at a wider margin to make up for, you know, anything that we might have missed or a mistake we might make along the way. Because we're, we're, we're not multifamily geniuses. We're good at it, but we're not, that's not all we do all day long. I think we're really good at it, by the way. But yeah, and I think we do, we do most things really well. And if we don't, if we don't think we can do them well, we probably don't do them at all. And I will say there's a couple things we probably tried to do that we wish we hadn't. You know, over the last 30 years, I mean, I've bought and sold over a thousand assets, which is, you know, in my mind, it's a pretty remarkable track record.
- [09:42]
A
So you've kept a lot of title companies, brokers, law firms busy with a thousand assets. You know, I'm sure no one will ever get mad at being compared to one of the wealthiest people in the world. But when you mentioned, when you were talking about there's very few of these assets like the Westminster Mall, that's exactly what Steve Ballmer said when he bought the Clippers. There are only 30 basketball teams, and if I overspend in his case, maybe it was several hundred million. And people said, what are you doing spending $2 billion on a basketball team when the next person presumably was going to only spend, only spend a billion five or a billion six. He said, there's only 30 of them and I want it. And I wanted to make sure that I got this asset.
- [10:28]
B
So, yeah, I think if you look, if you've got, look, he also wanted to be out of Staples arena and he, he bought the, the forum for 250 million.
- [10:39]
A
Yeah.
- [10:39]
B
That the Madison Square of guards bought for 20 million. So.
- [10:44]
A
Well, he didn't want anyone objecting to his, his, the stadium that he's building down the road.
- [10:52]
B
Yeah, he, look at you. You have a focus and a vision and a, in a dream for your business and you know, you try to build on that. And I think that's what I've tried to do, you know, for the last 40 plus years in business and 30 with shop off realty investments. And you know, look, I'm, I've made plenty of mistakes. I, you know, I, I could go, we could do a whole episode on my mistakes. My worst would say my worst, but the worst ratio. I bought it. I bought a rundown apartment building for $72 million. $72,000. 96 unit rundown apartment building. And I lost millions on that deal. Like how do you buy something for 72,000 and lose millions? I could write a book just on that one. But we did. But I learned a lot from it. And you could throw in the towel and you could say, God, I should never do that again. Or you could say, man, that was an expensive lesson. It was a lot more than going to the best colleges in the country. Let's go create some value with what we learned from it. And we've gone on to do that and we learned a lot from that particular mistake that we made.
- [12:06]
A
Yeah, well, you learn from your mistakes and you gain confidence from your successes. Someone once told me, I want to get into your perspective on today's market and some of the, you know, truly remarkable developments that, that you have going on currently. But before we do all that, I want the audience to, to, to learn more about bill shop off, where you came from, how you got into real estate. So, so I know you weren't born in California, but you don't have an accent, but maybe it comes out after a few glasses of wine. So where are you from?
- [12:40]
B
Well, I actually was born in New York state in western York. And then I moved to Texas when I was five. And, and I, and I lived in Texas from five to 44. Dallas, a little bit in Houston. And, and then in 75, I wandered down the road to Austin, Texas, to this little sleepy town that when I moved there, it was about 200, 250, 000 people and 50, 000 of them went to the university. So the town was the university. It's not that way anymore. I mean the university is important to Austin, but it's not the center of the universe. And I got a couple degrees from the University of Texas. I never intended to go into real estate. I actually got an undergraduate degree in marine biology and I was going to be the next Jacques Cousteau. And I was days away from going to graduate school, getting my PhD and I was like, whoa, this is the wrong pathway. My dad was a businessman, my older brothers were already in business, you know, and I was like, maybe I'll go back. And so I went back and did a year of undergrad and then got into the MBA program in Texas. But even at that I was thinking, I'll go, I'm going to go to Wall Street. I'm going to be an investment banker. That's what I wanted to do. And I actually got a, an offer from Goldman Sachs to be a bond trader, but it was to move to Houston. And at the time my, my then ex wife, then wife, now ex wife was like, there's no way we're going to Houston. I'm like, well yeah, but it's Goldman Sachs. And, and I, and to stay in Austin, the only offers I got were terrible offers. I mean it was 1981. I think the best offer I got, Andrew, was like 13, five a year to be a controller for, for a small business. And they wanted me to pay the, the, the placement agent fee.
- [14:37]
A
You, you had to pay.
- [14:39]
B
They wanted me to pay the fee and I was already making more than that as a part time broker. And I was like, you know what, I'm going to try this real estate gig maybe.
- [14:46]
A
Yeah. What was wrong with Houston in 1980? Your wife then. Wife didn't want to.
- [14:52]
B
Well, she was, she was from New York City. Austin was okay, but Houston was not okay. Yeah, nothing wrong with, but you know, it turned out okay for me. You know, obviously we had some bumps in the road. You know, I've had some successes and failures but you know, in 92, 30 years ago, I founded this company with three partners. And you know, it's, it's an unbelievable story. I mean four of us put $250 in the kitty in May of 1992. And you know, I bought the last partner out in 2004. And I can't remember the precise number, Andrew, but it was in the order of magnitude about 7 or $8 million for his interest in the company. So his 250 did pretty well.
- [15:46]
A
That's a good IRR, good multiple.
- [15:49]
B
And he got a few distributions along the way too. But I will say I got no regrets. I probably overpaid him. But he was, he was a, a very good friend of mine and we remain friends today. You know, We've been friends since we were 18. And, you know, I'm not 18 anymore. I'm, you know, I just got my Medicare card, so. Thank you for paying for my insurance. I appreciate it. And so, you know, so then I. And then I moved to California about 21 years ago. Founded the company in Austin, Texas. Yeah, but I moved to California.
- [16:29]
A
Yeah. What brought you. Why make the move from. From California or from Texas to California?
- [16:34]
B
So we bought a. We bought a number of properties in Southern California, started with a large portfolio from the. From the Resolution Trust Corporation, and then we bought a couple of single assets. And the gentleman that I had working for me at the time that was managing those properties liked my business so much, he decided to make it his own and stole about four or five million dollars from me. And so I came out to clean up the business setting for a little time out at the federal penitentiary. And, you know, I don't think anybody's stolen from me since then.
- [17:09]
A
I understand why you should have a link on your website as to what happened to that guy.
- [17:15]
B
Yeah. But it turned out well for me, even though it was hard. I commuted to California for about three years running, you know, trying to run the assets and clean them up, and I thought I could sell them off. And, you know, being who I am, you know, the deals got bigger instead of smaller, and I bought more. And, you know, in 2001, my family and I decided to make the move. And over time, we actually shut down our Texas operation, and now we're wholly based in Orange county, in Irvine, although I've got employees around the country, but our corporate office is in Irvine.
- [17:57]
A
What was the one or two transactions in your career where once you completed that deal, you sort of looked in the mirror and said, you know, I've made it. I. This feels pretty good. I can. I know I can do this as a living.
- [18:20]
B
There were a number of them. But I'll say, you know, the pivot point for me was in late 1994, we bid. We got qualified. You had to get qualified to bid because we were bidding on a large pool where the rtc, the federal government, you, the taxpayers, everybody on this podcast has been one of my investors de facto, because I made money for them through the treasury or through the FDIC. And we bid on 125 loan portfolio in Texas and the surrounding states. And it was a pretty good sized deal. And I know our bid was less than 100,000 over the COVID bid on a very large transaction. And we had to put up a $600,000 deposit, non refundable. And we had 21 days to close. And I think we needed, there was some leverage provided by the government. I think we needed like 13 million in equity. And, and we didn't have it when we bid and we didn't have it when we put up the deposit. And we had 21 days to get it. And so we started making phone calls and we kind of had a two tier approach was one was try to raise at high net worth and the other was go institutional. And we made a cold call to Credit Suisse at that time, Credit Suisse First Boston. They took the call on a Friday afternoon. They said, sounds great. This will, this will date me, Andrew. I sent floppy disks in FedEx because, you know, there wasn't a way to do large files on the Internet. Sure we do today. And I sent them overnight for Saturday delivery. The guys called us back, you know, Saturday midday and said, look, we'll be in your office Monday morning. If our file review matches your, your model, we're in. And they showed up at, you know, noon on Monday. They shook hands. And I've had a relationship, actually not with the firm, but I, I still do business with the lead guy from that team to this day, since 1994, which I, you know, I think is, you know, for me, remarkable that, you know, we had a, we've had a friendship and a relationship for now 28 years. He, you know, our kids are the same age and we've watched him grow up and, and yeah, so that was one. And then I'd say the other one was my uptown Newport project. I got a chance to buy 25 acres with a semiconductor chip plant in Newport beach back in. I started pursuing it 2009, tied it up. In 2010, I tied up a 26 or $7 million deal for a thousand dollar check.
- [21:13]
A
How did you manage that?
- [21:15]
B
It was a public company and they, they'd been through a failed escrow and they didn't want to do another 8K disclosure. So they entered into what's called an exclusive right to negotiate and we negotiated the purchase and sale agreement. But they didn't sign it. I didn't sign it. But the, but the agreement was, I put up a thousand bucks, I do my diligence and then if I'm ready to go hard, they'd sign the purchase and sale agreement. If they got a better offer in the meantime, they were free to go take it. But they had to pay me a $2 million breakup fee.
- [21:49]
A
Right, that's a good deal.
- [21:51]
B
Thousand bucks versus 2 million. It was a pretty good, that's a great deal.
- [21:54]
A
You'll take that any day of the week.
- [21:57]
B
And, and that project is generated, you know, well into nine figures in profits for, for the, you know, the various investors that have been involved in it. We're still, we're still involved in it today, building out the apartments on it. Ultimately It'll be about 1250 units of apartments and condos.
- [22:19]
A
You hear these stories and, and it's like every next generation feels that it was easier for the prior generation to either meet capital, get deals done, different time period. Do you believe that? Or if you were starting out today, would it be harder? Or is it just the old fashioned hard work meeting people, expanding your network and opportunity will present itself.
- [22:48]
B
Look, I talk to people all the time about this, so let's call it the American dream. You come, you rub two nickels together and you create a business.
- [22:58]
A
Yeah.
- [23:00]
B
It'S, you know, people try to tell me it's dead, and I'm like, look, I just was on a phone call with a guy who came here in 1975 from Vietnam, you know, by boat, family, and you know, he's, he's doing an exchange and he had 26 million in cash as a farmer.
- [23:19]
A
Yeah.
- [23:19]
B
So I tell you, you know, I think it's still there. You know, does it take hustle? Yeah, but, you know, there's more information available today. You got to be faster because, you know, the things that used to be arduous for me to go do, you know, I have to get in a car and drive someplace. Now I get on Google Earth and I look at something and I can make a, you know, I still got to go see the assets, but I can, yeah, I can get pretty far down the road with, you know, research and electronic media and, and you know, I still got to see the neighborhood and get there and touch and feel it and want to, you know, I want to smell the air. You know, I just bought a dairy farm. You want to smell the cow poo and you know, know what it was and what it's going to be and, but I, I, I, I would say, you know, there it's, it's not easy, but it's not harder. Look, look, it's not easy to be successful in business. Look, I'm, I'm mentoring a young man right now who's, who's playing in the NFL like you. You'll talk about a small group of people and you know, I keep reminding him, like, you can't just be great to play in the NFL because there's a lot of great players. You got to be outstanding. You got to be outstanding every day. You got to be better. You gotta be 1% better than the next best guy.
- [24:39]
A
I'm so intrigued.
- [24:40]
B
And that's what I think it is in business. Like, I think it's a simple formula. I'll quote one of my friends when people, every time we're in the paper, one of my friends will, you know, somebody will call this broker friend of mine and say, God damn it, how did, how did Bill do that again? You know, and he said, you know, this is his quote. So I'm trying to put it in the third person, but he says, well, let's see, he gets up earlier than you, he stays up later, he works harder, he might be smarter, and he's completely tenacious and doesn't let go of an opportunity. I think if people came up and did that formula, and I don't think like the intellect is probably the, probably the least valuable of all those things. You know, if it's about smart, everybody in menstrual would be a millionaire. Yeah. And we both know plenty of smart people, people way smarter than you and I. And I think of us as probably, you know, two reasonably intellectual people. And I know, and I know a lot of people are much brighter than me who can't figure out how to make any money because that's, it's just not their DNA.
- [25:43]
A
So do you, do you know how to use Excel in a. Well, let me just start it. Like, do you use Excel person you personally.
- [25:52]
B
I use, I personally use Excel at.
- [25:54]
A
A, at a, at a high functioning level because other real estate people that I know will admit that they, they can turn it on, but that's about it.
- [26:04]
B
Now I'm pretty functional. I still.
- [26:05]
A
You are. I mean, I rely on.
- [26:08]
B
I, I would say five years ago I was probably the number one or two guy in my shop. Wow. Today, Today I'm not. Today I'm not in the top. You know, I might not be in the top 10 in the shop, but my, my high point of my day is when I, when I show a, a shortcut to my. I've got a couple of whiz bang analysts and I can still show them a shortcut they don't know.
- [26:32]
A
Yeah.
- [26:34]
B
Years ago, I actually remember one, One night my wife tells this story, but a new, a new version of Excel came out and I was sitting in the bedroom reading the manual and I was like, you gotta come over here, man. This is amazing. Let me show you. And my wife was like, you're out.
- [26:50]
A
Of your bedroom talk.
- [26:52]
B
Yeah, but I do still, I can maneuver my way around, but I'm not. And I do have a, I do have a skill which is I can tell whether it's whether the spreadsheet is working right or not. Like I can find a bust in a spreadsheet.
- [27:11]
A
You encounter people, and I do on a daily basis. Extremely successful real estate professionals who don't use that technology, don't use Excel and just use the back of an envelope and can tell this will work or not. And they have people that can crunch the numbers. But it's very interesting to know that you, you know, the, the, the head of the company can do this.
- [27:32]
B
I can do it. But I, but I'll, I'll say that I. Mostly about using a yellow pad and a, and an HP12C.
- [27:40]
A
Yeah.
- [27:41]
B
Because I want to understand it at the, you know, the Excel level. But if I can't see it in the static world, you know, I got to put this many dollars in and it's worth this much when it's done. Like if I can't figure it out at that level. And again, I'd go back to quoting my hero, Warren Buffett. He says, you know, look, if you got to go to three decimal points to figure it out, you're probably not smart enough to do the deal because you can make Excel do anything you want it to do. It's like, you know, ARGUS is like the industry standard for, you know, commercial properties. And you know, I would say the average person that the average, for stock people really know it, but the average person that gets ARGUS output thinks that's a real forecast. And I'm like, well, it's not. It's probability theory. Like there's zero chance. What I tell people is there's zero chance that the model I'm using is going to be accurate.
- [28:40]
A
Sure.
- [28:41]
B
The only time it might be accurate is by buying a long term triple net lease deal with, with, you know, long term, you know, financing that, that, you know, self amortizes. Maybe I get it right on that. But anything else, like it's a, you know, it's a, it's a, it's a forecast. And you hope you're better than the weatherman.
- [29:03]
A
Yeah. Who, Who? Well, maybe in LA they're correct, but.
- [29:07]
B
In la, LA is a pretty good place to be a weatherman.
- [29:10]
A
To be a weather first. Absolutely. We did have a little bit of rain yesterday. Remarkably so is the way you capitalize deals the Way you, you get equity seems very consistent with the broad nature of the types of deals that you're pursuing. I mean, you, you have institutional joint venture partners, you have a fund, you have syndications, high net worth. I mean, there isn't a capital formula that you just rely upon like other real estate owner operators. They're all in on institutional JVs or they're all in on their fund. Talk to us about the different types of capital you use and why you use that strategy.
- [30:05]
B
Well, the reason I do it is because once upon a time I had, you know, strictly institutional and I really had one or two relationships. And then, you know, one day I chased a very large transaction for about three years and finally landed it. I had the, I had the Turtle Bay resort on the North Shore of Oahu that I got under contract from, from a Japanese bank for like $65 million. And I took it to Credit Suisse, who was my partner at the time, and they were all in on it. And then they lost $2 billion in a day in a Russian bond trade and business was closed. And I was like, all of a sudden, now I got a deal and I don't have any capital. And so I said, you know, I don't ever want to be dependent on one type of capital. And so I have a multi stooled approach. We raise, you know, a fund through the independent broker dealer channel. We raise single asset syndications through that same channel, but also through family offices and direct high net worth. And then we have our institutional relationships, you know, and over the course of the history of the company, we've done business with about 30 different institutional partners because they ebb and flow. I say, you know, when you go to, you go talk to your institutional partners and you say, what do you guys want? Oh, you know, we're looking for Coca Cola. And I go out and I round up a six pack of Coca Cola and they're like, well, we kind of went Diet Pepsi this week. We filled up our, we filled up our quota of Coca Cola. And so I don't ever want to be shut out of the market because sometimes when they're out of the market is when the best deals happen. And that's what's happened in the last couple of months.
- [31:55]
A
Yeah, let's talk about that. Because that's a big segue to that. Totally. I mean, this summer I feel like the entire institutional real estate private equity world was off in Europe for not just a one or two week vacation, but a six to eight week vacation. I personally thought they'd come back in mid to late August, we'd cross Labor Day, school would be back in session and the private equity folks would say, okay, we got to get to a certain number, we got to deploy a certain amount of capital to make our year end goals and we'd have a normal fourth quarter, which in our business tends to be the busiest quarter of the calendar year. Turns out I was not correct that there is no price discovery. At least what I'm seeing. Institutions have not come back into the market and they're looking one to two quarters ahead and say we may not transact until early to mid 2023. And so people are pivoting. They're still, they're seeing some deals, but there's not a lot of price discovery. So what's your take on today's market as we sit here?
- [33:02]
B
Well, I think, look, the market turned on a dime. We went from we're all in for all your deals to we're not in for any of your deals overnight. Overnight. And I've seen it before. I managed to get a large transaction capitalized, but I can tell you it was arduous. We got multiple term sheets kind of in discussion but never really got them generated. We were buying an industrial piece of land and farmland to industrial over in Mesa, Arizona. I was able to renegotiate the price from 96 million to 70 million. And that made the deal happen. But, but you know, it started with, you know, I had a, I had a, I had a stretch senior mortgage. I had a, you know, I had a, I had a, one of my mez lenders was going to do a rat basically do an all inclusive deal and give us a, you know, stretch senior. And we had some equity to go with it. And that, that didn't materialize. That fell apart. Then they came back and said, well, you know, instead of 65, 70%, you know, we'll do 55%. So then I put some mez behind that. Then my mez decided it actually liked the deal enough that it took over the senior position and I had a, and I had a prep equity piece behind the, behind that. And in six days before closing, the prep equity piece that was 17 and a half million dollars walked and, and we closed on schedule.
- [34:33]
A
That's amazing.
- [34:34]
B
You know, from, from Europe. I was, I was on, you know, I was in, began in Athens when it fell apart and I ended in, in Lake Como and sitting by the lake, I put the deal back together. Started with going back to the seller and asking them to carry a, a Second and then got that agreed to and then my, my group that was originally just going to be MEZ then became the senior, became a super stretch senior and filled the entire gap and that was Mavic out of New York and the guys were awesome. I give them a plug because they went from originally saying they're going to do 22 million to doing what they end up with $81.5 million into the deal. So they funded basically the majority of the cap stack.
- [35:20]
A
I think they've earned a nice bottle of wine out of your wine cellar for the holidays.
- [35:26]
B
I'm going to New York in a couple of weeks for a dinner and I will be carrying something for dinner.
- [35:33]
A
Yes, I had a feeling you would. Well, stressful times, but at least you had a nice view.
- [35:40]
B
Yeah, but it's, you know, look, I think that the market, there's still, there's some deal flow. I will say we're not, we're looking right now but you know, know we, we, we bit off a lot already this year and, and I think we'll close maybe two more transactions on the, on the buy side before the end of the year. We've got a, we've got a, you know, two major sales happening and you know, and knock on wood, those are going to happen. We have a, you know, between them it's, you know, one will happen this year, the other probably happen in Q1, but between them it's about 600 million. And so we're pretty excited about that. And you know, one is a lot of hard money so it's not going anywhere. And, and they, they like their buy and we like the sale. And the other is a unique deal where I'm selling to a, A, a user that's not swayed by the market. They have a, it's a unique asset and they're gonna, they're going to, you know, pay me a pretty significant price tag which could be really good for me because I'll exchange that particular capital. The other's institutional partner capital and we'll just take our money but the other assets, private capital deal and we'll exchange out of it. And we made the deal two months ago and we'll probably close it December, January and my view is we probably made 60, 80 million dollars in savings what we'll exchange into. So it could be for me and it's kind of a life changing number for a transaction that was already heading the right way. And you know, I, I think, you know, I'm going to be able to buy with my exchange Capital, you know, maybe 400 million of assets that you know will cost me 320 and you know, of assets if I bought it in, you know, June or July. So I, you know, I mean, and I'll probably, maybe even better than that because you know, the, the, because you talked about that lack of price discovery. I think my sellers that I'm going to transact with are people who have to sell. And so the people who don't have to sell, they're not in the market right now. I mean I've seen every day, if you read the Real Estate alert every week, people are pulling sales down. There was just a, there was a list of buildings that were on the market in Houston, all different sellers, but it was a couple billion worth of buildings and none of them have traded.
- [38:10]
A
So yeah, yes, sellers still remember short just four or five months ago of what the values were. And if, unless if you have to sell, like in your case, why sell? So when do you think we will see the uptick? Not necessarily the transactional volume that we experienced in 2021 or the first quarter of 2022, but just a normal cycle of real, a normal velocity of real estate transactions. What is it going to take?
- [38:48]
B
Well, I think that I'll go in the danger zone here. I think the Fed will capitulate and interest rates will start moving the other way. And I'll make my bold forecast here. Andrew. Yeah, rates are going to be lower next summer than they are today. I think you'll have a. Conceptually, I hate to make a precise forecast, but I would be shocked to see a 10 year, 250 next summer, maybe even lower because I think the Fed's going to completely overshoot and then their only solution is cut rates. I think it'd be, it'll be second quarter next year because people start entering into deals in the first quarter, they won't really start closing until the second quarter. I think, you know, Q1 you'll see some transactions. I think the first quarter is going to be people who have to transact and the second quarter will be people who can transact in a reality. I mean I remember I was talking to a broker, oh God, probably back in May or June, just as the market started to move, started to shift and you know, they had a deal in escrow and you know, buyer tried to go from a, okay, you know, it's 25 basis point Delta in the retrade and you know, but it was still in like the mid threes on a, you know, an Amazon type deal. And I was like, and they, in the, and the seller decided not to take like a three and a half cap deal. And I said, they're going to regret that for, you know, in the moment. I didn't say it. Six weeks later I said it. I was talking to broker. I said they're going to regret that decision. And, and you couldn't buy that deal. I'm not sure there's a trade for that deal today, but it's got to be, you know, four handle or better even for Amazon I'm getting right now. So I, you know, I think that, look, I've been doing this for a long time. I've gotten kicked around. The good news is, like I said, I've got, I've got some big sales. I, I like the assets we own. We could buy a couple more things. We've got one thing or we've got our eye on one deal, that if, if it gelled, we would buy it. But I, I think, you know, we're gonna, probably gonna take the Christmas season off. I won't be calling you on New Year's Eve Eve like I did a couple years ago. And we're pulling each other's hair out because. Trying to get a deal closed. I think, I think, I think we officially closed the last deal in the Pacific time zone that year.
- [41:18]
A
Look, I remember that vividly. And when you sign up to be in the real estate business or as a real estate attorney, you just know the final few days of the calendar year, it's going to be busy and for tax purposes and. Because sometimes those are when you can strike the best deals.
- [41:36]
B
Yeah, look, we'll, we'll say we're not looking, but I will tell you, I bet in these times of stress or distress, and I'll say we're done for the year. But I can tell you in the last 30 years, I've closed deals more often than not. Probably in the 30 years, I'll bet 25 of those years I've closed a deal in the last week of the year in at least five of those years. Andrew, I've closed a deal in the last week of the year that I wasn't even looking at. The first week of the year, first week of the month, first week of December. So somebody brings me. Somebody bring me. At least your team loves you.
- [42:16]
A
Your team loves you around. Your team loves you around the holidays.
- [42:19]
B
I remember one year I took a, I took a day and I almost got away with the whole call before I said something. My wife thought it might have been a social call and then I slipped something on my side and, and I still catch it. About that call today, that was probably 25 years ago. But look, if somebody calls me with the right opportunity and they call me on December 5th and say it's got closed by the end of the year, there's a price at which I'll go to work. The price is going to feel like I can't lose and I can go get capital to activate. And, you know, my answer is, look, we can always go on holiday, you know, the next week. So I, I think it's, you know, I hate to be so mercenary about it, but it's business and if there's an opportunity that we love, we're going to go to work for it. But I, you know, I think there'll be opportunities here, but it's going to be choppy for a bit. We're, you know, we're likely to go into a recession. I don't, I don't think it's, it's going to be a weird recession because it's, it's driven by, you know, this monetary issue that's, you know, I mean, you know, the stock market was up 800 points today on, you know, some ridiculous news. Just like the other day it went down 600 points because the, because the employment numbers were good. Like, it's why I do real estate, because I don't understand the stock market. Like, I don't get it. At least I understand if a tenant needs my space and he can afford to pay the rent, I can make a living and, you know, or a home buyer wants, you know, a lot, you know, wants a house in a neighborhood we create. So, you know, we're about filling demand for, for a customer. We don't create customers. We just fill demand. And we try, we try to guess where that demand is. We try to look for trends. You know, right now we're doing quite a few retail to other things, conversions, mostly retail to residential. But we are, we have one that we're converting retail to, to creative office. And it's looking like it's going to turn out great. We've got a couple of tenants in line retenanting the city. The city is going to love us because we're taking a, you know, dark space and going to bring life and jobs back to the area. And that feels good about it. I mean, that's the one thing I love about the business. I mean, I've been compensated well, but I love that we get to create and you Know, my, my, my children are both artists. My son's a dancer, although he's, he's now back in school, go get his doctorate in physical therapy. My daughter's an artist. And you know, people like, oh, you know, where'd they get your artistic talent? You don't look that artistic. And I said, well, but I do art, I do art on a pretty big palette. You know, I, it's, it's different, but you know, I get to design communities and places and, and you know, that part's been a pretty fun job. So look, I came into the business by accident. Are you good?
- [45:33]
A
Yeah, continue.
- [45:34]
B
But no, I said I came into the business a little bit by accident and it's turned out to be a fabulous career. And you know, I, I, my, my kids aren't going to come into the business, you know, not really a disappointment for me because like, you got to love this business and, and, and they didn't love it because they saw how hard it was for me. I worked hard, I worked long hours. I still work long hours. You know, I mean, I got to tell you, I had a different vision, you know, what my life would be at my age. You know, I thought I'd kick back and you know, come into the office a couple hours a day and you know, I still work of, you know, I tell people I work half time, I go to work at 7 and I'm done at 7. It's half days. So, you know, you know, I'm kind of only in jest about that a little bit, but you know, I'm pulling back a little bit now, but. Because I've got a great team. But I love the business, so it's, it's been good to me.
- [46:31]
A
Yeah, well, I mean, look, it's great to hear. I mean, you definitely have been a model, not just to me and a role model and mentor, but someone to look up to of how you've just built such a great company. I see how your colleagues and employees feel about you and they work hard because they believe in the overall enterprise value of what you guys are creating. I always like to finish my podcast with a few lightning round questions. So, so quick answers to these questions and then we'll get you on your plane back to Orange County. I mean, you said you're an artist of a different palette, but if you weren't in the real estate business, what would you be doing?
- [47:21]
B
I'd probably be, I'd probably be a full time scuba diver.
- [47:25]
A
I'd be going back there.
- [47:27]
B
I go back to what I didn't do. But actually, you know, I've got a sidelight now. I'll cheat a little bit. I have a biofuels business that I've helped nurture and you know, truly think we got a chance to do our part to save a corner of the planet. So that's probably what I would, I'd spend my days on that if I weren't doing this.
- [47:48]
A
What's the best advice someone has given you? And I think you may have mentioned it already, but.
- [47:57]
B
I think it's been golden rule. You know, it's take good care of people. It's treat them with regard to respect because you never know when somebody's going to be able to help you or hurt you. And so, you know, being good to all people that you come into contact with because they might be a counterparty someday, they might be somewhere in the back of a transaction and be able to help or urge you and I want their help instead of on the other side.
- [48:24]
A
Do you still think about deals that you didn't do and you passed up or do you think more about deals that you did and you're like, ah, I should never have done that deal. And what do you think more about the one that got away or the one that you're not happy that it didn't go away?
- [48:43]
B
That's a tough question. I think a lot about both. But I've got a list of the ones that got away and so I'll give my highlight, my highlight of my number one deal that got away from me. I had the land where SOFI stadium is under contract with a partner and we were going to build the stadium and he, and he was involved in another sporting venture that went badly for him. I'm not gonna, I'm not gonna give too many details because I don't want to give the person away because he's, it's not that it's never been public and you know, a day before we were supposed to wire 10 million hard deposit and close the piece of land, he, he sent an email and said I'm out. So he was gonna, he was gonna build a stadium in order to get a piece of ownership. He did not own a team, but it was somebody who, I mean, everybody on the call would know him, but I'm not going to give it up. Yeah. So that's, that's probably my number one.
- [49:49]
A
Deal that I, well, that, that would take the cake.
- [49:51]
B
Yeah. Because I, because I, I had negotiated, you know, a fee, a success fee for buying and getting entitlement but my number one negotiation was I had lifetime seats on the 50 was part of my contract. And. And I'm a big sports fan, so that would have been nice, a nice thing to have.
- [50:10]
A
So have you been to SoFi?
- [50:12]
B
I have. I've not been to a football game. I'm going to a game in a couple of weeks. My first football game. I saw the Rolling Stones there last year. It's. It's a. It's a. It's an interesting place. I, you know, I, you know, I spent a lot of money for it. I'm not sure, you know, I mean, it wasn't well rated in the. In the stadiums. It was actually rated toward the bottom in a recent rating. I think Allegiant Stadium is cooler for the money. Allegiant was. Allegiant was built for less.
- [50:42]
A
Now, Allegiance, the one in Vegas, Right?
- [50:44]
B
In Vegas, the home of the Raiders. Allegiant was built for less than the cost overruns on SoFi.
- [50:50]
A
That's incredible. And you're in Vegas.
- [50:56]
B
Yeah, I'm in Vegas. Like a little project in Vegas, too.
- [50:59]
A
Yeah. You do dream.
- [51:00]
B
Las Vegas. And everybody. Everybody's welcome to come and lose some money at the casino starting.
- [51:06]
A
When will that open? When can we lose some money and go to a Raider game?
- [51:10]
B
January 2025 will open.
- [51:13]
A
Okay. All right, so we'll.
- [51:15]
B
We'll.
- [51:15]
A
We'll revisit this podcast from your. The hotel lobby. We'll see if your prediction was right with respect to rates. And I just can't thank you enough about how generous you've been and with your time today and. And through the years and our golf games and it's a pleasure to work with you and just to know you personally and to call you a friend.
- [51:38]
B
Well, I would say the same, Andrew. I love that we got introduced to each other. You've been a real asset to our firm and, you know, in addition to, or maybe more important than the work we do together, I enjoy the friendship. And, you know, I think you and your colleagues are super bright, capable folks, and we love working with them.
- [52:00]
A
I really appreciate it. All right, safe travels back to Orange county and look forward to seeing you soon, hopefully on a golf course.
- [52:09]
B
I'll ping you offline about that.
- [52:12]
A
That sounds great. All right, Bill, thank you.
- [52:14]
B
Thanks. Take care.
- [52:15]
A
Take care. Bye. Bye.
- [52:17]
B
Bye.
- [52:19]
A
You've been listening to Real Talk, Real Estate discussions with Andrew Cash. You can catch prior episodes@www.sklarkirsch.com and on YouTube, LinkedIn, Apple Podcasts, Spotify, Google Podcasts. And more. Thank you for your positive reviews, comments and sharing this show with.